guide israel

8/11/2019 Guide Israel

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IsraelPrepared by Lex Mundi member firm,S. Horowitz & Co.

Guide to Doing Business

Lex Mundi is the worlds leading network of independent law firmswith in-depth experience in 100+countries. Through close collaboration,our member firms are able to offer their clients preferred access to morethan 21,000 lawyers worldwide a global resource of unmatched breadthand depth.

Lex Mundi the law firms that know your markets.

This guide is part of the Lex Mundi Guides to Doing Business series whichprovides general information about legal and business infrastructures in

jurisdictions around the world. View the complete series at:www.lexmundi.com/GuidestoDoingBusiness.


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AAAGGGUUUIIIDDDEEETTTOOODDDOOOIIINNNGGGBBBUUUSSSIIINNNEEESSSSSSIIINNNIIISSSRRRAAAEEELLL

Prepared by:

31Ahad Haam Street

Tel-Aviv 65202

Israel

Tel: +972 3 567 0700

Fax: +972 3 566 0974

E-mail: [email protected]


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FFIIRRMMOOVVEERRVVIIEEWW

Founded in 1921, S. Horowitz & Co. is one of Israels leading and largestcorporate and commercial law practices. It is a full-range law firm, comprising ofover 110 fee-earners, many of whom are multilingual and have qualified and

practised as lawyers in the United States, England and South Africa. The firm iswidely known for the breadth and depth of its expertise and experience,including in mergers and acquisitions, joint ventures, banking, dispute resolution,venture capital, commercial law, intellectual property, information technology,project and asset financing, energy and infrastructure, capital markets, financialservices, telecommunications, biotechnology, antitrust, tax, real estate, labourlaw and environmental law. S. Horowitz & Co. has been recognised as being aleader or first in its field in Israel by all the leading directories.

LLIIMMIITTAATTIIOONNSSOONNSSCCOOPPEEOOFFTTHHIISSGGUUIIDDEE

By its nature, this Guide is merely an overview and is intended to highlightissues for general information purposes only.

Because of the many issues discussed and the frequent changes in laws,regulations and procedures, this Guide should neither be construed as offeringlegal advice nor as a substitute for obtaining proper legal advice. This Guidecannot be relied on for legal advice and use of this Guide does not create anattorneyclient relationship. Anyone wishing to do business in Israel or wishingto obtain particular information regarding any aspects of Israeli law or other

commercial considerations, should first consult with a qualified Israeli lawyer forspecific updated advice and/or information.

Accordingly, the information contained herein is not comprehensive and shouldbe used for guidance purposes only. No liability whatsoever with respect to theinaccuracy or otherwise of any information contained in this Guide is acceptedby S. Horowitz & Co.

This Guide was prepared during 2011 and, with the exception of all mattersconcerning and references herein to tax, which have not yet been updated anddo not necessarily reflect current law, and unless specifically stated to thecontrary, this Guide is intended to be accurate as of January 2011. For more

updated information on any of the topics discussed in this Guide, or with regardto any other information on Israeli law, please contact the following individuals:

Alex Hertman, Adv. ([email protected])Tal Band, Adv. ([email protected])Avi Ordo, Adv. ([email protected])S. Horowitz & Co.31 Ahad Haam StreetTel-Aviv 65202, Israeltel: (+972) (3) 567 0700fax: (+972) (3) 566 0974


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CCllaauussee PPaaggee

1.

THECOUNTRYATAGLANCE ........................................................................ 1

1.1.

Languages ..........................................................................................................1

1.2.

Rate of Exchange ...............................................................................................1

1.3.

Geography, Neighbouring Countries and Climate ...............................................1

1.4.

Cultural Influences/Prohibitions ..........................................................................2

1.5.

Religious Influences/Prohibitions ........................................................................3

1.6.

Infrastructure ......................................................................................................4

1.7.

Communication ...................................................................................................5

1.8.

Public Services .................................................................................................10

GENERALCONSIDERATIONS ................................................................................... 12

2.1.

Investment Policies ...........................................................................................12

2.2.

Diplomatic Relations .........................................................................................17

2.3.

Government ......................................................................................................21

2.4.

Environmental Considerations ..........................................................................27

2.5.

Intellectual Property ..........................................................................................36

3.

INVESTMENTINCENTIVES .......................................................................... 63

3.1.

Export Incentives or Guarantees ......................................................................64

3.2.

Grants, Subsidies or Funds ..............................................................................69

3.3.

National Tax Incentives for Foreign Investors ...................................................72

3.4.

Regional Tax Incentives for Foreign Investors .................................................. 78

4.

FINANCIALFACILITIES ................................................................................. 79

4.1.

Banking/Financial Facilities ..............................................................................79

5. EXCHANGECONTROLS ............................................................................... 84

5.1.

Business Transactions with Nationals, Residents or Non-Residents ................ 84

5.2.

Investment Controls ..........................................................................................86

5.3.

Money Transfer ................................................................................................87

6. IMPORT/EXPORTREGULATIONS ............................................................... 88

6.1.

Customs Regulations .......................................................................................88

6.2.

Exports .............................................................................................................91

6.3.

Foreign Trade Regulations ...............................................................................92

6.4.

Imports .............................................................................................................92

6.5.

Manufacturing Requirements ............................................................................94

6.6.

Product Labelling ..............................................................................................94

7. STRUCTURESFORDOINGBUSINESS ....................................................... 95

7.1.

Governmental Participation ..............................................................................95

7.2.

Joint Ventures...................................................................................................96

7.3.

Limited Liability Companies ..............................................................................98

7.4.

Liability Companies, Unlimited ........................................................................101

7.5.

Partnerships, General or Limited ....................................................................102


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12.8.

Social Security and Welfare System Contributions ......................................... 171

12.9.

Special Tax Schemes .....................................................................................17212.10.

Tax on Profits .................................................................................................173

12.11.

Tax Treaties ...................................................................................................176

12.12.

Territoriality Rules ...........................................................................................178

12.13.

Treatment of Tax Losses ................................................................................180

12.14.

Wealth Tax .....................................................................................................180

12.15.

Withholding Taxes .......................................................................................... 181

13.

TAXONINDIVIDUALS ................................................................................. 182

13.1.

Allowances .....................................................................................................182

13.2.

Calculation of Taxes .......................................................................................183

13.3.

Capital Gains ..................................................................................................184

13.4.

Filing and Payment Requirements .................................................................. 187

13.5.

Inheritance and Gift Tax .................................................................................189

13.6.

Miscellaneous Taxes Due ...............................................................................190

13.7.

Real Estate/Habitation Tax .............................................................................190

13.8.

Sales Tax .......................................................................................................192

13.9.


13.10.

Stock Option, Profit Sharing and Savings Plan ...............................................195

13.11.

Taxation of Benefits in Kind ............................................................................197

13.12.

Taxes on Dividends ........................................................................................198

13.13.

Tax on Income ................................................................................................198

13.14.

Tax Treaties ...................................................................................................200

13.15.


13.16.

Wealth Tax .....................................................................................................202

13.17.


14.

TAXONOTHERLEGALBODIES ................................................................ 203

14.1.

Allowances .....................................................................................................218

14.2.

Calculation of Taxes .......................................................................................219

14.3.

Capital Gains ..................................................................................................219

14.4.

Filing and Payment Requirements .................................................................. 219

14.5.

Miscellaneous Taxes ......................................................................................221

14.6.

Registration Duties .........................................................................................221

14.7.

Sales Tax or Other Turnover Tax ................................................................... 221

14.8.


14.9.

Special Tax Themes .......................................................................................222

14.10.

Tax on Profits .................................................................................................222

14.11.

Tax Treaties ...................................................................................................222

14.12.


14.13.

Treatment of Tax Losses ................................................................................222

14.14.

Wealth Tax .....................................................................................................222

14.15.


15. GENERALTAXCONSIDERATIONS ............................................................ 223


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15.1.

