Israeli Tech Startups Increasingly registering themselves in USA, says IIA

A growing number of Israeli tech startups are incorporated in the United States, drawn by deep-pocketed US funds and pro-business policies and aided by a planned judicial overhaul in Israel, which has alarmed investors.

This is a reversal from the previous decade when Israel was able to persuade more of its startups to establish their legal identity domestically.

It may not mean a mass exodus of jobs – the tech sector employs 14% of Israelis – but registering companies or intellectual property (IP) abroad can affect where taxes are paid and, thus government revenue.

Entrepreneurs and investors told Reuters there were good business reasons for incorporating in the United States, and particularly Delaware, which is considered pro-business and a tax haven as it has low corporate and no state sales taxes.

Though the overhaul does not directly affect the tech sector, Ian Amit, a former Israeli military officer, frets about its impact and is taking his startup across the Atlantic.

The economic risk for Israel's government is that its plans, which have sparked unprecedented nationwide protests, will scare away a tech industry that accounts for nearly a fifth of the country's GDP and about 30% of tax revenue. Some business owners appear to be voting with their feet.

According to an Israel Innovation Authority (IIA), survey, as many as 80% of new Israeli tech startups in 2023 have chosen to incorporate in Delaware, up from 20% in 2022, and companies intend to register future IP overseas. The IIA did not disclose the number of companies polled.