Professional Updates

Since Amendment 277, year-end includes a decision that was not there before: a closely held company with excess profits is liable to an annual 2% tax unless it distributed, during the tax year, a dividend of at least 6% of its accumulated profits (or 50% of its excess profits). A distribution meant to count for 2026 must be made by 31.12.2026. This is also the time to review the ratio of profit to turnover under Section 62A(a1).

The guide also covers the 2026 ceilings: self-employed education fund — a deduction of up to 4.5% of income up to ILS 293,397, and an exemption on contributions of up to ILS 20,566; Section 46 donations — a 35% credit on donations of ILS 207 or more. Our firm holds year-end planning meetings from October to December.

In May 2026 the High Court of Justice dismissed two petitions against the law on the taxation of undistributed profits — one filed by the Israel Bar Association and the Tel Aviv Chamber of Commerce, and another by company owners — and ordered the petitioners to pay costs of ILS 100,000. Justice Ofer Grosskopf, joined by Justices Alex Stein and Ruth Ronen, held that the court does not routinely intervene in tax legislation, and that the harm to companies that are not "wallet companies" is limited and does not cross the constitutional threshold. On 30.9.2026 the request for a further hearing on that judgment was rejected as well.

What this means in practice: there is no longer any expectation that the law will be struck down through the courts, and owners of closely held companies need to plan for it for the 2026 tax year — reviewing their dividend distribution policy against the annual 2% tax on excess profits, and checking the ratio of profit to turnover under Section 62A(a1). We recommend reviewing this with our firm before year-end.

Amendment 277 exposure checker. Enter profit, revenue, salary and dividends distributed — and the tool examines both mechanisms that took effect in 2025: the 2% tax on undistributed profits (against the dividend-distribution alternative), and attribution of excess profitability to the shareholder under Section 62A(a1). The result is a preliminary estimate showing where the company stands and what is worth examining in depth before year-end.

Advance-payments calculator — companies only. Computes the advance-payment rate that fits the expected 2026 profit, including adjustments for depreciation, carried-forward losses and profits attributed to the shareholder, and compares it with the rate currently on file. A gap of more than half a percentage point is a sign it is worth requesting an update of the advances.

And more: VAT, income tax (2026 brackets) and National Insurance (2026 rates and ceilings) calculators, and 25 pages on Israel's assessing offices — address, phone, reception hours and areas handled. All figures were verified against the official publications of the Tax Authority and the National Insurance Institute. Results are a preliminary estimate and not a substitute for personal review.

The voluntary disclosure procedure in force until 31.8.2026 allowed a taxpayer to approach the Tax Authority on their own initiative, pay the tax due and receive immunity from criminal proceedings. It covered foreign bank accounts, investment portfolios, rental income and digital assets (crypto).

What this means if you did not file. The automatic immunity the procedure granted is no longer available. The flow of information, however, has not stopped — CRS and FATCA continue to transmit data from over 100 countries, and coming forward voluntarily remains materially preferable to a situation in which a letter from the Authority arrives first. The right course of action depends on the circumstances of the specific case and should be examined with a professional before any approach is made.

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.