The Israeli Parliament (Knesset) Officially Approves the R&D Encouragement and Incentive Law; Implementation to Begin Immediately for 2026 Onward

JERUSALEM, April 13, 2026 /PRNewswire/ -- A major development for high-tech companies operating in Israel: The Israeli Parliament (Knesset) today (Monday) granted final approval to the "Research and Development Encouragement and Incentive Law." This legislation is a cornerstone of the reforms included in the 2026 State Budget and Economic Plan. The law enters into force immediately and will apply to the 2026 tax year and beyond.

The law establishes an updated tax incentive framework designed to ensure Israel remains a premier destination for investments and business operations by high-tech companies that contribute significantly to the national economy. Under the new regulations, eligible companies will receive tax credits on their research and development expenses. These credits scale upward as R&D investment grows, incentivizing firms to expand their Israeli footprint, increase the hiring of technological personnel, and deepen local investment.

The Tax Credit Structure:

• 25% to 30%: For companies operating in peripheral regions or exceptionally large enterprises (defined as "Special Preferred Technological Enterprises").
• 3% to 4%: For all other eligible high-tech companies.

This incentive package is designed to bolster Israel's standing as one of the world's most attractive hubs for technological activity. Combined with Israel's high-quality human capital and its innovative, diverse technological ecosystem, this legislation strengthens the nation's ability to compete in the global tech arena. It ensures that Israel remains a primary target for high-tech operations and continues to attract fresh investment into the local knowledge-intensive industry.

Recognizing ongoing international tax reforms advanced by the OECD and related shifts in global incentive regimes could potentially erode Israel's attractiveness for high-tech investment, the Ministry of Finance, the Israel Tax Authority, and the Israel Innovation Authority moved to advance this updated incentive framework. This proactive measure ensures that Israel's competitive edge remains sharp in a changing global tax landscape.

This reform follows the recent publication of updated taxation guidelines for R&D centers, forming part of a broader sequence of measures aimed at strengthening Israel's innovation ecosystem. Clear and transparent guidelines have been established to support multinational companies acquiring Israeli firms and operating within the local innovation environment. The framework defines principles for valuing intellectual property and sets structured guidance for transfer pricing methodologies for R&D centers, with oversight by senior professional authorities. In addition, a dedicated advance approval track has been introduced, enabling companies to secure upfront agreements with the tax authorities and providing greater certainty regarding expected tax liabilities in Israel.

Contact:
Raoul Wootliff
[email protected]

SOURCE Israel Innovation Authority