Israel will make profits derived from private equity funds investments tax-exempt for foreign investors, its finance ministry said in a statement.
The change is one of many tax breaks Israel has recently instituted to attract investment. These include tax exemptions on profits from the sale of shares of Israeli companies and on profits from investments in corporate bonds.
The private equity regulation is designed to make the Israeli economy more attractive to foreign investors in the wake of the economic crisis. Presently, the profits of foreign investors in private equity funds are taxed at a rate of 15 percent for individuals and 25 percent for corporations.
Profits on investments in venture capital funds are already tax-free, a measure that has significantly increased foreign investments in domestic venture capital funds, the ministry noted.
In Israel, there are currently 10 active private equity funds with an investment volume of approximately $2.5 billion.
The ministry did not reply to requests for comment at press time.
China is also trying to court private equity investors with incentives. In December 2008, Hangzhou, the capital city of China's Zhejiang province, reportedly planned to launch a private equity incentive package, which includes subsidiaries of up to RMB5 million ($732,247; €528,284) for private equity firms.
In August 2008, Shanghai released equities investment guidelines, which will allow foreign investors, including private equity, venture capital and hedge funds focused on Chinese equities to set up a local entity that enjoys the legal status of local firms and receives special tax treatment, according to a government document obtained by Reuters.