Dear Clients,
We wish to inform you that on November 2, 2025, the Ministry of Finance, the Israel Tax Authority, and the Israel Innovation Authority announced a comprehensive reform in high-tech taxation, which includes a wide range of significant measures aimed to increase taxation certainty, removing investment barriers, encouraging the rapid return of Israelis citizens from relocation, and streamlining bureaucratic processes (for the official announcement in Hebrew – click here) (hereinafter: the “Reform”).
The primary objective of the Reform is to enhance tax certainty and streamline bureaucratic processes to encourage the continued growth of Israel’s high-tech sector. The Reform was formulated by an inter-ministerial team in cooperation with industry representatives and addresses key issues raised by the industry. Its key issues are detailed below:
Venture Capital Funds:
- A fixed income tax rate on success fees for both Israeli and foreign investment funds;
- Classification of investments by Israeli investors in venture capital funds as passive investments;
- VAT exemption on success fees for both Israeli and foreign investments;
- Exemption from capital gains tax for foreign investment entities and corporations on direct high-tech investments, without limitation on the scope of investments and regardless of their business activity in Israel;
- Fixed formula for calculating VAT on management fees, based on the ratio between foreign and Israeli investors in the funds.
Acquisition of an Israeli Company by a Multinational Corporation:
- Establishment of guidelines for determining intellectual property (IP) value;
- Establishment of guidelines for determining transfer pricing methods for R&D centers;
- Creation of a fast-track procedure for obtaining a pre-ruling from the tax authorities for transfer pricing methods;
- Adoption of the OECD’s PILAR 2 rules and establishment of an incentive mechanism aligned with international standards;
- Adoption of the global minimum tax model under the QDMMT framework.
Returning of Employees from Relocation:
- Establishment of guidelines for the allocation of income from equity-based compensation between Israel and abroad;
- Exemption from tax on income generated and accrued outside Israel;
- Implementation of a foreign tax credit mechanism for taxes paid abroad on income also taxable in Israel;
- Creation of a “green tax track” for transitioning from taxation under Section 3(i) to taxation under Section 102 of the Income Tax Ordinance;
- Legislation to enhance certainty in determining tax residency, based solely on the number of days of physical presence in Israel.
Mergers and Acquisitions of Israeli Companies: A series of reliefs in the process of acquiring and merging Israeli companies, which entered into force on May 1, 2025 (for our client update on this topic in Hebrew – click here).
The Reform constitutes a significant step in strengthening Israel’s position as a leading global technology hub and in improving the competitiveness of the Israeli high-tech industry throughout its entire lifecycle.
Our firm has extensive experience advising high-tech companies on tax matters, particularly in the areas of international taxation, investment funds, relocation, corporate restructuring, and mergers and acquisitions. We will continue to keep you updated with further publications on this topic and remain at your disposal for any questions or assistance.
This memorandum contains general information only and does not constitute legal advice or a substitute for legal consultation. This is provided as a service to our clients, with the understanding that a separate discussion should be held in any specific case, taking into account the particular circumstances.