Taxes Generally .............................................................................................223

16.

IMMIGRATIONREQUIREMENTS ................................................................ 224

16.1.

Immigration Controls ......................................................................................224

16.2.

Immigration Requirements/Formalities ........................................................... 227

16.3.

Visas...............................................................................................................229

17. EXPATRIATEEMPLOYEES ........................................................................ 230

17.1.

Cost of Living and Immigration .......................................................................230

17.2.

Drivers Licences ............................................................................................231

17.3.

Education .......................................................................................................231

17.4.

Housing ..........................................................................................................232

17.5.

Importing Personal Possessions .....................................................................233

17.6.

Medical Care ..................................................................................................234

17.7.

Moving Costs ..................................................................................................234

17.8.

Tax Liability ....................................................................................................235

17.9.

Work Contracts ...............................................................................................236

17.10.

Work Permits ..................................................................................................236


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Acquisit ion Tax Law the Acquisition Tax Law (Goods andServices), 1952

Advance Notice for Dismissal andResignation Law

the Advance Notice for Dismissal andResignation Law, 2001

Advisory Committee the Advisory Committee for Exemptions andMergers established under the RTP Lawwhich is authorised to review the AntitrustAuthoritys recommendation and give advice

Airports Authority Law the Airports Authority Law, 1977

Anti trust Authori ty the Israeli Antitrust Authority

Anti trust Controller the Controller of Restrictive Trade Practiceswho heads the Antitrust Authority

Anti trust Tr ibunal the Restrictive Trade Practice Courtestablished under the RTP Law

Appel lations of Origin andGeographical Indications ProtectionLaw

the Appellations of Origin and GeographicalIndications (Protection) Law, 1965

Banking Law the Banking (Licensing) Law, 1981

Banking Ordinance the Banking Ordinance, 1941

Bank of Israel Law the Bank of Israel Law, 2010

Capital Investments Law the Encouragement of Capital InvestmentsLaw, 1959

Civil Wrongs Ordinance the Civil Wrongs Ordinance [New Version],1968

Commercial Civil Wrongs Law the Commercial Civil Wrongs Law, 1999

Companies Law1 the Companies Law, 1999

1 This law was recently substantially amended, such amendments are not reflected in this Guide.


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Companies Ordinance the Companies Ordinance [New Version],1983, many of the provisions of which havesubsequently been repealed by theCompanies Law

Consumer Goods and ServicesSupervision Law

the Consumer Goods and ServicesSupervision Law, 1957

Consumer Protection Law the Consumer Protection Law, 1981

Consumer Protection Order the Consumer Protection Order (Marking ofGoods), 1983

Consumer Protection Order (FoodProducts)

the Consumer Protection Order (Marking andPackaging of Food Products), 1998

Controller of Foreign Currency the officer appointed by the Minister ofFinance to be responsible for currencycontrol policies in Israel

Copyright Act the Copyright Act, 1911

Copyright Law the Copyright Law, 2007

Copyright Ordinance the Copyright Ordinance

Currency Control Law the Currency Control Law, 1978

Customs Order the Customs Order (Regulation of Imports),1986

Customs Ordinance the Customs Ordinance

Defective Products Law the Defective Products (Liability) Law, 1980

Eilat Free Trade Zone Law the Eilat Free Trade Zone (Tax Exemptionsand Reductions) Law, 1985

Entry into Israel Law the Entry into Israel Law, 1952

Entry into Israel Regulations the Entry into Israel Regulations, 1974

Equal Opportunities at Work Law the Equal Opportunities at Work Law, 1988

Foreign Workers Law the Foreign Workers (Prohibition againstUnlawful Employment and Securing FairConditions) Law, 1991

Free Export Order the Free Export Order, 1978


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Free Import Order the Free Import Order, 1978

Free Ports Law the Free Port Zone Law, 1969

Free Zones Manufacturing Law the Free Zones for Manufacture in IsraelLaw, 1994,

Government Companies Law the Government Companies Law, 1975

Hazardous Substances Law the Hazardous Substances Law, 1993

Health Ordinance the Health Ordinance, 1940

Hours of Work and Rest Law the Hours of Work and Rest Law, 1951

Import and Export Ordinance the Import and Export Ordinance [NewVersion], 1979

Income Tax Ordinance the Income Tax Ordinance [New Version],1961

Inflationary Adjustments Law the Income Tax (Taxation in terms ofInflation) Law, 1982

Integrated Circuit Topography Law the Integrated Circuit Topography Law, 1999

Investment Centre a vehicle specifically established by theMinistry of Industry, Trade and Labour toregulate investments under the CapitalInvestments Law

Knesset the Israeli Parliament whose members aredemocratically elected and comprises 120 innumber

Knesset Finance Committee a special committee established by theKnesset to deal with finance issues on aparliamentary level, including, inter alia, theState budget, all types of taxation, matters

relating to foreign currency and banking

Law and Administr ation Ordinance the Law and Administration Ordinance, 1948

Law of Return the Law of Return, 1950

Licensing of Businesses Law the Licensing of Businesses Law, 1968

Merchandi se Marks Ordinance the Merchandise Marks Ordinance, 1929


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Minimum Wage Law the Minimum Wage Law, 1987

National Health Insurance Law the National Health Insurance Law, 1994

National Parks and Nature ReservesLaw

the National Parks and Nature ReservesLaw, 1963

NIS New Israel Shekels, the lawful currency ofIsrael

Nuisances Claims Law the Abatement of Environmental NuisancesLaw (Civil Claims), 1992

Nuisances Law the Abatement of Nuisances Law, 1961

OCS the Office of the Chief Scientist and head ofthe Industrial Research and DevelopmentAdministration at the Ministry of Industry,Trade and Labour (an authority establishedunder the R&D Law which is responsible forimplementing governmental policy regardingthe support and encouragement of industrialresearch and development ( R&D ) in Israel)

Paid Leave Law the Paid Leave Law, 1951

Partnership Ordinance the Partnership Ordinance, 1975

Patents and Designs Ordinance the Patents and Designs Ordinance, 1924

Patents Law the Patents Law, 1967

Penal Law the Penal Law, 1977

Performers and BroadcastersRights Law

the Performers and Broadcasters RightsLaw, 1984

Planning and Building Law the Planning and Building Law, 1965

Planning and Building Regulations the Planning and Building Regulations,(Application for Permit, its Conditions andFees), 1970

Plant Breeders Rights Law the Plant Breeders Rights Law, 1973

Prevention of Sea Pollution Law the Prevention of Sea Pollution (Dumping ofWaste) Law, 1983


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Prohibition on Money LaunderingLaw

the Prohibition on Money Laundering Law,2000

Prohibition on Money LaunderingRegulations

the Prohibition on Money LaunderingRegulations, 2000

R&D Law the Encouragement of Industrial Researchand Development Law, 1984

Research Committee an authority within the Industrial Researchand Development Administration at theMinistry of Industry, Trade and Labourestablished under the R&D Law for thepurposes of, inter alia, determining whichR&D projects should be approved for supportand setting the conditions under which therelevant benefits are to be granted

RTP Law the Restrictive Trade Practices Law, 1988

Seawater Oil Pollution Law the Seawater Pollution by Oil (Prevention)Ordinance [New Version], 1980

Securities Law the Securities Law, 1968

Shipping and Ports Authority Law the Shipping and Ports Authority Law, 2004(which law replaced the Ports Authority Law,1961 which has since been repealed)

Sick Pay Law the Sick Pay Law, 1976

Stamp Duty Law the Stamp Duties on Documents Law, 1961

Standard Contracts Law the Standard Contracts Law, 1982

Standard Contracts Tribunal a body established pursuant to the StandardContracts Law, with the power to approvestandard contracts and/or to declare certainprovisions thereof void under the StandardContracts Law

Standards Law the Standards Law, 1953

Streams and Springs AuthoritiesLaw

the Streams and Springs Authorities Law,1965

TASE the Tel Aviv Stock Exchange

Trade Marks Ordinance the Trade Marks Ordinance [New Version],1972


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Traffic Ordinance the Traffic Ordinance, [New Version], 1961

Trust Law the Trust Law, 1979

Unjust Enrichment Law the Unjust Enrichment Law, 1979

VAT Law the Value Added Tax Law, 1975

Water Law the Water Law, 1959

Work Safety Ordinance the Work Safety Ordinance [New Version],1970

WTO the World Trade Organisation


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Tel-Aviv, IsraelJanuary 2011

Page 1

11.. TTHHEECCOOUUNNTTRRYYAATTAAGGLLAANNCCEE

11..11.. LLaanngguuaaggeess

What languages are spoken?

