Professional Updates

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.

The Tax Authority operates a temporary procedure allowing you to regularize unreported income and assets at your own initiative — pay the tax and receive immunity from criminal proceedings. The procedure also covers digital assets (crypto), foreign accounts, investment portfolios and rentals.

Remember: CRS and FATCA stream automatic information to the Authority from over 100 countries — and whoever receives a letter from the Authority before coming forward loses eligibility. Experience with previous procedures shows filings pile up toward the end — don't wait for August.

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.