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TO RUEHC/SECSTATE WASHDC PRIORITY 0617
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUCPCIM/CIMS NTDB WASHDC PRIORITY
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RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 06 JERUSALEM 000299 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, NEA/IPA FOR 
GOLDBERGER/SHAMPAINE/BELGRADE 
PLEASE PASS TO USTR, TREASURY FOR NUGENT/HIRSON, COMMERCE 
FOR LOUSTANAU 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KPAL KTDB PGOV USTR OPIC
KWBG, IS 
SUBJECT: WEST BANK/GAZA INVESTMENT CLIMATE STATEMENT 2008 
 
REF: 2007 SECSTATE 158802 
 
Post submits the following 2008 Investment Climate Statement 
for the West Bank and Gaza Strip. 
 
BEGIN TEXT 
 
INVESTMENT CLIMATE STATEMENT - 2008 
WEST BANK AND GAZA STRIP 
------------------------ 
 
INTRODUCTION 
 
Internal Palestinian political issues and the 
Israeli-Palestinian conflict continue to impact negatively 
the development of the Palestinian economy in the West Bank 
and Gaza Strip (WB/G).  Following the establishment of a 
Palestinian Authority (PA) Government under the leadership of 
Prime Minister Salam Fayyad in June 2007, the PA has 
demonstrated a renewed determination to improve the 
investment climate in the WB/G and to attract foreign 
investment.  The PA has undertaken a number of significant 
reforms and prepared a three year reform and development plan 
that was endorsed by the international community in December 
¶2007.  The PA's development plan emphasizes the importance of 
private sector investment and growth as a vital source of new 
jobs and a sustainable economy. 
 
At the time this report was drafted, Hamas, a designated 
Foreign Terrorist Organization (FTO), remained in control of 
the Gaza Strip, having violently seized power in June 2007. 
Where applicable, this report addresses issues related to 
investment in the Gaza Strip, although there are currently no 
opportunities for meaningful private investment in Gaza due 
to Hamas' control. 
 
This report focuses on investment issues related to areas 
under the administrative jurisdiction of the Palestinian 
Authority, except where explicitly stated.  Given the 
changing circumstances on the ground, potential investors are 
encouraged to contact the U.S. Consulate General in Jerusalem 
and the Foreign Commercial Service for the latest information. 
 
OPENNESS TO FOREIGN INVESTMENT 
 
PA laws have established a legal structure that aims to 
promote foreign investment.  The 1998 Investment Law 
guarantees the repatriation of foreign capital and prohibits 
expropriation and nationalization of approved foreign 
investments.  PA law states that no restrictions govern 
foreign currency accounts. 
 
FOREIGN TAXES 
 
All new foreign investment in WB/G must be registered with 
the PA and approved by the relevant ministry/ministries. The 
income tax law is intended to incorporate both West Bank and 
Gaza.  Ministry of Finance officials stated to USG officials 
in January 2008 that the PA's corporate tax rate is 15 
percent, while personal income tax is specified according to 
the following: 
- 5 percent for income between NIS 1 - 10,000; 
- 10 percent for income between NIS 10,001 - 25,000; and 
- 15 percent for all incomes above NIS 25,001. 
 
A 20 percent tax is withheld at source from dividends 
distributed in WB/G to shareholders of a foreign company. 
There are no taxes due on dividends distributed to 
shareholders of Palestinian companies regardless of where 
they live or their nationality, and regardless of whether 
they are an individual or a company.  An automatic deduction 
at the source of 25 percent is withheld from companies, 
unless they obtain a "Deduction at the Source Certificate," 
which grants a reduced rate that ranges between zero and five 
percent.  Applications for these certificates are available 
from district tax offices. 
 
Exemptions 
The 1998 Investment Law provides a number of incentives, 
including exemption from taxes, for PA-approved domestic and 
foreign investment.  To benefit from these incentives, 
 
JERUSALEM 00000299  002 OF 006 
 
 
investors must apply to the Palestinian Investment Promotion 
Agency (PIPA), a department of the PA Ministry of National 
Economy, and present it with a completed investment 
application and feasibility study.  PIPA is composed of both 
public and private sector members. 
 