The official languages of Israel are Hebrew and Arabic. However,

English and Russian are also widely spoken.

Most students in Israel study English as a primary foreign language

and French or Arabic as a secondary foreign language. Proficiency

in English constitutes one of the elements for gaining admission to

study at any of the Israeli universities. The major language

commonly used for business culture purposes is also English.

11..22.. RRaatteeooffEExxcchhaannggee

What is the exchange rate for the US dollar and the Euro?

The official currency used in Israel is New Israel Shekels (NIS). In

2010 the average exchange rate of the US dollar and the NIS was

approximately US $1 = NIS 3.73 and the exchange rate of the Euro

and the NIS was approximately 1 = NIS 4.95. As of January 2011,

such rates were stated to be US $1 = NIS 3.55 and 1 = NIS 4.74,

respectively.

The exchange rates are subject to frequent fluctuations. Thus

checking the updated rates of exchange on a regular basis is stronglyrecommended and, particularly, prior to doing business in Israel.

11..33.. GGeeooggrraapphhyy,,NNeeiigghhbboouurriinnggCCoouunnttrriieessaannddCClliimmaattee

Describe your countrys geography, proximity to other countries and climate.

Israel is located in the Middle East, along the eastern coastline of the

Mediterranean Sea and is bordered by Lebanon and Syria in the

north, Jordan in the east and Egypt in the south. Israel lies at the

intersection of three continents: Europe, Asia and Africa.

Long and narrow in shape, the country is about 470 km (290 miles) inlength and 135 km (85 miles) in width at its widest point. The

countrys area (including the Golan Heights but excluding the Gaza

Strip and the West Bank) is 22,020 sq km/12,878 sq mi.

Israels population (excluding the Gaza Strip and the West Bank

whose population numbers approximately 3.8 million Palestinians),

comprises approximately 7.58 million residents, divided as follows:

Jews76%; Muslims17%, Christians2%; Druze1.7%; and the


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remaining percentage of the population represents residents having

no religious affiliation.

The capital city of Israel is Jerusalem, having a population of

approximately 774,000.

Israel encompasses varied topographical features, ranging from

forested highlands and fertile green valleys in the north to

mountainous deserts in the south; from the coastal plain in the west

to the semitropical Jordan Valley and the Dead Sea in the east.

Approximately half of the countrys land area is semi-arid.

The dominant geographical feature in Israel is the Rift Valley, which

originates in Turkey and extends through Israel and further south into

Africa. The Rift Valley includes among its natural resources the Dead

Sea, the Jordan, Arava and Hula Valleys as well as Israels major

lake, Lake Kinneret (also known as the Sea of Galilee). Israel is not awet country (the Jordan River is Israels major river) and the north

sustains most of the countrys agriculture. The countrys only inland

sea is the Dead Sea which has an inordinate salt content and is

regarded to be the lowest point on earth. The Dead Sea is flanked by

the Judean Desert which extends further south into the Negev.

Israels climate is characterised by constant sunshine, with a rainy

season from November until April. Total annual precipitation ranges

from 700 mm (27.5 inches) in the north to less than 30 mm

(1.1 inches) in the far south. Regional climatic conditions vary

considerably: hot, humid summers and mild, wet winters on the

coastal plain; dry warm summers and moderately cold winters, withrain and occasional light snow, in the hilly regions; and semi-arid

conditions, with warm to hot days and cool nights, in the south.

11..44.. CCuullttuurraallIInnfflluueenncceess//PPrroohhiibbiittiioonnss

Are there cultural influences or prohibitions on the way business isconducted?

Israel is an old-new country, small in stature, but with a culturally

active, heterogeneous population. Four thousand years of Jewish

heritage, over a century of Zionism and more than half a century of

modern statehood, have contributed to a culture which has alreadycreated an identity of its own, while preserving the uniqueness of

seventy different communities. A largely immigrant society, Israel's

creative expression has absorbed many different cultural and social

influences, as it blends tradition and innovation and strives to steer a

course between Israeli particularism and universalism.

Today, Israel is a democratic and egalitarian society where

competition thrives to promote and advance both cultural and


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commercial ideals. Despite inevitable inequalities, equal rights are

guaranteed to all Israelis.

Worldwide culture ties focus on cooperation in a broad range of

fields, including language, literature, the arts, science, media and

sports. Based on cultural agreements with more than seventy

countries, in addition to links with many others, activities range from

student and academic exchange programs, reciprocal tours by dance

troupes, theatre companies, art exhibitions, musicians and

orchestras, to participation in book fairs, film festivals and sports

competitions. Such exchange programs offer an opportunity for

obtaining insight into the language(s) and cultural traditions of the

various countries as well as of those prevalent in Israel.

11..55.. RReelliiggiioouussIInnfflluueenncceess//PPrroohhiibbiittiioonnss

Are there religious influences or prohibitions on the way business isconducted?

The major religious influence affecting transaction of business in

Israel relates to prohibitions on conducting work on specified days of

rest. Most businesses in Israel may not be conducted on the

prescribed days of rest as defined in the Law and Administration

Ordinance (which include, inter alia, the Sabbath, Yom Kippur,2

Passover, etc.). The Hours of Work and Rest Law expressly provides

that on the prescribed days of rest

the owner of a workshop or industrial undertaking

shall not work in his workshop or undertaking andthe owner of a shop shall not do business in hisshop.

It should be emphasised that the enforcement of the above

prohibition is, to a certain extent, influenced by the policy of the

serving government and, thus, many businesses may be found

operating despite the said prohibition.

In addition, an employee is not obligated to work on the relevant days

of rest, as determined according to his religious beliefs. However,

with regard to certain types of employment (e.g.,jobs in the security

field, crucial jobs for the State, etc.) a special permit may be soughtand obtained from the Minister of Labour permitting that work be

conducted on days of rest. Nevertheless, an employee has the

2 Yom Kippur (the Day of Atonement) is a dies non (a legal holiday) under Jewish law and customs. For a periodof twenty-five hours, commencing one hour before sunset on the eve of Yom Kippur until sunset on the followingday, no Jewish businesses or establishments are allowed to operate. In addition, in the later hours of theafternoon on the eve of Yom Kippur, all Israeli television and radio broadcasts are terminated and all publictransportation operating throughout Israel ceases to function, including Israels airports, which similarly cease tooperate and are closed.


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discretion to inform his employer that he will not work on days of rest

due to his religious convictions, even if such a permit was obtained.

The business week for Jews commences on a Sunday and ends

early on Friday afternoon. The Jewish Sabbath begins an hour

before sunset on Friday and ends after sunset on Saturday evening.

Most Jewish businesses are closed on Friday afternoons and all day

Saturday. In practice, most businesses (other than shops,

restaurants and the like) have adopted a five-day working week and

are closed on Fridays.

The day of rest for Muslims is Friday and Christian-owned

establishments are closed on Sundays. Hence, Islamic-owned

organisations will be closed on Fridays, while Christian-owned

establishments will be closed on Sundays.

It should be mentioned that the Equal Opportunities at Work Lawprohibits discriminating against an employee on account of his

religious belief.

