Economy of Israel

The economy of Israel is highly developed, characterized by a free-market system. Israel boasts a sophisticated welfare state, a powerful modern military believed to possess a nuclear-weapons capability with a full nuclear triad, modern infrastructure comparable to many Western countries, and a high-technology sector competitive with Silicon Valley. It ranks second globally in the number of startup companies, following the United States, and third in the number of NASDAQ-listed companies, after the U.S. and China. Notably, American giants like Intel, Microsoft, and Apple have established their first overseas research and development facilities in Israel. Additionally, over 400 high-tech multinational corporations, including IBM, Google, Hewlett-Packard, Cisco Systems, Facebook, and Motorola, have set up R&D centers across the country.

Top Sectors in Israel

Agriculture in Israel

2.4% of the country's GDP is derived from agriculture. Of a total labor force of 2.7 million, 2.6% are employed in agricultural production while 6.3% in services for agriculture. While Israel imports substantial quantities of grain (approximately 80% of local consumption), it is largely self-sufficient in other agricultural products and foodstuffs. For centuries, farmers of the region have grown varieties of citrus fruits, such as grapefruit, oranges, and lemons. Citrus fruits are still Israel's major agricultural export. In addition, Israel is one of the world's leading greenhouse-food-exporting countries. Israel also produces and exports flowers and cotton. The country exports more than $1.3 billion worth of agricultural products every year, including farm produce as well as $1.2 billion worth of agricultural inputs and technology.

Banking and Finance in Israel

Israel has over 100 active venture capital funds operating throughout the country with US$10 billion under management. International foreign funds from various nations around the world committed over 50 percent of the total dollars invested exemplifying the country's strong and sound reputation as an internationally sought after foreign investment by many countries. Israel's venture capital sector has rapidly developed from the early 1990s and has about 70 active venture capital funds (VC), of which 14 international VCs have Israeli offices. Israel's thriving venture capital and business-incubator industry played an important role in financing the country's flourishing high-tech sector.

Travel and tourism in Israel

Israel is a major tourist destination, especially for those of Jewish ancestry, with 4.55 million foreign tourists visiting the country in 2019 (about one tourist per two Israelis), yielding a 25% growth since 2016 and contributed â‚ª20 billion to the economy, making it an all-time record at that time. The most popular paid visited site is Masada.

Israel - Key Economic Indicators

Exports and Imports

Exports in 2023 amounted to $125 billion, dominated by high-tech products, pharmaceuticals, and agricultural goods. Meanwhile, imports totaled $150 billion, driven by machinery, raw materials, and consumer goods. This resulted in a trade deficit of $25 billion, underscoring the importance of enhancing export competitiveness and reducing import dependency.

Infrastructure

Israel boasts modern infrastructure comprising highways, bridges, and railways, facilitating efficient movement of goods and people across the country. Investment in infrastructure has been substantial, with an average annual allocation of $10 billion in the past decade, ensuring continued development and connectivity.

Balance of Trade

The country faces challenges due to its trade deficit, necessitating efforts to boost exports and reduce reliance on imports for a more favorable balance. Strategies focusing on promoting key export sectors, enhancing trade agreements, and fostering innovation are imperative for addressing this imbalance.

Fiscal Policy

Israel's fiscal policy prioritizes government spending in critical areas such as education, healthcare, and defense, with expenditures accounting for approximately 35% of GDP. Tax policies are crafted to balance revenue generation with fostering economic growth and social welfare, ensuring sustainable development and equitable distribution of resources.

Monetary Policy

Managed by the Bank of Israel, monetary policy actions, including setting interest rates and regulating the money supply, aim to maintain price stability and support economic growth. In 2023, inflation remained stable at an average rate of 1.8%, contributing to investor confidence and economic stability.

Trade Agreements

Israel's trade agreements, including those with the European Union, facilitate market access and promote trade relations, bolstering economic development and diversification. Continued engagement in regional and global trade partnerships is essential for expanding market opportunities.

Environmental Regulations

Israel upholds stringent environmental regulations to mitigate pollution, conserve natural resources, and promote sustainable development. Measures include reducing carbon emissions, protecting biodiversity, and promoting renewable energy sources, aligning with global efforts to combat climate change and ensure environmental sustainability.

Tax System in Israel

Capital Gains Tax: Generally 25% on profits from investments.
Corporate Tax Rate: Standard rate of 23%, with potential reductions for certain sectors.
Sales Tax: Value-added tax (VAT) of 17% applied to most goods and services.
Property Tax: Varies depending on location and property type.
Payroll Tax: Up to 35.5% split between employer and employee contributions for social security.
Tax Deductions And Credits: Offered to incentivize investment and social contributions.
Tax Compliance: Considered efficient, with a World Bank score of 75 (on a scale of 0-100).
Tax Burden: Moderate, around 32% of GDP.

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