The tax reforms aim to increase tax certainty, remove investment barriers, attract Israeli high-tech professionals back from abroad, and simplify bureaucratic processes.
Israel’s Ministry of Finance presented reforms in its taxation policy on 2 November 2025, designed to facilitate activities and increase the attractiveness of the Israeli high-tech industry.
The reform was formulated by a team that included representatives from various government bodies (the Israel Tax Authority, the Ministry of Finance, and the Israel Innovation Authority) in collaboration with industry representatives.
The reform introduces legislative and procedural changes to the tax authority, supporting Israeli high-tech growth and encouraging the return of professionals and investment across all stages of company development—from early funding to IPO or acquisition.
The reform introduces several measures aimed at boosting investment and clarity in Israel’s high-tech sector. It aims to facilitate the activities of both Israeli and foreign investment funds and investors, enhance transparency and certainty in income tax and VAT, remove barriers for entities investing directly in high-tech companies, and ease regulations surrounding structural changes to encourage mergers and acquisitions, particularly in the high-tech industry.
Additional measures aim to provide greater tax certainty for multinational companies, focusing on acquisitions of Israeli firms and the management of R&D centres, as well as for the taxation of marketing intangibles. The reform also includes steps to improve the tax efficiency of relocating back to Israel.
The key issues that were discussed:
- Enhancing tax certainty concerning the tax policy in respect of management fees and carried interest in investment venture funds activity, in general and specifically concerning both foreign and Israeli investors in venture funds.
- Establishing VAT guidelines on carried interest and management fees.
- Tax incentives for direct investments by institutional investors and companies, excluding those made through venture funds as intermediaries.
- Necessary tax relief in the field of corporate restructuring, to facilitate the growth of Israeli companies (through mergers and acquisitions of Israeli companies).
- Increasing tax certainty for multinational corporations acquiring Israeli companies and managing R&D centres in Israel.
- Increasing tax certainty among employees returning to Israel from relocation and reducing disincentives to encourage a quick return to Israel.
Venture capital funds activity:
- Uniform income tax rate on carried interest of investment funds: both Israeli and foreign
- Exemption from VAT on carried interest in Israeli funds for both foreign and Israeli investors.
- Exemption from capital gains tax for foreign investing bodies and corporations on their direct high-tech investments, without limitation on investment volume and regardless of whether or not they operate in Israel.
- A fixed formula for the calculation of VAT on management fees, based on the ratio between foreign and Israeli investors in venture funds.
- Classification of Israeli investors’ investment in venture capital funds as passive investments.
Acquisition of an Israeli company by a multinational company:
- Establishing guiding principles for determining the value of intellectual property.
- Establishing guiding principles for determining the pricing method of R&D centres, and focusing on the treatment by senior staff officials.
- Establishing a track for obtaining preliminary approval by the tax authorities to determine the pricing method model that will provide certainty to the R&D centres regarding the tax liability expected in Israel.
- Adopting the OECD’s Pillar 2 rules and establishing an incentive mechanism aligned with international standards.
- Adopting the unified global minimum tax model (QDMTT).
Return of employees from relocation:
- Setting guiding rules regarding the manner of allocation of income from equity-based compensation between Israel and abroad.
- Granting an exemption from tax on income generated and accrued outside Israel.
- Establishing a credit mechanism for foreign taxes paid on income that is also taxable in Israel.