Nevertheless, certain businesses are bound by religious rules. For

instance, under Jewish laws and customs, the breeding of pigs and/or

the selling of pork is strictly prohibited. Therefore it is not common for

the major food chains and supermarkets in Israel to engage in such

businesses or to stock their shelves with, or supply, such non-kosher

foodstuffs.

All in all, religion does not interfere with, or significantly impact, doing

business in Israel.

11..66.. IInnffrraassttrruuccttuurree

Explain your countrys infrastructure. Be sure to explain which cities haveairports, railroad systems, ports and public transportation.

In a country of short distances, automobiles, buses and trucks are the

main mode of transportation in Israel. In recent years, certain

modifications, improvements and expansions were made to the road

network (including the introduction of a toll system on a major

highway in Israel) in order to accommodate and regulate the rapid

increase in the number of vehicles, as well as to connect and provideeasy access not only to the major cities and towns, but also to remote

areas.

The Israeli railway system, in particular, has undergone substantial

modification and development. Currently, Israel Railways operates

passenger services between Tel-Aviv, Haifa, Nahariya and Beer

Sheva as well as between other major cities. A further passenger

service operates linking Ben Gurion International Airport (in Lod) with


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Tel-Aviv and cities further north, as well as with the city of Modi'in to

the east, in order to facilitate easy access to and from the airport.

Freight services operate mainly in the south, serving the port of

Ashdod, the cities of Ashkelon and Beer Sheva and the mineral

quarries south of Dimona. Over recent years, both freight and

passenger usage has increased.

The ancient ports of Jaffa, Caesarea and Acre have been replaced by

three modern deep-water harbours located in Haifa, Ashdod and

Eilat, all of which serve to accommodate international shipping.

Today, Haifa is one of the largest container ports on the

Mediterranean Sea as well as a busy passenger terminal. The

Ashdod port is used mainly for shipping goods and the port of Eilat on

the Red Sea links Israel to the southern hemisphere and the Far

East.

Ben-Gurion International Airport, located near Loda twenty-fiveminute drive from Tel-Aviv and fifty minutes from Jerusalemis

Israels main and largest international and domestic air terminal. Due

to rapid increases in the number of airline passenger traffic, in 2004 a

new, larger and more modern terminal (Terminal 3), equipped with

state-of-the-art features, opened at Ben-Gurion International Airport.

Short distance international flights and charter flights, mainly from

Europe, are also served by the Eilat and Ovda airports in the south

and the Haifa airport in the northern part of Israel. Domestic air travel

is also served by smaller airports throughout the country, mainly Sde

Dov airport in Tel-Aviv.

All of Israels ports (relating to air and sea travel) are managed bystate through the Israel Airports Authority (as established under the

Airports Authority Law) and through the Israeli Ports Authority (as

established under the Shipping and Ports Authority Law),

respectively.

11..77.. CCoommmmuunniiccaattiioonn

Explain the communication system.

The Israeli telecommunications sector has, in recent years, been

developed at a rate that can only be described as revolutionary. The

substantial changes in the sector are due, in large part, to a

fundamental change in policy on the part of the Ministry of

Communications, which serves as the primary sector regulator.

Today, Israel is connected to the worlds major commercial, financial

and academic data networks and is fully integrated into international

communications systems by means of underwater, fibre-optic lines

and satellite link-ups. The countrys communications infrastructure is

highly developed, offering telephone, facsimile services, internet and


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sophisticated databases as well as cable network to users throughout

the country. In addition, a well-integrated postal service network

operates throughout Israel and international postal and courier

services provide postal delivery to and from most overseas countries.

Fixed Services

Israel has in excess of three million direct exchange lines

(constituting 50% penetration) using a 100% digital network

(owned by Bezeq, The Israel Telecommunications Corporation

Ltd. ( Bezeq ), the incumbent local exchange carrier) that

provides sophisticated services to all customers.

Over 96% of Israels households have telephone lines, 20% of

which have two separate telephone lines. For every one

hundred residents, there are forty-eight telephone lines.

In March 2002, each of the three local television cable

companies (currently operating jointly under the name HOT

see Broadcasting below) were granted a licence to provide

faster access to the Internet on their respective infrastructures.

Until then, Bezeq had been, for several years, the only provider

of such service and, therefore, the inclusion of the three cable

television companies provided healthy and active competition to

the Israeli market. In the long run, this change not only

benefited subscribers but also increased the volume of Internet

users applying for such service. At present, additional

companies (other than Bezeq and the cable television

companies) provide broadband internet services (see Internetbelow).

Cellular Telephony

There are approximately 6.9 million cellular telephone

subscribers in Israel of which 4 million persons are recorded as

owners of cellular telephones (out of a total population of

approximately 6.7 million). In 2003 itself, the cellular telephone

companies recorded an additional 350,000 new subscribers. It

is estimated that 70% of the population own at least one cellular

telephoneone of the highest levels of market penetrationworldwideand that 40% thereof own two cellular telephones.

The rapid growth rate is apparent from the fact that in January

1995 there were only 125,000 cellular telephone subscribers.

The introduction of competition in 1995 brought about an

extremely high subscriber growth rate, one of the highest in the

world. This rapid growth was achieved by providing nationwide

coverage, low tariffs, the introduction of Calling Party Pays

(CPP) system in 1994, improvement of network quality and

effective marketing.


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There are currently four cellular operators in Israel, all of which

provide countrywide coverage and modern network services.

In December 2001, tenders were concluded for licences for

additional 2G and 3G cellular frequency bands, in order to

expand network capacities and enable use of broadband

cellular applications employing DCS-1800 and UMTS

technologies. Three suppliers, namely Cellcom, Pelephone and

Partner participated in these tenders; a total of 115MHz has

accordingly been assigned to those parties at a total price of

NIS 1,026,000,000 (approximately US $240 million). The new

frequencies have enabled the operators to provide GSM1800

modern services since the beginning of 2002. During the latter

part of 2004, mobile telephones equipped with 3rd Generation

UMTS features became available for purchase on the Israeli

market.

International Telecommunications Services

International long-distance services were traditionally a

monopoly held by Bezeq and Bezeq International (a subsidiary

of Bezeq). In July 1997, two privately-owned facility-based

carriers, Golden Lines and Barak, were also licensed. Outgoing

traffic quickly tripled and the new carriers rapidly gained

substantial market share as the incumbent operator lost its

exclusive position. Fair and transparent interconnection

arrangements, equal access rules and bold cuts in retail prices

have enhanced competition in the provision of internationallong-distance services.

All three operators currently deliver services over a modern

digital network, including several switching facilities

incorporating advanced intelligent network infrastructure.

Recently, additional operators have begun to provide similar

long-distance services (several of them applying VOip

technology).

Aside from the major operators, it is possible to obtain long-

distance services from various additional companies offeringsuch services, usually at a cheaper rate, over the internet.

Internet

Internet penetration is also growing quickly. Four major, and

about sixty smaller, Internet service providers serve more than

two million users, including 40% of households and 60% of

businesses. Cellular phone companies introduced wireless

Internet during 2001. Bezeq began to offer ADSL services in


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2000 and the cable companies commenced providing

broadband cable modem access shortly thereafter. Broadband

penetration rates are quite promising, and the overall growth

rate during JanuaryAugust 2002 reached 175%.

Israel is a world leader in developing Internet technologies and

applications and Israeli companies operating in the field have

marked several international successes. This international

reputation is also recognised on the domestic market and has

had a substantial impact on local interest and use.

The country's strong tradition of academic inquiry and research

has placed Israel on the global research network for the NGI

(Next Generation Internet), linking Israel to the world's seekers

of scientific and industrial knowledge through StarTap

(Chicago) to the U.S.-Internet 2 Network, through the Point of

Presence (London) to the EU GEANT Network and to Q-Med(Mediterranean Consortium Quantum Extension)

Broadcasting

Televisionthe multi-channel TV subscriber market

comprises three cable television operators (Matav, Tevel,

Golden Channels), which currently operate as a joint

single operator (HOT) as well as a single DBS (Direct

Broadcasting Satellite) operator (Yes) that commenced

operations in July 2000 using Israels AMOS-1

communications satellite.