Pre-approval 
Certain investment categories require PA Council of 
Ministers' pre-approval.  These include investments involving 
(1) weapons and ammunition, (2) aviation products and airport 
construction, (3) electrical power generation/distribution, 
(4) reprocessing of petroleum and its derivatives, (5) waste 
and solid waste reprocessing, (6) wired and wireless 
telecommunication, and (7) radio and television. 
 
CONVERSION AND TRANSFER POLICIES 
 
The 1998 Investment Law guarantees investors the repatriation 
of all financial resources, including capital, profits, 
dividends, wages, and salaries.  There are no other PA 
restrictions governing foreign currency accounts and currency 
transfer policies. 
 
EXPROPRIATION AND COMPENSATION 
 
The 1998 Investment Law prohibits expropriation and 
nationalization of approved foreign investments, except for 
the pursuit of the public good, which shall be in return for 
fair compensation based on market prices and for losses 
suffered because of such expropriation. 
 
PA sources and independent lawyers say that any Palestinian 
citizen can file a petition or a lawsuit against the PA. 
There are on-going court cases involving illegal confiscation 
of property by PA senior government officials; however, there 
has been no ruling on most of these cases.  A general lack of 
confidence in the judicial system has prompted citizens to 
look for alternative means of arbitration to resolve such 
disputes. 
 
DISPUTE SETTLEMENT 
 
The 1998 Investment Law provides for dispute resolution 
between the investor and official agencies by binding 
independent arbitration or in Palestinian courts.  It has 
been reported that some contracts contain clauses referring 
dispute resolutions to the London Court of Arbitration. 
 
PERFORMANCE REQUIREMENT AND INCENTIVES 
 
Certain incentives apply to Palestinian Investment Promotion 
Agency-approved investments: 
 
- Investments whose value is between USD 100,000 and USD 1 
million will be exempt from income tax for five years and be 
subject to income tax on their net profit at 10 percent for 
an additional eight years; 
 
- Investments whose value is between USD 1 million and USD 5 
million will be exempt from income tax for five years and be 
subject to income tax on their net profit at 10 percent for 
an additional 12 years; 
 
- Investments whose value is USD 5 million and above will be 
exempt from income tax for five years and be subject to 
income tax on their net profit at 10 percent for an 
additional 16 years; 
 
- Special projects recommended by PIPA and approved by the 
Council of Ministers will be exempted from income tax for 
five years and be subject to income tax on their net profit 
at 10 percent for an additional 20 years; and 
 
- Investments in information technology (IT) training may be 
capitalized and depreciated for tax purposes. 
 
The United States continues to support private sector 
development in the WB/G.  In 2007, the Overseas Private 
Investment Corporation (OPIC), working with Palestinian and 
U.S. partners, helped establish a program that will generate 
at least USD 228 million in lending to Palestinian small and 
 
JERUSALEM 00000299  003 OF 006 
 
 
medium enterprises over the next 10 years.  OPIC is also 
seeking to establish a new mortgage finance company which 
will offer long-term mortgage loans to potential home-buyers. 
 By dramatically expanding access to long-term credit, the 
mortgage facility will support several new affordable housing 
development projects, thus stimulating the construction 
sector.  OPIC is also investigating the possibility of 
providing political risk/trade disruption insurance to 
businesses operating in the West Bank.  In addition, in 
December 2007, the Secretary of State launched the 
U.S.-Palestinian Public-Private Partnership to support the 
development of economic and educational opportunities for 
Palestinian youth and to foster business opportunities in the 
West Bank. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
The right to private ownership in Gaza is guaranteed by 
British Mandate law, as amended by regulations issued by the 
PA.  Jordanian law in the West Bank, as amended by PA 
regulations, similarly guarantees the right to private 
ownership.  Foreigners must obtain permission from the PA 
before purchasing property in areas under PA civil authority 
and from the appropriate Israeli authorities before 
purchasing property in West Bank areas under Israeli control. 
 PIPA outlines the following concerning foreign ownership of 
property: 
 
The Acquisition Law in the West Bank, which regulates foreign 
acquisition and the rental or lease of immovable properties, 
classifies foreigners into three categories: 
 
- Foreigners who formerly possessed Palestinian or Jordanian 
passports shall have the right to own certain properties 
sufficient to erect buildings and/or for their agricultural 
projects. 
 
