Knesset advances bill to increase tax credit for R&D in bid to keep tech companies in Israel

The Knesset Finance Committee votes to advance a bill to reform tax credits for corporate research and development expenses in order to incentivize multinational tech companies to remain in Israel, amid concerns about stagnation and brain drain in the tech sector.

The “Research and Development Law” would introduce a direct tax credit — amounting to billions of shekels — for research and development expenses instead of simply deducting costs from taxable income, as is currently the case. It will also expand eligibility for the benefit and offer additional benefits to companies operating in the periphery.

The bill is part of the government’s sweeping Arrangements Law, a key part of the annual budgetary legislative package, which passed its first reading in the Knesset in January. It will now return to the Knesset for its second and third readings. If passed, it will apply retroactively to qualifying companies’ R&D expenses from January 1, 2026.

The proposed tax reform follows a new global minimum corporate tax set by the OECD and all member states, requiring companies with revenues above €750 million ($859,762,500) to pay at least 15 percent tax.

The Finance Ministry proposed the bill after being forced to raise taxes on large companies to align with OECD standards, and the measure is meant to offset the impact of the tax hike and help retain multinational firms in Israel’s tech sector, which remains the main engine of growth for the country’s economy, responsible for almost 20% of GDP and accounting for about 30% of payroll taxes collected by the government. It employs about 11% of the country’s workforce.

Sharon Wrobel contributed to this report.