Cable TV home-pass extends to 97% of all households

and about 60% thereof constitute subscribers (comprising

1,082,000 cable-connected households). As of

September 2004, approximately 500,000 households

were recorded as subscribers to the DBS service

operated by Yes.

As of November 2001, Israeli television comprised the

national Channel 1 public channel (as well as two other

public channelsthe satellite-delivered Channel 33 and

the Educational TV channel) and one national commercialchannel (Channel 2). A second commercial channel

(Channel 10) was licensed during 2001 by public tender

and commenced operations through cable and satellite in

February 2002. The aforesaid channels form part of a

package provided by the cable companies and the DBS

operator, which also provide additional access to locally-

produced movies, sports and other channels of interest as

well as dozens of foreign offerings.


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Over recent years additional commercial special-interest

TV channel licences for distribution by cable and satellite

were granted by tender. The main channels which

received a licence are: the Israeli news channel, a

Russian-speaking channel, an Israeli music channel as

well as a channel dedicated to religious affairs and

traditions. Tenders for additional commercial special-

interest channels (e.g., an Arabic-speaking channel) are

currently pending.

Radiothere are approximately ten public national

AM/FM radio stations and fifteen commercial local FM

radio stations, licensed by public tender.

Satellites

The AMOS-1 geostationary satellite, located at four degreesWest, began operations in 1996. It was built by Israel Aircraft

Industries Ltd. and uses seven Ku-band transponders, and it is

primarily used for direct-to-home television broadcasting, TV

distribution and VSAT services for customers in the Middle East

and in Central Europe.

A second satellite, the Gurwin-II TechSAT, was launched in

July 1998. This experimental satellite, which was designed and

manufactured, and is controlled by The Technion-Israel Institute

of Technology. The Gurwin-II TechSAT provides

communication, remote sensing and research services.

In December 2003 Spacecom Ltd. launched AMOS-2, which is

co-located with AMOS-1. AMOS-2 provides services via eleven

Ku-band transponders.

ImageSat Ltd., an international consortium headed by Israel

Aircraft Industries Ltd., launched its EROS satellite in 2000.

EROS is a non-geostationary orbit satellite which provides

highly accurate commercial photography and surveillance

services.

Newspapers

The press in Israel is generally free and unbiased. Save for

censorship on certain articles, the publication of which would

harm public interests or whose content is confidential or may

not be published for security reasons, the State does not

usually interfere with the press. In order to publish a

newspaper, one must apply to the Ministry of Interior and meet

and comply with certain regulatory requirements.


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Three main daily newspapers are published in the Hebrew

language (namely, Yediot Aharonot, Maariv and Haaretz). A

financial newspaper (Globes) is also published on a daily basis.

In addition, a relatively large volume of special interest

newspapers and publications (some published daily while

others are published less frequently) are published, including,

periodicals in languages other than Hebrew (namely, Arabic,

Russian and English to serve Israels non-Hebrew speaking

population , and newspapers with content directed to certain

sectors of the community (e.g.,the Ultra-Orthodox community,

etc.).

11..88.. PPuubblliiccSSeerrvviicceess

Describe the public servicesi.e., water, electricity, gas. Are they publiclyor privately owned?

The Israeli government, in principle, favours privatisation of state-

owned companies and public services.

Consequently, privatisation has extended to a significant portion of

Israel's public services, particularly, the education (largely affecting

higher education) and health sectors, as well as to many formerly

State-owned companies (such as banks, etc.).

Notwithstanding the enormous advances in privatisation, the

electricity and water services in Israel still remain largely nationalised

and state-regulated.

Electricity and Natural Gas

In 1996, the Israeli government extended the monopoly of "The

Israel Electric Corporation Ltd." for another ten years, with

private producers permitted to supply 10% of Israels electricity

demand by 2000. De facto, private producers supply only 1%

2% of Israels total electricity consumption. The Israel Electric

Corporation's licence was subsequently renewed in 2009 and is

now valid until January 1, 2011.

It should be mentioned that the electricity market is a closed

market (i.e., Israel does not purchase electricity from othercountries) and the prices of electricity in Israel are determined

by the Authority for Public Services Electricity, a state

authority of five members, two representatives of the

government, two representatives of the public and a chairman.

At present, electricity in Israel is produced mainly from coal

(64.7%) and natural gas (32.6%). It is hoped that both from an


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environmental and cost perspective natural gas will become the

dominant source of electricity in Israel in the future.

Recently natural gas was discovered offshore and it is hoped

that the utilisation of natural gas will indeed bring about an

environmentally friendly means of producing electricity to

replace Israels current To that end, the Israeli government has

implemented a natural gas project to be largely executed by the

private sector (including the purchasing, conduction, distribution

and marketing thereof), although the projects conduction

system will be constructed by means of BOT (i.e., the

entrepreneur will build the system, operate it and thereafter

transfer it to the State).

Israel has also taken strides to diversify its electricity sources

and to utilise alternative mechanisms such as solar and wind

energy.

Currently Israeli Electric Corporation carries out all

manufacturing, delivery and distribution of electricity. Israel

plans to separate the manufacturing, delivery and distribution

operations in the future, and grant separate licenses for each

operation in each specific geographic area. This process is

expected to promote competition in the electricity sector in

Israel.

Water

Mekorot Ltd., Israels national water company, is responsible formanaging the countrys water resources, developing new

sources and ensuring regular delivery of water to all localities

for all purposes. In addition, it maintains water quality through

laboratory testing and biological control and constructs and

operates desalination and fluoridation plants.

Several other water suppliers are responsible for distributing

water to certain restricted areas in Israel.

It should be mentioned that a chronic scarcity of water is a fact

of life in Israel (as well as the entire region), where industry,agriculture and a rapidly-growing population accustomed to

modern urban living compete for limited resources in a largely

semi-arid environment. Rainfall is not uniformly distributed

throughout the country and the rainy season is short. Water

consumption that stretches the basic supply to the limit has

necessitated construction of an elaborate system of water

storage and distribution and the search for additional water

sources. Due to the scarcity of water, the Israeli government

has issued tenders for the establishment of plants to desalinate


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seawater and, new desalination plants are currently under

construction. Two desalination plants have already been

constructed and provide for about 15% of the Israels water

needs. Furthermore, several measures have been taken in

order to more efficiently take advantage of the rainfall to

increase the quantity of available water in Israel (for instance,

several reservoirs have been constructed in order to

accumulate the rainfall).

22.. GGEENNEERRAALLCCOONNSSIIDDEERRAATTIIOONNSS33

22..11.. IInnvveessttmmeennttPPoolliicciieess

2.1.1. Does the country generally welcome investment? Are there governmental orprivate agencies devoted to the promotion of investment?

Foreign investments are welcomed by both the private sector and thepublic sector in Israel.

The Investment Centre (see Chapter 3Investment Incentives)

below), is responsible for encouraging the development of industry

and tourism in Israel.

The Investment Centres main goal is to attract investors (whether

local or foreign) and offers financial assistance to potential companies

by means of, inter alia, subsidised long-term loans (having low

interest rates), direct grants (constituting a percentage of the total

investment and R&D financing), or through tax reliefs and/or taxrebates. The scope of such benefits is determined by the Investment

Centre according to the percentage by which a specific investors

contribution relates to certain geographical and economic factors

(such as population dispersion, promotion of exports, the area in

which the company is situated and the like). The granting of

Approved Enterprise status (see section 3.1.1 below) to foreign

investments as well as the ensuing benefits, requires the consent of

the Investment Centre.