- Foreigners who hold other Arab nationality passports have 
the right to own certain property that suffices for their 
living and business needs only. 
 
- Other foreigners must receive permission from the PA 
Cabinet to own buildings or purchase land. 
 
It is critical that potential purchasers of land or buildings 
perform a title search to be assured that no outstanding 
violations or unpaid penalties exist on the property.  Under 
current law, violations and penalties are transferred to the 
new owner. 
 
Accurate title search can only be obtained from the PA Land 
Authority (al-Taboh).  Land registration is done through the 
Land Registries in Hebron, Ramallah, Qalquilya, Tulkarem, 
Nablus, Bethlehem, Jericho, Jenin, and Gaza City.  In order 
to purchase land in WB/G, an application that includes 
supporting documents, such as deeds to the property and 
powers of attorney, should be submitted to the land registry 
office having jurisdiction over the land. 
 
PROTECTION OF PROPERTY RIGHTS 
 
The West Bank and Gaza do not have a modern intellectual 
property rights (IPR) regime in place.  The PA was indirectly 
committed to the GATT-TRIPS agreement when it signed the 
Interim Agreement on WB/Gaza according to Annex III (Protocol 
Concerning Civil Affairs), Appendix 1, Article 23.  All IPR 
legislation pertaining to WB/G originates from British 
Mandate Law regardless of the change in control over the 
years.  Pre-1967 era Jordanian laws concerning trademarks, 
patents, and designs are applicable in the West Bank. In 
Gaza, the Palestinian Trademark and Patent Laws of 1938, 
adopted during the British Mandate, are applicable. 
Registration under the two laws is very similar, and, despite 
different authorizing legislation, there are few substantive 
differences between IPR laws in the West Bank and Gaza Strip. 
 According to PA contacts, the PA is working on a modern law 
that will encompass areas of Copyright, Patents and Designs, 
Trademarks, and Merchandise Branding. 
 
Patent protection in WB/G is provided for a period of 16 
years from the date of filing the patent application. 
 
JERUSALEM 00000299  004.2 OF 006 
 
 
Furthermore, both systems require licensing of anything 
already patented if the reasonable requirements have not been 
met.  Trademark protection is available for registered 
trademarks for a period of seven years, which may be extended 
for additional periods of 14 years.  The proprietor of a 
trademark in WB/G owns the sole right to the use of the 
trademark in association with the goods with which the 
trademark is registered.  The trademark is open for 
opposition after being published in the Gazette for a period 
of three months.  The holder of a trademark retains the right 
to bring civil action against any perpetrator in addition to 
criminal proceedings.  There is minimal enforcement of IPR 
laws in WB/G. 
 
TRANSPARENCY OF REGULATORY SYSTEM 
 
The PA has worked to erect a sound legislative framework for 
business and other economic activity in the areas under its 
jurisdiction since its creation in 1994; however, much work 
remains to be done.  Al Mustakbal, a Palestinian 
non-governmental organization (NGO), in its September 2006 
report on legislative reform in the business sector, stated 
that a number of institutional and procedural dysfunctions 
have impeded efforts to establish a transparent regulatory 
system, including a lack of clear goals in policy formation; 
an unsystematic process for passing laws; dysfunctions within 
the Palestinian Legislative Council (PLC), and a lack of 
sustained and coordinated donor support. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Major progress was achieved in 2004 with the passage by the 
PLC of the Capital Markets Authority Law, the Securities 
Commission Law, and the establishment of the Capital Market 
Authority, the regulator of the stock exchange and insurance 
industries, among others. 
 
