Approval of Minimum Tax Legislation for Multinational Corporations in Israel

Introduction

The Knesset Finance Committee has approved, in a second and third reading, a bill that mandates multinational corporations operating in Israel to pay a minimum tax of 15% on their local profits. This legislation is expected to come into effect on January 1, 2026, as part of Israel’s commitment to international tax standards.

Key Details of the Legislation

Objective and Scope

The bill aims to ensure that large multinational corporations, with a global revenue exceeding 750 million euros, will adhere to a minimum corporate tax rate. This initiative is part of broader efforts to prevent tax income from being shifted to foreign nations, thus retaining more revenue domestically.

Background and Rationale

This legislation aligns with the newly established minimum corporate tax guidelines set forth by the OECD, specifically the “Pillar 2” rules, which are designed to create a fairer tax environment globally. Many countries are already set to implement these measures in full or in part by 2024.

Current Tax Landscape

While Israel’s current corporate tax rate is 23%, many corporations benefit from various tax incentives, resulting in lower effective tax rates. The technology sector, in particular, is expected to be significantly impacted due to these new regulations, as many leading tech companies exceed the revenue threshold.

Legislative Process

Committee Voting

The committee, chaired by MK Hanuch Milvitzki from the Likud party, was absent of other members during the vote, leading to concerns about the legislative process and oversight. Past discussions on the bill have seen varying participation from committee members, primarily focusing on technical amendments.

Financial Implications

Officials from the Finance Ministry stated that without the implementation of this legislation, companies that do not fulfill their tax obligations in Israel may face tax liabilities abroad. The law directly affects approximately 100 to 200 multinational groups primarily involved in technology and development activities within the country.

Future Considerations

To mitigate potential adverse effects on these corporations, the Finance Ministry has concurrently published a draft of a supplementary law that will allow additional tax incentives guided by OECD principles.

Conclusion

As countries worldwide move toward enhanced tax compliance measures, Israel’s new legislation marks a notable shift in the corporate tax landscape, aiming to ensure that multinational corporations contribute fairly to the economy while also navigating the complexities of global tax frameworks. Financial and business leaders are keenly watching how these changes will impact the investment climate in Israel and its ability to attract foreign investments while remaining competitive.

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Israel’s Finance Committee approves a new bill mandating a minimum corporate tax of 15% for multinational companies starting January 2026, aligning with OECD tax standards.

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