The Israeli government also encourages foreign investment by

providing R&D grants in accordance with the provisions of the R&D

Law. R&D grants are available from the OCS for a wide range ofprojects. The grants are contingent on:

the innovation of the project;

the technological and business risk involved in the project;

3 Some of the information contained in this Chapter 2 was obtained from the respective internet sites of the IsraeliMinistry of Foreign Affairs (www.mfa.gov.il) and of the Israeli Ministry of Communications (www.moc.gov.il)


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manufacture of the project being conducted in Israel and the

know-how remaining in Israel (though a company may

manufacture abroad, such manufacture is conditioned upon the

approval of the OCS and obligates the company to pay

increased royalties of up to 300% of the value of the grant); and

with respect to the relevant company: (a) grants previously

obtained by such company; (b) the contribution made by such

company in fulfilling employment needs; (c) its anticipated

exports; and (d) its rate of yield to the Israeli economy.

The OCS will usually require that rights in intellectual property (IP )

be owned by an Israeli company. Limited licensing agreements,

which do not involve the transfer of IP or manufacture outside of

Israel, may be permitted. If saleable products are developed as a

result of programs which received R&D grants, repayment of the

grant is generally required by way of royalties (see in this regardsection 2.5.3 below).

Technological incubators are spread throughout the country focusing

on providing support to nascent companies in developing their

innovative technological ideas and forming new business ventures in

order to attract private investors. From 2002 to 2008, 22 of 24

technological incubators were acquired by private investors. The

incubators programs offer support of up to 85% of the approved

budget.

The OCS R&D Fund supports industrial competitive R&D programs.

The support is in the form of a conditional grant constituting 20%,30%, 40% or 50% of the approved R&D budget. Royalties to the OCS

are due on any income deriving from an R&D program that has

enjoyed government support. The royalty payments are based upon

a percentage of sales up to the repayment of the grant..

Alternative R&D grants may be obtained through numerous funds

specifically established for bi-national cooperation (see

section 3.2.1(c) above).

Israel has also established bi-national funds that provide financial

assistance for qualified R&D projects between partners in Israel andparticipating countries (e.g.,the US, UK, Singapore, Canada) and, to

this end, has allocated national priority zones for diversified

geographic investments.

In addition, there are over eighty venture capital funds readily

available to assist new business development (up from just one fund

in 1993). Most of the capital in the Israeli funds comes from overseas,

including from leading institutional investors such as Goldman Sachs,

Chase Manhattan, Morgan Stanley and George Soros Quantum


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Technologies, as well as private investors and major global

corporations including telecoms providers such as British Telecom,

Deutsche Telecom and Motorola. Investors in Israel also benefit from

relaxed currency regulations that permit repatriation of funds, thereby

enhancing opportunities for raising capital both in Israel and abroad.

Israels high-tech core competencies are in telecoms, including

cellular and internet technologies and applications, which attract 41%

of the countrys VC investments. It is safe to assume that much of the

15% of investments in software and 8% are also communications

related systems. Other areas in which Israeli start-ups excel include

defence and homeland security systems and solutions,

semiconductors and biomedicine including medical devices with an

emphasis on minimally invasive treatments. A new area of expertise

is cleantech, including water, energy and environmental technologies.

In the first half of 2011, 285 Israeli high-tech companies raised$1.048 billion of capital, 82 percent above the $577 million raised in

the first half of 2010. The second quarter of 2011 was the best in two

years, with 145 Israeli high-tech companies raising $569 million from

local and foreign venture investors.

As a result of the diversity in providing benefits and other relief to

investors, particularly to foreign investors, Israel has a well-

established presence of multinational companies, such as Microsoft,

Intel, Lucent Technologies, Motorola, IBM, Nortel, Unilever, Sony,

Fuji, Toshiba, Brother, 3Com, Boeing, British Telecom, News Corp.,

Siemens, Samsung, Cisco Systems, Hewlett-Packard and many

others.

Israel is the only country in the world that has entered into free trade

agreements with the USA, the European Union and the EFTA,

Turkey, Canada, the Czech Republic, Hungary, Poland, Slovenia and

other EFTA nations. Additional free trade agreements with other

countries are currently under negotiation (seesection 6.1.3 below).

Israel is also party to tax treaties with many advanced industrialised

nations including the US, UK, Canada, France, Germany, Japan and

others (see, in this regard, Chapter 12Tax on Corporations and,

specifically, section 12.11Tax Treaties,below).

Not surprisingly, in proportion to its population, Israel has the largest

number of start-up companies in the world. In absolute terms, Israel

has the largest number of start-up companies compared to any other

country in the world, other than the U.S. (3,500 companies, mostly in

high-tech).

In May 2011, Israel became the 32ndcountry to join the Organization

for Economic Co-operation and Development (OECD), which is an

international organization of countries with developed economies.


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The OECD's mission is to promote cooperation between its members

while maintaining high international economic standards. Israel's

accession to the OECD may increase international recognition of

Israel's government policy regarding regulation, corruption and

property rights protection, and attract foreign investors who rely on

the OECD's seal of approval. Further, OECD membership should

have a positive influence on Israel's credit rating and reduce the costs

of Israel's debt recruitment, turn Israel into a full partner in the

establishment of new international standards, and encourage Israel to

adopt a methodology of collecting data and performing statistical

analysis as a tool for international comparisons and for taking political

decisions.

With respect to Israels credit rating, very recently Israels debt was

upgraded by Standard and Poors from A to A+.

2.1.2. What is the rate of inflation?

Between 2008 and 2010, the average rate of inflation was

approximately 3.5%. In the first six months of this year, the Consumer

Price Index (CPI) increased by 1.9 percent on a seasonally adjusted

basis (which is an annualized rate of 3.9 percent). The main factors

behind the higher index were increases in the prices of food, energy,

and housing (rentals).

During the global recession, the inflation rate was allowed to rise as

the Bank of Israel lowered interest rates to stimulate the economy.

However, by being the first in the West to raise interest rates, the

central bank has shown a willingness to resume combating inflationas the global economic situation changes,.

2.1.3. Explain any sector exceptions, incentives or restrictions on foreigninvestment.

As mentioned above, the Israeli government encourages foreign

investment. There are, however, a few sectors, including

telecommunications and broadcasting, which restrict foreign investors

from holding shares in Israeli companies. In the telecommunications

industry, in order to obtain a licence for certain general activities,

there is often a minority Israeli holding requirement, to which

domestic and mobile national phone carriers in Israel are subject.While there are no exchange control restrictions on direct or indirect

foreign investment in Israel, reporting requirements apply in certain

cases (seein this regard Chapter 5Exchange Controls below).

Furthermore, if the rights in a long-term lease are to be transferred to

a foreign resident and the lessor thereunder is the Israel Lands

Administration, generally, pursuant to the terms of such long-term

lease, it would be necessary to obtain the consent of the Minister of

Infrastructure to transfer such leasehold rights to the foreign resident.


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2.1.4. Describe de facto restrictions on investment, if any, such as bureaucraticdiscretion.

Investment of capital in Israel is not subject to bureaucratic discretion.

However, the granting of Approved Enterprise status to foreigninvestments as well as the ensuing benefits (loans, R&D finance and

tax relief), requires the consent of the Investment Centre, as

explained above.

2.1.5. What is the size of the different markets?

As stated in Chapter 4Financial Facilitiesall public companies

whose shares are listed for trade in Israel are listed on the TASE.

The mid-nineties saw a major increase in the volume of trade on the

TASE. Both the peace process and the flourishing high-tech

industries attracted foreign investors.

More than 50 TASE-listed companies are also listed on bourses in

other countries, most notably those of the USA (e.g.,the Nasdaq and

New York Stock Exchange). As a consequence of such dual listings,

there has been a considerable increase in such companies investor

base which has resulted in a vast improvement in the overall volume

of shares being traded on the TASE. The number of large-cap

shares has increased substantially in the past decade, mainly due to

privatisation. The stocks of the major Israeli banks and other

companies previously owned by the Israeli government are amongst

the most-liquid in the market.

