Just before the sukkot holiday, the Ministry of Finance published a draft bill designed to oblige large multi-national companies operating in Israel to pay a minimum rate of tax of 15% from 2026. For giant companies some of which currently pay rates of tax in the single digits, this looks like a significant change. The picture, however, is much more complicated. In practice, instead of low tax rates, companies will be able to obtain the right to tax rebates from the state. In any case, opposition to the move by the Trump administration in the US raises doubts over the future of the legislation.
What lies behind the proposed legislation? Some 140 countries, Israel among them, have announced their accession to the OECD agreement designed to prevent “a race to the tax bottom” in which countries cut their rates of corporate taxation in order to attract foreign companies, creating tax shelters that distort the global distribution of taxation.
Israel joined the agreement in June 2021, and, in July 2024, Minister of Finance Bezalel Smotrich announced that the reform would be implemented from 2026. Many countries, such as the EU countries, the UK, Japan, and South Korea, have begun partial or full implementation of the measure.
There is, however, a problem. In January 2025, US President Donald Trump issued a presidential order declaring that the taxation agreement “has no validity in the US.” Moreover, at the G7 meeting in June 2025, a compromise was reached exempting US companies from the global minimum tax rate. That changes the rules of the game, and creates uncertainty about the effect of the OECD agreement that Israel is now implementing.
The law will apply to Israeli companies and to permanent establishments of foreign companies in Israel with a global turnover of at least €750 million. In simple terms, it will affect the local branches of global technology giants that currently pay less than 15% tax. But if US companies are exempt from these rules, then giants such as Intel, Facebook, and Google may not be liable to this rate of taxation, while Asian and European companies will be.
The standard rate of companies tax in Israel is 23%, but companies operating under the Law for the Encouragement of Capital Investment are entitled to significant breaks. Enterprises in the periphery of the country pay between 5% and 7.5%; enterprises in national priority area A pay 7.5%; research and development centers generally pay 12-16%; and in central areas the benefit can be up to 16%.
Intel, for example, pays an estimated 5-7.5% on the activity of its fab in Kiryat Gat, and 12% on the activity of its development centers in Haifa, Jerusalem, and Petah Tikva. Nvidia is estimated to pay 5% currently, the minimum rate under the Law for the Encouragement of Capital Investment. Other technology companies, such as Microsoft, Google, and Amazon, enjoy similar benefits, in accordance with the locations of their activities. The further away from the center of the country, the greater the tax benefit.
The Ministry of Finance estimates that tax receipts from the raising of the minimum companies tax rate will be NIS 3.5 billion annually from 2028, but this does not take into account incentives given to multi-national companies.
How can Israel continue to attract foreign companies? An inter-ministerial committee headed by the Ministry of Finance is formulating a package of incentives that will conform with the OECD rules. The main mechanism is a qualified refundable tax credit (QRTC), a mechanism explicitly permitted by the OECD, in which, instead of a tax exemption, a country gives direct tax rebates, without reducing the effective rate of tax.
For example: A company pays 15% tax on profits of NIS 100 million, i.e., NIS 15 million. The state then refunds NIS 5 million to it as a QRTC. In practice, the company pays NIS 10 million, but for the purposes of calculating the effective rate of tax under the OECD rules, it has paid 15%.
Up to now, the most generous tax breaks have gone to companies setting up operations in the periphery. After the legislation, Israel will have to find other ways of giving incentives for such companies. It is possible that higher QRTCs will be awarded to companies operating in remote areas.
The Ministry of Finance has undertaken to publish the incentives program no later than the date on which the bill is submitted for approval by the ministerial legislation committee.
Published by Globes, Israel business news – en.globes.co.il – on October 9, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
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