Israel Corporate Tax Guide 2026

Overview — Corporate Tax in Israel (Mas Himas Bedimon)

The Israel Tax Authority administers corporate tax on all resident companies and foreign companies with a permanent establishment in Israel. The standard corporate tax rate is 23% for 2026, down from 25% in 2021. The corporate tax year follows the calendar year, though companies may adopt a different fiscal year with approval. Resident companies are taxed on worldwide income, while non-resident companies are taxed only on Israeli-source income. A company is considered tax resident if it is incorporated in Israel or its management and control are exercised in Israel.

Corporate Tax Rate — 23%

The flat 23% corporate income tax rate applies to the entire taxable income of resident companies. Key points:

• Rate was 25% in 2021, reduced to 23% through a multi-year reform
• The 23% rate applies to all companies regardless of size
• Capital gains realised by companies are taxed at the corporate rate (23%), not at the individual CGT rate
• No surtax or additional corporate levies at the national level
• Alternative minimum tax does not apply — regular tax rules determine liability

Notional Interest Deduction (NID)

Israel introduced a notional interest deduction (NID) to reduce the debt-equity bias in corporate financing. The NID allows companies to deduct a notional interest amount on qualifying equity increases:

• Rate: 3.5% on equity increases above a base level
• The deduction is calculated on the increase in equity from one year to the next
• Aims to neutralise the tax advantage of debt financing over equity financing
• Applicable to both domestic and foreign equity increases
• Subject to anti-abuse rules

Limited Company vs Partnership

Limited companies (Chevra Ba'am) are separate legal entities taxed at the 23% corporate rate. Partnerships (Shutafut) are generally treated as pass-through entities — each partner is taxed on their share of partnership income at their individual marginal rate (up to 50%). Key differences:

• Companies offer limited liability and are subject to double taxation (corporate tax + dividend WHT)
• Partnerships avoid double taxation but partners face higher marginal rates
• Certain professional partnerships (law, accounting, medical) are typically taxed as pass-through
• Limited partnerships may elect corporate taxation in some cases

Branch Profits Tax and Dividend Withholding

Foreign companies operating through a branch in Israel are subject to:

• Corporate tax: 23% on branch profits attributable to the Israeli permanent establishment
• Branch profits tax: An additional 25% withholding tax on deemed dividend distributions (effectively bringing the combined rate to approximately 42% on distributed branch profits)

For Israeli-resident companies, dividends paid to individual shareholders are generally subject to 25-30% withholding tax (see investment-income-guide for details).

Tax Reform Trends

Israel's corporate tax rate has declined steadily over the past decade:

• 2017–2018: 24%
• 2019–2020: 23%
• 2021: 25% (temporary increase to fund COVID-19 measures)
• 2022–2023: 23%
• 2024–2026: 23% (stable at this level)

The recent trend has favoured moderate corporate taxation balanced with measures to broaden the tax base, including the NID and enhanced transfer pricing enforcement.

Transfer Pricing and International Tax

Israel has comprehensive transfer pricing rules aligned with OECD guidelines. All related-party cross-border transactions must be at arm's length. Documentation requirements apply for transactions exceeding certain thresholds. Israel also implements country-by-country reporting (CbCR) for multinational groups with consolidated revenue exceeding approximately ₪3 billion. Tax treaties with over 50 countries provide relief from double taxation.

FAQs

Is the 23% rate competitive internationally?

Israel's 23% corporate rate is moderately competitive — lower than the US (21% federal + state), Japan (approx. 30%), and Germany (approx. 30%), but higher than Ireland (12.5%) and Hungary (9%).

Can losses be carried forward?

Yes, tax losses can be carried forward indefinitely. However, there are limitations on loss utilisation following a change in ownership (anti-trafficking rules). Loss carryback is not permitted.

What is the tax treatment of intellectual property income?

Income from qualifying intellectual property may benefit from reduced effective tax rates under Israel's preferred technological enterprise regime (see R&D incentive programs).

Disclaimer

This guide provides general information about Israeli corporate tax for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Israeli tax advisor (Yo'etz Mas) or the Israel Tax Authority directly for advice specific to your business. InvestmentKit does not provide tax advice.