In 2009, the daily turnover of shares and convertibles on the TASE was $432 million,

$1,035 million of bonds and ETNs, $163 million of T-bills, and

252,000 options and future contracts. Total market cap at the end of

2009 was $189 billion shares and convertibles, $174 billion

government and corporate bonds, and $23 billion T-bills, a total of

$386 billion.

The bonds market is dominated by government bonds and the

involvement of foreign investors in this market is limited.

2.1.6. What types of businesses are conducted in the country?

The major types of businesses conducted in Israel fall under thecategories of industry, construction, transportation,

telecommunications agriculture and tourism. Until the 1980s the

Israeli economy focused mainly on traditional industries; since the

1980s, the economy has undergone a transformation, strongly

influenced by the boost in high-tech and the incessant demand for

optical fibre, broadband, wireless and related technologies, including

devising new methods and applying unique tools (whether comprising

software or hardware) to integrate, improve, enhance and expand,

inter alia, the mobile telephone industry, the provision of more


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improved internet services to Israeli subscribers and the integration

and development of internet-related activities specifically designed for

Israeli subscribers.

Nowadays, Israeli industry is concentrated on manufacturing

sophisticated, high quality products based on technological

innovations. These include, medical electronics, agro-technology,

biotechnology, genetic engineering, telecommunications, computer

hardware and software, solar energy, food processing,

pharmaceutical products and fine chemicals.

In 2010, the Israeli GDP stood at US $104,488 million and investment

in fixed capital amounted to US $24,266 million. Exports (excluding

services) amounted to US $50.9 billion thus constituting

approximately 23% of GDP (43% of industrial exports were related to

hi-tech). Exports comprising services contributed an additional

US $30 billion.

Israel has one of the highest rates of employment in the information

and technology sector (IT ), as compared to other industrialised

economies, and IT exports have grown exponentially.. R&D

expenditure as a percentage of the GDP was 4.8% in 2008, the

highest such percentage of any country in the world in that year.

Correspondingly, Israels agricultural exports were reduced to under

2% of total exports in 2010 (compared to 60% of total exports during

the 1960s).

Chemicals and plastic formed the largest branch of Israels industrial

production in 2010, at 40%, electrical, electronic & transport formed26%. Israels real annual percentage rise in industrial production in

2010 (compared to 2009), was 7.8, above France, Italy, the United

States, the United Kingdom, and more.

Until 2000, tourism was a major source of foreign currency earnings,

contributing approximately 3% of the GNP and 8% of total exports,

with an added value of 85%. In addition, the number of persons

directly employed in tourism totalled approximately 50,000. During

the period from October 2000 until mid-2003, the entire tourism

industry was substantially affected by the unrest and unstable political

situation in the region. However, since mid-2003 there has been avast increase in the number of tourists visiting Israel.

22..22.. DDiipplloommaattiiccRReellaattiioonnss

2.2.1. Explain any established diplomatic relations your country may have.

The State of Israel, established on May 14, 1948 and a member of

the United Nations since 1949, maintains relations with a majority of


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states around the world. Israel maintains diplomatic relations with

approximately 160 countries worldwide.

In addition, Israel has 99 diplomatic missions worldwide, including 75

resident embassies, 19 consulates general, special missions to the

United Nations in New York, Geneva, Vienna (at the Israeli embassy)

and Paris, and a mission to the European Union in Brussels.

The special relationship Israel has with the United States

encompasses mutual economic, political, strategic and diplomatic

concerns. Since the 1970s, Israel has been one of the top recipients

of U.S. foreign aid. While it is mostly military aid, in the past a portion

was dedicated to economic assistance, but all economic aid to Israel

ended in 2007, due to Israel's growing economy. In 2007, the United

States increased its military aid to Israel by over 25% to an average

of $3 billion per year for the following ten year period. . In 2003, on

the heels of the second intifada and a sharp economic downturn inIsrael, the U.S. provided Israel with $9 billion in conditional loan

guarantees made available through 2011 and negotiated each year at

the U.S.-Israel Joint Economic Development Group (JEDG).

Similar systems of government and shared social values, as well as

the long and sometimes tragic history of Jewish communities in

Europe, form the foundation of relations between Israel and the

European countries. Each bilateral relationship is expressed in a

wide range of economic, cultural, scientific, technological and political

activities, as well as by ongoing dialogues maintained with heads of

state, ministers, parliamentarians and public figures through frequent

reciprocal visits.

2.2.2. Give addresses, telephone numbers for the embassies or consulates in your

country4

In Israel:

the British Embassy is located at 192 Hayarkon Street, Tel-Aviv

(tel: +972 (0) 3 725-1222). The Consular Section is located in

the Migdalor Building at 1 Ben Yehuda Street, Tel-Aviv

(tel: +972 (0) 3 510-0166);

the Canadian Embassy is located at 3/5 Nirim Street, Tel-Aviv(tel: +972 (0) 3 636-3300);

the French Embassy is located at 7 Havakuk Street, Tel-Aviv

(tel: +972 (0) 3 546-6535);

4 The details listed below apply in respect of the G8 countries only. You may contact our office should you wishto obtain further details and/or information with respect to other embassies or consulates in Israel.


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the German Embassy is located at 3 Daniel Frisch Street,

Tel-Aviv (tel: +972 (0) 3 725-1222);

the Italian Embassy is located at the Trade Tower Building,

25 Hamered Street, Tel-Aviv (tel: +972 (0) 3 516-1744);

the Japanese Embassy is located at 24 Berkovitz Street, Tel-

Aviv (tel: +972 (0) 3 695-7292);

the Russian Embassy is located at 120 Hayarkon Street,

Tel-Aviv (tel: +972 (0) 3 522-6736); and

the US embassy is located at 71 Hayarkon Street,

Tel-Aviv (tel: +972 (0) 3 519-7364). The US Consulate General

in Jerusalem has offices at 18 Agron Road (tel: +972 (0) 2 622-

7230) and on Nablus Road (tel: +972 (0) 2 622-7230).

2.2.3. Are there prohibitions or restrictions on certain business dealings with thecountry?

Apart from prohibitions ordinarily imposed on illegal businesses in

western countries (such as dealing in drugs, slavery, prostitution and

engaging in the trade of woman, etc.), there are very few prohibitions

on conducting business dealings in the country.

For illustration purposes only, engaging, inter alia, in the following

activities is restricted:

Pornography

The Israeli courts have ruled that presentation of pornography

is permitted as part of the right to free speech. However, they

have restricted the scope in which pornography may be

portrayed in Israel.

Thus, the broadcast or publication of pornography in Israel is

limited in certain respects, such as in advertisements, the

restriction of television shows which contain pornographic

material to adults, broadcasting at late night hours only, etc.

Due to a legislative amendment which was recently enacted

into Israeli law (inter alia, as a result of measures imposed by

the ultra-orthodox members of the Knesset), the broadcasting

of pornographic films on designated TV channels has been

banned. However, the Israeli Supreme Court recently ruled that

the broadcasting of the Playboy channel is allowed, based,

largely, on the canon of freedom of speech and, in so doing,

denied the plea filed to prohibit the channels due to its

pornographic content.


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Needless to say, Israeli penal laws restrict the publication of

any profane advertisement involving a minor.

Trade with enemy countries

Israeli law contains restrictions on the entering into of

commercial and/or financial transactions or dealings with any

country which is defined as being an enemy of Israel (whether

or not war is actually being waged between Israel and any such

country at a given time) or with any country with which Israel

does not maintain diplomatic relations or into which country the

import of Israeli goods is prohibited (such prohibition also

extends to citizens of, and companies incorporated in, any such

country or where the supervision of a company is performed by

a person resident of any such country).

You may also refer in this regard to sections 1.4Cultural

Influences/Prohibitions and 1.5Religious Influences/Prohibitions,

above.

