Approval of Minimum Corporate Tax on Multinational Groups Law: Israel Joins the New Global Standard

On December 31, 2025, Israel enacted legislation imposing a minimum corporate tax on multinational groups, which applies to Israeli resident entities that are members of an MNE as of the 2026 tax year. 

Until now, some MNEs operating in Israel benefitted from significantly lower effective tax rates, due, inter alia, to regional incentives, complex holding structures, and transfer of profits to low-tax countries. This situation created a gap between Israel’s regular corporate tax rate (23%) and the effective tax actually paid, and sometimes even led to foreign countries collecting additional tax on profits originating in Israel.

The new law is designed to put an end to this situation and ensure that Israel collects a minimum effective tax rate of 15% from MNEs for their economic activities in Israel.

Key Provisions of the Law

• The law focuses on the QDMTT (Qualified Domestic Minimum Top-Up Tax) mechanism, which grants Israel the primary right to collect the top-up tax on profits generated within its territory, instead of allowing foreign countries to collect it. This preserves Israel’s fiscal sovereignty and ensures fair taxation on local economic activities. It is important to note that, at this stage, Israel has chosen to adopt only the QDMTT mechanism, while Pillar 2’s two other mechanisms—the Income Inclusion Rule (IIR) and the Under-Taxed Profits Rule (UTPR)—are not included in the current law. Their implementation will be considered in the future depending on developments in the international arena.
• The new tax regime applies to Israeli resident entities that are members of an MNE Group with a global turnover of EUR 750 million or more, effective from the 2026 tax year. Accordingly, when a MNE Group’s effective tax rate in Israel is less than 15%, Israel will collect a top-up tax to raise the total tax rate to the minimum threshold.

In practical terms, the law establishes a two-stage mechanism:

• Calculating the effective tax rate of each Israeli MNE in accordance with OECD guidelines, based on the MNE Group’s consolidated financial statements.
• Collecting a top-up tax – If the effective tax rate is less than 15%, the Israel Tax Authority will collect the difference to top up the tax to the minimum 15%. MNEs operating in Israel that enjoy tax benefits under the Encouragement of Capital Investments Law (for example, reduced tax rates under the preferred enterprise or preferred technological enterprise frameworks) may be affected by the new law if the effective tax rate applicable to their activities in Israel is less than 15%. In such cases, the ITA may impose a top-up tax to bring the overall effective tax rate on the MNE Group’s activities in Israel up to 15%.

The law enables two reporting tracks:

• Individual track – Each participating Israeli entity files a report with the tax assessor regarding its individual liability for top-up tax in the tax year and pays it accordingly.
• Group track – The MNE Group appoints a single designated entity to report and pay on behalf of all Israeli entities in the group. This track is expected to be more common, since it simplifies reporting and collection processes and enables intercompany offsets between MNE Group members.

The law also prescribes advanced enforcement mechanisms:

• MNEs must report to the Israeli tax assessor by no later than 15 months after the end of the relevant tax year (and for the first reporting year in Israel, notification of the identity of the representative entity within 90 days of the end of the tax year).
• The tax assessor has the authority to conduct an independent assessment in the event of non-reporting or incomplete reporting.
• Significant monetary sanctions of up to ILS 150,000 for each month of delay in filing a report, along with public disclosures of violators to increase transparency.

Another unique feature is that the provisions of the new law are to be interpreted in accordance with the English version of the Pillar 2 rules, the explanatory notes, and OECD guidelines. This step is intended to harmonize the Israeli tax system with the globally accepted standard and constitutes an exception in the Israeli legislative landscape.

Implications and Recommendations for MNEs

According to the Ministry of Finance’s estimates, implementation of the law is expected to increase state revenues by approximately ILS 3.5 billion as of 2028. At the same time, the Ministry of Finance is considering the establishment of a new incentive system—based on qualified refundable tax credits—which will enable Israel to continue attracting foreign investment without undermining compliance with global tax rules.

In conclusion, the law strengthens Israel’s positioning as an advanced, responsible, and economically stable country within the new international taxation system, ensures fair tax collection,  and prevents profit shifting to other countries.

Considering the importance of this legislative change and its potential implications starting from the current tax year, we recommend that MNEs operating in Israel plan ahead, create effective compliance mechanisms, assess the impact of the additional tax liability, and take practical measures in advance, where possible and relevant. The firm’s Tax Department is at your service to examine the impact of the legislation on your specific circumstances.

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Adv. Hanna Daher is a partner in our firm’s Tax Department. Adv. Itiel Shloush and Adv. Itay Edelstein are associates in our firm’s Tax Department.

Barnea Jaffa Lande’s Tax Department is among Israel’s leading tax practices and is consistently ranked by local and international legal directories. The team advises Israeli and international clients across a wide range of areas, including international taxation; corporate, individual, and real estate tax; transaction tax,  employee compensation; crypto taxation; incentives; and grants. The department provides creative and efficient tax solutions for complex transactions and strategic tax planning and represents clients before the Israel Tax Authority and the courts, in close cooperation with the firm’s Commercial Department.