Global Daily Tax News, Israel Legislates For Pillar Two Tax Credits, (Jan 5, 2026)

Israel's Government has released draft legislation for the implementation of tax incentives to encourage "knowledge-intensive industries", as part of the implementation of the Pillar Two global minimum tax framework.

The Government said, "The proposed law, promoted as part of the 2026 Budget and Economic Plan, is intended to ensure the maintenance of Israel's competitive status in the global arena, while simultaneously adopting the Qualified Domestic Minimum Top-up Tax mechanism in Israel."

"The draft defines new tax incentives to support innovation and knowledge-intensive activity, aiming to ensure that Israel continues to serve as a leading hub for research and development activity of Israeli and international companies - while protecting the state's tax base and deepening regulatory certainty," it said.

The law provides for income tax incentives under a graduated mechanism, with support increasing depending on the extent of investment in Israel in research and development activities.

Meanwhile, incentives will be introduced for companies making a "significant contribution to the economy", including companies with large-scale industrial and manufacturing activities, even in cases where activities are not centered on research and development.