2.2.4. Explain any travel restrictions to or within the country.

Tourist visa requirements for entry into Israel vary depending on the

tourists country of origin. The Embassy of Israel maintains a list of

countries whose citizens do not need to obtain a tourist visa for trips

less than three months. Individuals wishing to stay in Israel for longer

than three months must apply for a tourist visa. Individuals travelling

to Israel as students are required to obtain a student visa, which isvalid for no more than one year. People who will be visiting Israel for

official or diplomatic reasons must obtain an official visa from the

Embassy of Israel. The embassy notes that visas must be applied for

in person and that applications cannot be sent through the mail. An

updated list of countries from which citizens are required to obtain a

visa is published in Israel by the Ministry of Interior (see

section 16.1.3 below).

Due to the large number of foreign workers entering Israel illegally in

search of employment possibilities, the Israeli border police often

question visitors from certain countries on their intended activitiesduring their stay in Israel. Also upon leaving the country, a security

check is conducted to prevent hijacking, etc.

Travel in Israel may be restricted on security grounds. For example,

the US Department of State issued an official Travel Warning on

August 10, 2010, urging all US citizens travelling to Israel or the West

Bank, including journalists, aid workers and government officials, to

avoid travelling into the Gaza Strip. The border region is considered

volatile and dangerous.


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22..33.. GGoovveerrnnmmeenntt

2.3.1. Explain your countrys election system and schedule.

Israel is the only democracy in the Middle East. The electoral systemof Israel is based on nationwide proportional representation and the

number of seats which each party receives in the Knesset is

proportional to the number of votes cast in favour of that party. The

Knesset elections take place once every four years, or earlier if the

Knesset so directs.

The leader of the party receiving the most Knesset seats is given the

first opportunity to form a government and becomes the Prime

Minister if he/she succeeds. To form a government, a party must

have the support of the majority of the 120-seat Knesset.

The central election committee, headed by a justice of the Supreme

Court and including representatives of the parties holding Knesset

seats, is responsible for conducting the elections. Regional election

committees oversee the proper functioning of local polling

committees, which include representatives of at least three parties in

the outgoing Knesset. The entire country constitutes a single

electoral constituency and all citizens, age 18 and over, are eligible to

vote. In every election to date, between 77% and 90% of all

registered voters have cast their ballots, expressing the great interest

taken by most Israelis in national politics.

The contest in the elections is between lists of candidates. Since theParties Law was passed in 1992, only a party which has been legally

registered with the Registrar of Parties or an alignment of two or more

registered parties, which have decided to run in the elections

together, may participate in the elections. The two main traditional

parties, Labouressentially social-democratic; and Likud

substantially national-liberal, have historical roots and traditions

preceding the establishment of the State of Israel in 1948 and both

began to crystallise into their present forms in 1965. In 2005, Kadima

(see more below, in 2.3.2), a new centrist and liberal political party

was established by moderates from Likud and was soon joined by

like-minded Labour politicians. It quickly became the largest party in

the Knesset after the 2006 elections, winning 29 of the 120 seats,

and led a coalition government. Although Kadima also won the most

seats in the 2009 elections, it became an opposition party for the first

time after a Likud-led government was formed.

Prior to elections, each party presents its platform and a list of

candidates in order of preference, determined through various

internal procedures; candidates must be Israeli citizens over the age

of 21 years. The President, State Comptroller, judges and other


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senior-ranking public officials, as well as the Chief-of-Staff and other

high-ranking military officers, are disqualified from presenting their

candidacy, unless they have resigned from their respective positions

at least 100 days before the elections.

2.3.2. Briefly explain your countrys political history in the last decade.

Over recent years, the stability of the Israeli government has been

affected mainly by the security situation as well as by Israeli-

Palestinian peace negotiations .

In 1999, a premature election was held in Israel and Ehud Barak, of the Labour party,

was elected as Prime Minister. During Mr. Baraks tenure (May 2000)

Israel withdrew from the 'Security Zone' in southern Lebanon, where

Israeli troops and Hezbollah guerrillas had been lobbing artillery at

one another for decades. Mr. Baraks efforts to reach a final peace

agreement with the Palestinian Authority were rejected by thePalestinians and since October 2000, Israel has experienced ongoing

terrorist attacks, shootings and other atrocities at the hands of the

Palestinians. Palestinian suicide bombers have killed and wounded

scores of civiliansat open markets, in restaurants and on public

transport. More than eight hundred Israelis have been murdered in

terrorist attacks and the country is in the throes of its own war

against terrorism.

In light of widespread public discontent with Baraks government, a

special election was held in July 2001. In this election, Ariel Sharon

defeated Barak and was appointed Prime Minister. Mr. Sharon was

re-elected Prime Minister in January 2003.

Following the death of the Palestinian leader, Yasser Arafat, in

November 2004 and the appointment of Abu Mazen as his successor

as Chairman of the Palestinian Authority, the optimism for peace in

the region was renewed.

In 2004, Prime Minister Sharon proposed a unilateral disengagement

plan to evict all Israelis from the Gaza Strip and from four settlements

in the northern West Bank. Despite the fact that many of his partys

(Likud) Knesset members did not support the disengagement plan, it

was nevertheless enacted in August 2005. Those Israeli citizens who

refused to accept government compensation packages and

voluntarily vacate their homes prior to the August deadline were

evicted by Israeli security forces over a period of several days.

Subsequent to the enactment of his plan, Sharon left the Likud in

November, 2005 and formed his own new Kadima party. He was

joined only days later by Shimon Peres, who left the Labour party to

join Sharon in a bid for a new government. This represented a


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significant realignment in Israeli politics, with the former right and left

joining in a new centrist party with strong support.

In January, 2006 Prime Minister Sharon suffered a massive stroke

and went into a coma, in which he still remains. Designated Acting

Prime Minister Ehud Olmert took power, becoming interim Prime

Minister. Following March 2006 elections, Kadima became the largest

party in the Knesset, and Mr. Olmert became prime minister.

Later on in 2006, a 34-day military conflict in Lebanon, northern Israel

and the Israeli-occupied territories, commonly referred to as the

Second Lebanon War, broke out. The principal parties in the conflict

were Hezbollah paramilitary forces and the Israeli military. The

conflict started in July 2006, and continued until a United Nations-

brokered ceasefire went into effect in August/September 2006.

Faced with internal opposition due to mounting corruption charges,Olmert announced that he would not seek re-election. Tzipi Livni won

the Kadima leadership elections and Kadima went on to win slightly

more votes than Benjamin Netanyahu's Likud in the subsequent

February 2009 elections. However, Ms. Livni was not successful in

forming a coalition majority government, and in March 2009, the

Knesset approved the appointment of Mr. Netanyahu as Prime

Minister. He is still in office.

2.3.3. The countrys judicial system.

2.3.3.1. General Overview

The judicial system in Israel is divided into two main categories:

one, comprising the general law courts and the other

comprising tribunals and other authorities having judicial

powers.

Israel employs a single system of general law courts. The

Basic Law: The Judiciary, establishes a three-tier court system,

as follows:

The Supreme Court

District CourtsMagistrates Courts

The Supreme Court is an appellate court which also functions

as the High Court of Justice. Israel does not employ a jury

system.

Other types of tribunals which have been established in Israel

to regulate issues and/or disputes in a specific area of law,

include:

trial courts


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Family Courtswhich have the authority to deal with

disputes relating to family law and related matters;

Labour Courtswhich have the authority to deal with

labour law and related issues, to make decisions with

respect to collective agreements and extension orders in

Israel, as well as to handle employment disputes

between, inter alia,employers and employees;

Antitrust Tribunalwhich has the authority to exempt or

approve restrictive arrangements and to rule on

applications submitted by the Antitrust Controller with

respect to monopolies and mergers as well as on

applications seeking injunctive relief in connection with

the aforegoing. In addition, the Antitrust Tribunal serves

as a court of appeals to which considers appeals of theAntitrust Controllers decisions with respect to the

approval or exemption, as applicable, of restrictive

arrangements, mergers and monopolies;