Professional Updates

The circular (4.8.2026) supplements Circular 9/2017 and settles the "marketing intangible" issue in Encouragement Law benefits. The core: if income attributable to the marketing intangible does not exceed 10% — the entire income remains benefited "technological income". Indications of no marketing intangible: B2B/B2G sales, specification- or regulation-driven purchasing, a component in another's product, granting a right of use, and low marketing spend relative to R&D.

The significant novelty: an assessing officer seeking to attribute income to a marketing intangible needs prior written approval from the professional division (stage-A assessment — a senior department manager; a stage-B order — a senior division manager plus the legal referent), and the directive applies to open assessments too. Companies in doubt can apply for a pre-ruling. The practice at our firm is led by CPA Amir Gonen.

The strong shekel eroded the dollar revenues of exporting and hi-tech companies. The Treasury package centres on an Innovation Authority fast track (~ILS 1 billion) — a "financial bridge" to continue R&D without an early raise, with threshold conditions of an expenses-over-revenue ratio, annual expenses of ILS 1.5–100 million, and at least half R&D and in shekels. Also: ILS 175 million for machinery and equipment, and ILS 25 million via the Export Institute.

What was left out: paying tax in dollars was not approved, and a substantial part of the budget was reallocated from existing programmes — a limited resource. It is unrelated to war compensation ("Rising Lion"). The practice at our firm is led by CPA Amir Gonen.

Modeled on the consumer credit register, the Bank of Israel will operate a register concentrating businesses' credit history and payment behavior — including data on controlling shareholders and guarantors. All financial institutions, bank and non-bank alike, will be able to assess a business's risk on full data — instead of that information staying locked at its own bank.

Why it matters: small and medium businesses generate about 55% of business GDP yet receive only about 27% of credit, and depend almost entirely on the single bank that knows them. A business with a solid payment record will be able to "carry" its financial reputation and receive competing offers. Building the register may take up to 30 months — but the practical takeaway starts now: clean payment behavior is becoming an asset worth money.

The filing season for 2025 annual reports is underway. The updated thresholds that trigger a filing obligation: annual salary above NIS 723,000, total income above NIS 721,560 (surtax), securities turnover above NIS 2,810,000, foreign income or assets, rental income above the exemption ceiling — and more.

Taxpayers represented by a CPA enjoy staged extensions well beyond the official deadlines. And even those not required to file can submit voluntarily and receive a tax refund up to six years back. The full guide includes the complete list of filers and all the attachments.

The "Israel Invoices" model continues its staged threshold descent: NIS 25,000 at launch (May 2024), NIS 20,000 in 2025, NIS 10,000 from January 1, 2026 — and from June 1, 2026: just NIS 5,000 (including VAT).

The practical meaning: the vast majority of business-to-business transactions now require a real-time allocation number. A business whose software is not connected to the allocation system, or whose access permissions are not arranged — will get stuck with business customers. And on the buying side: a supplier invoice above the threshold without an allocation number puts your input VAT deduction at risk.

A paradigm shift in the encouragement laws, responding to the global minimum tax rules (Pillar 2): instead of relying solely on reduced tax rates, the state moves to an R&D expense credit model — 25%-30% in Development Area A and special R&D enterprises, 3%-4% elsewhere.

Qualifying expenses: 100% of R&D payroll in Israel, depreciation and consumables, an automatic 20% overhead and subcontractors at 65%. Credit unused within three years can be received as a cash grant. The first eligibility year — 2026 — is already running: cost separation and ongoing documentation should start now.

Amendment 277 (the Arrangements Law) continues to follow company owners: each tax year requires choosing between a dividend of 6% of accumulated profits and paying 2% on excess profits — a tax that is non-deductible and not credited against future dividend tax.

2025 offered a one-time relief (a 5% distribution sufficed) — and it is behind us. The 2026 decision requires a specific calculation: the safety cushion (NIS 750K / expenses / assets), the exemptions, and the increased surtax on dividends. Plan now — not in December.

Residential landlords have three tracks: exemption up to the ceiling (NIS 5,654/month, eroding gradually above it), the 10% track on gross rent without expenses (paid by January 30 of the following year), and marginal rates with full expenses — especially attractive for those aged 60+ and leveraged properties.

The choice is not one-time — you can switch tracks every year, and a change in interest, rent or age can flip the math. And for a property abroad — a separate set of rules (15% or marginal with a foreign tax credit).

Under the proposed framework, a sufficiently short stay in Israel (in the region of up to 74 days a year, on a weighted three-year basis) would establish absolute non-residency — without a center-of-life examination; a long stay would establish absolute residency. In between — the substantive test would continue to apply.

For now, current law applies: the center-of-life test, the 183 / 30+425 day presumptions, Form 1348 and the exit tax. Anyone planning a move abroad — or back to Israel — should build a plan that stands up under both regimes.