Merchandise Trade

• Israel has been a member of the World Trade Organization (WTO) since April 21, 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since July 5, 1962.


• The average import tariff rate in Israel is 1%. This rate is among the lowest in the world and is indicative of the country's welcoming environment for international trade.


• Exports of goods, certain services and various other transactions are zero rated and certain transactions are exempt. Banks and other financial institutions pay value added tax (VAT) equivalent taxes at a rate of 17% based on their total payroll and profits. Non-profit organisations pay VAT-equivalent tax (wage tax) at a rate of 7.5% of their total payroll.


• Israel's WTO tariff schedule indicates higher rates for agricultural products but relatively low rates for intermediate inputs. Most of Israel's main trade partners, including the United States and the European Union (EU), are covered by free trade agreements (FTAs) which have eliminated the vast majority of tariffs.


• Trade relationships with major partners are reinforced by Israel's wide range of FTAs, with agreements in place with the EU, the United States, the European Free Trade Association (EFTA), Mexico, Turkey, Canada, Jordan, Egypt, Colombia and Mercosur (Southern Common Market).


• Customs duty is imposed on certain products imported into Israel. The rates of duty depend on their classification according to the Harmonised Customs Tariff and the country of origin.


• Israel imposes excise taxes on a variety of goods (such as gasoline and diesel fuel used for transport, as well as tobacco and alcohol). The excise taxes are levied item-by-item and the rates vary.


• Most goods can be freely imported into Israel, although licences are required for defence-related items. When applying for an import licence, the importer must either be an Israeli resident, a corporation or a non-profit organisation registered in Israel.


• Israel's import tariffs are classified under the Harmonised System codes. Ad valorem duties are imposed on imports' transaction value (declared by importers). On top of custom duties, a VAT is applied to almost all imported and domestically produced goods and services. For imports, VAT is levied based on the cost, insurance and freight value, plus custom duties.


• Israel maintains strict regulations on product labelling and country of origin marking. All imports into Israel must have a label showing the country of origin, the name and address of the manufacturer, the name and address of the Israeli importer and the contents, and the weight and volume in metric units. All labels must be in Hebrew. English may be added, but the printed letters must not be larger than the Hebrew ones.


• Customs procedures are streamlined and do not require excessive documentation or lengthy delays, and the risk of businesses being solicited for bribes by customs officials is low. There are few additional non-tariff trade barriers as the government is committed to supporting free trade.

Sources: WTO – Trade Policy Review, National Sources, Fitch Solutions

Trade Updates

The Israeli government is pursuing an FTA with India.

Multinational Trade Agreements

Active

1. United States-Israel FTA: The United States is Israel's single largest export partner and second-largest import partner, a situation which has been encouraged by the FTA between the two countries. This trade pact was established in 1985 to lower the trade barriers facing certain goods. The agreement reduces rates of duty and, in some case, eliminates all duties on merchandise exported from Israel to the United States. The agreement also covers merchandise exported from Israel, the Gaza Strip and the West Bank. This pact confers major advantages on Israeli businesses, which are able to access the United States market with negligible tariff or non-tariff barriers.


2. EU-Israel Association Agreement: The legal basis for EU trade relations with Israel is the EU-Israel Association Agreement, which entered into force in June 2000. The aim of this agreement is to provide an appropriate framework for political dialogue and economic cooperation between the EU and Israel. Trade between the EU and Israel is substantial and some of the country's main trade partners, including Germany, Belgium and Italy, are members of the bloc.


3. Israel-EFTA: Israel has an FTA with members of the EFTA, which includes Iceland, Liechtenstein, Norway and Switzerland.


4. Israel-Turkey FTA: Turkey is an important trade partner and the two countries are seeking to boost economic ties. Sometimes fractious relations between the two countries have limited potential trade, but energy links are being mooted as Israel plans to exploit its offshore natural gas fields.


5. MERCOSUR-Israel FTA: MERCOSUR (Southern Common Market), consists of Argentina, Brazil, Paraguay and Uruguay. The Israeli government is attempting to boost trade ties with Latin America as part of its diversification efforts to reduce reliance on the United States and EU markets. However, trade between Israel and Latin American countries remains relatively low.


6. Canada-Israel FTA (CIFTA): In 2014, Canada and Israel agreed to modernise the CIFTA, a goods-only agreement in force since January 1, 1997. A modernised CIFTA will improve access to the Israeli market for Canadian companies through further elimination and reduction of tariffs on agricultural and fisheries products. With the inclusion of new progressive elements on gender, small- and medium-sized enterprises and corporate social responsibility, as well as labour and environmental protections, the modernised CIFTA will signal the importance of progressive trade and ensure that the benefits and opportunities that flow from trade and investment are more widely shared.


7. Israel-Jordan Trade Agreement: A bilateral agreement exists between Israel and Jordan, which aims to boost economic ties between Israel and the Arab state with which it has established diplomatic relations. Nevertheless, trade flows between the two countries remain limited at present.

Under Negotiation

Israel-India FTA: An FTA with India is being negotiated. In 2018, India was Israel's seventh-largest export partner and 10th largest import partner. The bulk of products traded between the two countries are natural or cultured pearls, precious or semi-precious stones and precious metals. A future FTA between the two countries is expected to boost such trade further.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 17%
• Corporate Income Tax: 23%

Source: Israel Tax Authority

Important Updates to Taxation Information

As of January 1, 2018, the standard corporate income tax rate was lowered from 24% to 23%, following another reduction in 2017 which had brought it down from 25%. This lower tax rate reduces operational costs for businesses and aims to encourage growth and competitiveness in Israeli industries. Nevertheless, the tax burden on businesses remains higher than that experienced in Gulf Cooperation Council states, where no corporate income tax is charged.

Localisation Requirements

A notable risk to businesses in Israel that need to employ foreign staff is the difficulty of obtaining foreign worker visas. Although any Jewish person wanting to live and work in Israel is eligible to apply for a right of return visa, other foreign workers must apply for a B-1 visa and are subject to the provisions laid out by the ministry.

The candidate must be sponsored by a business and can only work for that organisation while domiciled in Israel. An applicant and his or her employer can apply for a work permit that will be valid for two years, one year, three months or 45 days. As part of the process, a candidate must first receive a recommendation from the Ministry of Interior to work in Israel. This requires convincing the ministry that the employee is an expert in their field, is earning more than twice the average salary in the market and that there is no available Israeli citizen who can perform the same task. The application process usually takes up to 90 days and the cost is USD2,925.

Visa/Travel Restrictions

Most business travellers can enter Israel visa-free with a right to stay in the country for three months. Nationals of some Muslim-majority countries in the Middle East, North Africa and Asia require confirmation from the Israeli government before travel, but this should not cause major delays. Israel has visa exemption agreements with many jurisdictions. Tourist visa exemption applies to national and official passports only, and not to other travel documents. Citizens of some jurisdictions, including Hong Kong, are exempt from obtaining transit and class B-2 visas.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Hong Kong’s Trade with Israel

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Non-metallic mineral manufactures	1,172.8
Commodity 2	Electrical machinery, apparatus and appliances, and electrical parts thereof	206.2
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	193.0
Commodity 4	Office machines and automatic data processing machines	69.8
Commodity 5	Miscellaneous manufactured articles	37.1

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Non-metallic mineral manufactures	1,502.3
Commodity 2	Electrical machinery, apparatus and appliances, and electrical parts thereof	153.6
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	56.7
Commodity 4	Machinery specialized for particular industries	54.8
Commodity 5	Professional, scientific and controlling instruments and apparatus	52.0