Several foreign banks, mostly Jordanian, have established 
WB/G branches, but financial services remain limited.  Credit 
is limited by concerns over uncertain political and economic 
conditions in WB/G and limited availability of real estate 
collateral due to non-registration of most West Bank land. 
Correspondence and other international banking relationships 
are evolving.  No Palestinian currency exists, and, as a 
result, the PA places no restrictions on foreign currency 
accounts, leading some observers to believe that WB/G will 
show strong growth in offshore banking services.  The 
Palestinian Monetary Authority (PMA) is responsible for bank 
regulation. 
 
Palestinian Securities Exchange 
In early 1997, the Palestinian Securities Exchange (PSE) 
started operations on a limited scale in the West Bank city 
of Nablus.  Twenty-eight share holding companies have been 
approved for listing so far with additional companies 
authorized for future listing.  The current list of companies 
spans a wide range of sectors including pharmaceuticals, 
utilities, telecommunications, and financial services.  There 
are currently an estimated forty Palestinian companies 
eligible to be listed on the Exchange with a market 
capitalization of over 1 billion USD.  PSE operations have 
been disrupted several times in 2007-2008 as a result of 
Israeli military operations in Nablus. 
 
POLITICAL VIOLENCE 
 
In June 2007, Hamas forces violently seized control of Gaza, 
removing PA forces from government facilities.  Since that 
time, crossings between Israel and Gaza have been closed to 
most shipments, with only limited humanitarian shipments and 
certain commercial shipments allowed to enter Gaza.  Exports 
from Gaza have been severely restricted.  As a result of 
these restrictions, economic activity in Gaza has slowed 
dramatically.  According to 2007 World Bank reports, as many 
as 80 percent of private sector businesses have closed as a 
result of the current economic situation. 
 
Economic and political instability resulting from the 
continued Israeli-Palestinian conflict, inter-factional 
fighting within Palestinian areas, and ongoing Israeli 
military operations have had a significant impact on the 
 
JERUSALEM 00000299  005 OF 006 
 
 
operations of the private sector in the WB/G.  In recent 
years, the GOI has increased the number of obstacles to 
movement of goods and people within the West Bank and between 
Israel and the WB/G.  These measures have restricted economic 
activity in WB/G.  The World Bank and the UN Trade and 
Development Conference estimated that these obstacles had 
cost the Palestinian economy USD 8.4 billion from 2000-2006. 
The State Department, at the time of this writing, has in 
place a travel warning that urges American citizens to defer 
travel to the West Bank and to avoid all travel in the Gaza 
Strip. 
 
CORRUPTION 
 
The U.S. Consulate General in Jerusalem has received reports 
of potential foreign and domestic investors being asked to 
provide inducement fees or to include well-connected persons 
in their business arrangements to help secure a contract. 
There are no reliable means of determining where or to what 
extent this kind of activity occurs.  When crossing points 
between Gaza and Israel were open - prior to June 2007 - many 
Palestinian businesses reported corrupt practices by guards 
stationed at the crossings.  According to those reports, 
border guards would allow certain shipments access to the 
crossings in exchange for large amounts of cash. 
 
TRADE AGREEMENTS AND TARIFF STRUCTURES 
 
The PLO, on behalf of the PA, has signed international trade 
agreements, which on more than one occasion implicitly or 
explicitly refer to WTO rules. These include: 
 
1)    Interim Association Agreement with the EU (1997) 
2)    Free Trade Agreement with EFTA states (1998) 
3)    Duty Free Arrangements with the United States (1996) 
4)    Free Trade Framework with Canada (1999) 
5)    Preferential trade agreements with Jordan and Egypt 
(1996 and 1998) 
6)    Unilateral acts by other Arab trade partners extending 
preferential treatment to trade with Palestine 
7)    Greater Arab Free Trade Area, to which PA is a party 
(2003) 
8)    Free Trade Agreement with Turkey (2004) 
 
