2025 Israeli Tax Reforms
The Ministry of Finance, the Tax Authority and the Israel Innovation Authority announced a comprehensive reform in high-tech taxation designed to enhance tax certainty, remove investment barriers, encourage rapid return of Israeli high-tech professionals from relocation abroad, and streamline bureaucratic procedures. The primary goal of the reform is to increase tax certainty and streamline bureaucratic processes at critical junctures, in order to encourage the continued growth of Israel’s high-tech industry.
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 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.
- Merger and acquisition of Israeli companies:
- A series of reliefs in the process of acquiring companies and merging companies – which have already been approved and entered into force.
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 centers, 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 centers 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.
- Creating a green track for the transition from taxation of capital compensation pursuant to section 3I of taxation under section 102 of the Ordinance.