Israel’s Finance Ministry seeks public input on draft legislation introducing refundable R&D tax credits and location-based incentives to keep the country’s high-tech sector competitive under the 2026 OECD Pillar 2 minimum tax. The consultation closes on 24 December 2025.
Israel’s Ministry of Finance launched a public consultation on 15 December 2025 on a draft memorandum aimed at keeping the country’s tax incentives competitive ahead of the introduction of a qualified domestic minimum top-up tax in 2026.
The proposed law aims to preserve and enhance Israel’s advantages for knowledge-intensive industries, particularly in light of the country’s adoption of the OECD-led Pillar 2 framework and the planned implementation of a local minimum tax on the income of Israeli resident companies within multinational groups. The law also offers incentives to keep Israel competitive in knowledge-intensive sectors while complying with OECD rules.
The government released a memorandum on 5 October 2025 containing draft legislation for the proposed tax.
This legislative memorandum outlines a proposed 2026 economic plan designed to maintain Israel’s competitive edge in the high-tech sector amidst shifting global tax regulations. To comply with the OECD Pillar 2 framework, the law introduces a tax credit system for research and development expenses incurred by multinational industrial groups operating within Israel. Incentives vary by location, offering higher benefits to companies in peripheral development zones or those with exceptionally high R&D investments.
Eligibility is determined by specific criteria, including a minimum of 200 Israeli employees and significant revenue from local technological activity. The Innovation Authority is tasked with certifying qualifying expenses. At the same time, the Minister of Finance is authorised to convert credits into grants to ensure they remain recognised under international standards.
The primary driver for this legislation is Israel’s adoption of the OECD Pillar 2 model, which introduces a global minimum corporate tax rate of 15%.
Historically, Israel has attracted multinational tech companies through low tax rates; however, under new global rules, these traditional incentives may lose effectiveness. To counteract this, the bill proposes Qualified Refundable Tax Credits, which the OECD views as “activity-based” incentives that are less vulnerable to tax-base erosion risks.
The law is set to take effect on 1 January 2026. Credits are generally applied against income tax (or the local supplemental tax) in the tax year following the year the expenses were incurred.
The consultation is set to conclude on 24 December 2025.
