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Israeli Government Offers 12.5% of Costs for Intel's Kiryat Gat Plant

Treasury would supplement this with a package of tax breaks.

After approving a $250 million investment grant for

Tower Semiconductors

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last week, the government has turned its attention to the request by


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to provide some of the investment in a plant to be built in Kiryat Gat. The total investment in Intel's new facility and in its existing one is expected to reach as much as $3.5 billion. The state of Israel will apparently be providing about 12.5% of the total investment in Intel's new plant.

Talks with Intel were delayed as the Investments Promotion Center of the

Ministry of Industry and Trade

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wrestled over the grant for Tower, which is building a facility in Migdal Ha'emek at a total cost of $1.25 billion.

The government has already advised Intel that it cannot afford to provide the standard 20% investment grant, as it did in the case of Tower Semiconductor's smaller investment. In this case 20% would amount to $700 million, and it would break the kitty.

Instead the state offered to grant Intel a full tax exemption for 10 to 15 years. But Intel claims that this offer does not meet incentives offered by other countries. Intel and the state, represented by Finance Minister Avraham Shochat, have agreed to work out a package comprising grants and tax benefits.

Of the $3.5 billion Intel plans to invest, about $1 billion would go to enhance the company's existing facilities in Kiryat Gat. Intel is apparently ready to consider tax breaks instead of a grant for this part of the investment, while seeking to receive an incentive grant for the remaining $2.5 billion.

According to sources close to discussions between the government and Intel, the treasury and the Ministry of Industry and Trade have offered a grant totaling 12.5% of the investment, complemented by tax benefits including a two-year tax-exempt status followed by a 10% tax rate for eight years. The government, of course, hopes to minimize the grant component, while Intel prefers to receive as much as possible in the form of grants rather than tax breaks.

Shochat stressed last week that the government will do its best to accommodate Intel in light of the importance it attaches to the planned investment, especially during this period of security problems.

Intel has also made clear that it would like to expand its operations in Kiryat Gat with this major investment, but its final decision would depend on the competitiveness of the Israeli offer in comparison with the benefits offered in other countries.

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