Since 1996, duty-free treatment has been available to all 
goods exported from the WB/G to the U.S. provided they meet 
qualifying criteria as spelled out in the U.S.-Israel Free 
Trade Area (FTA) Implementation Act of 1985, as amended.  The 
duty-free benefits accorded under the FTA exceed those 
benefits which would be provided under the Generalized System 
of Preferences (GSP). 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
OPIC provides a variety of services to qualified U.S. 
investors in emerging economies and developing nations. 
During the early stages of investment planning, U.S. 
investors may contact OPIC for insurance against political 
violence, inconvertibility of currency, and expropriation in 
the form of an insurance registration letter.  OPIC insurance 
is not available after the investment has been irrevocably 
committed.  As stated above, OPIC has initiated a number of 
programs in the WB/G to support private sector development. 
 
The World Bank, via a USD 20 million fund administered by its 
Multilateral Investment Guarantee Agency (MIGA), provides 
guarantees in the form of insurance against political risk 
for private investments in the WB/G.  Under the terms of the 
Fund, investors who are nationals of or companies 
incorporated in a MIGA member country, or who are Palestinian 
residents of the WB/G, are eligible to obtain guarantees 
provided that investment is brought in from outside the WB/G. 
 The Fund currently has the capacity to issue guarantees for 
up to USD 5 million per project. 
 
LABOR 
 
The working age population (over the age of 15) reached 
2,375,000 (54.2 percent of the total population) by 2007. 
According to the Palestinian Central Bureau of Statistics 
(PCBS), as of September 2007, 92 percent of WB/G workers were 
 
JERUSALEM 00000299  006 OF 006 
 
 
employed in the WB/G, while eight percent were employed in 
Israel and the Israeli settlements in the West Bank).  In 
2007, nearly 40 percent of those working in Israel, including 
the settlements, worked in construction.  Women account for 
some 15 percent of the formal labor force (16.4 percent in 
the West Bank, 10 percent in Gaza) and are concentrated in 
the services and agricultural sectors.  According to PCBS, 
roughly 24 and 36 percent of the West Bank and Gaza Strip's 
eligible workers, respectively, are unemployed. 
 
Labor force distribution (percentage) by sector is as 
follows: 
(Source: PCBS website) 
 
West Bank (2007) 
- 15.7 percent - Agriculture, Forestry, Fishing, Hunting 
- 14.8 percent - Mining, Quarrying, Manufacturing 
- 14.4 percent - Construction 
- 20.6 percent - Commerce, Hotels, Restaurants 
- 6.0 percent - Transportation, Storage, Communication 
- 28.5 percent - Services and other 
 
Gaza (2007) 
- 11.7 percent - Agriculture, Forestry, Fishing, Hunting 
- 8.3 percent - Mining, Quarrying, Manufacturing 
- 9.3 percent - Construction 
- 16.2 percent - Commerce, Hotels, Restaurants 
- 5.1 percent - Transportation, Storage, Communication 
- 49.7 percent - Services and other 
 
FOREIGN TRADE ZONES/FREE PORTS 
 
There are no foreign-trade zones or free ports in WB/G. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
The PA has not yet compiled a complete listing of foreign 
direct investment statistics.  Limited foreign investment 
flows began in 1994-95, with the majority of funds coming 
from Palestinian investors.  The largest foreign company in 
WB/G is the Palestine Development and Investment Company 
(PADICO), which has invested over USD 500 million in WB/G. 
Key PADICO investors include Diaspora Palestinians from 
Jordan, Great Britain, and the Arabian Gulf.  PADICO has made 
significant investments in telecommunications, housing, the 
Gaza Industrial Estate, and the establishment of the 
Palestinian Securities Exchange in Nablus.  Another large 
foreign investment group active in WB/G with authorized 
capital of over USD 100 million is the Arab Palestinian 
Investment Company (APIC), which is headquartered in the West 
Bank city of Ramallah. 
 
END TEXT. 
WALLES