A law designed to preserve the activities of high-tech companies in Israel has been approved for final reading

The bill is part of bringing Israel’s tax policy in line with recommendations from the Organization for Economic Cooperation and Development, which introduces a minimum tax rate of 15% for global corporations.

The tax hike took effect on January 1 and is expected to bring state coffers at least NIS 3 billion a year.

In Israel, there are 90-100 global corporations covered by it, starting with Intel and Nvidia. Some of them still paid tax at a particularly low rate of 5%-6% under the law on capital investments.

Since the government was forced to increase taxes on these companies, it looked for other ways to provide them with an attractive business environment in Israel.

Since the OECD requirements do not allow a direct direct link between the two programs (tax increases and incentive programs), the government has developed a scheme that provides tax credits for research and development (R&D) expenses. Unlike other countries, it was decided not to limit these expenses – in order to stimulate R&D, including in large companies. In addition, unprofitable companies that cannot take advantage of tax credits will be able to convert them into grants after a few years.

The program is aimed at companies with an annual turnover of over NIS 100 million, whose main activity is related to R&D, and whose staff over the past three years has averaged at least 200 employees per year, and in each individual year – at least 150 employees.

In this case, incentives will depend on the geographical location of the company’s Israeli offices. Companies in the center of the country will receive a discount of about 3%; Peripheral companies and largest corporations (with revenues over NIS 10 billion) will receive a 25% discount. Above a certain threshold of R&D expenses (NIS 1.05 billion), companies will receive incentives of 4% and 30%, respectively.

Industrial enterprises that previously enjoyed reduced rates will now not be able to take advantage of the benefits, unless they are located in the periphery. For industrial companies that are not high-tech and not located in the periphery, the Ministry of Economy should develop a separate support program in the face of rising tax rates.