Israel corporate tax (Mas Hachnasot Chevarot) 2025: 23% flat rate on taxable profit. No brackets, no exemptions for most companies.
Corporate tax (Mas Hachnasot Chevarot)
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How Israeli corporate tax works
Israeli companies pay a flat 23% corporate tax (Mas Hachnasot Chevarot) on net taxable profit each year. Unlike personal income tax, there are no progressive brackets: the rate is the same whether the company earns 1,000 ILS or 10,000,000 ILS. Taxable profit is gross revenue minus allowable deductions, which include salaries, rent, depreciation per ITA-approved schedules, cost of goods sold, and R&D expenses under Section 20A conditions. Losses from prior years can be carried forward indefinitely and offset against future profits, though a change in ownership above 50% may restrict loss utilization. The company must make monthly advance tax payments (mikes) to the ITA, calculated as a percentage of monthly turnover based on the prior year effective rate. Any remaining liability is settled when the annual return is filed, typically within five months of fiscal year end.
Preferred Technological Enterprise regime
Companies with qualifying intellectual property developed in Israel can apply to the Israel Investment Center for Preferred Technological Enterprise (PTE) status under the Law for the Encouragement of Capital Investments. A PTE outside Development Area A pays 12% corporate tax on IP-derived income. A PTE inside Development Area A pays 7.5%. A Special Preferred Technological Enterprise (group revenues above 10 billion ILS) pays 6%. These rates apply only to income attributable to the approved IP, not to all company income. The regime requires that IP development activity, including a substantial portion of R&D work, occurs in Israel. Royalties paid to move IP outside Israel after benefiting from the regime trigger a "recapture tax." Startups and scale-ups in software, biotech, and agritech commonly pursue PTE status once they have approved IP and recurring revenue from it.
Corporate tax and dividend distributions
After paying 23% corporate tax, a company distributing its retained earnings to individual shareholders triggers a second layer of tax via dividend withholding. Regular shareholders (holding less than 10%) face 25% withholding; substantial shareholders (10% or more) face 30%. The company deducts the tax at source. For an Israeli resident individual, the withholding is generally final, meaning the dividend is not re-included in personal taxable income. The combined tax on a company profit of 100 ILS is therefore 23 ILS (corporate) plus 19.25 ILS (25% of 77 ILS), totaling 42.25 ILS for a regular shareholder. Dividends flowing between Israeli resident companies are typically exempt from corporate tax at the receiving company level, preventing cascade taxation within a group. Foreign shareholders may benefit from a reduced treaty rate on the withholding, often between 5% and 15% depending on the applicable treaty.
Filing deadlines and advance payments
Israeli companies must file an annual corporate tax return (Doch Shnatee) within five months of the fiscal year end, or within three months if filing electronically via the ITA portal. An extension of up to 45 days is sometimes granted by the local assessing officer. Monthly advance payments (mikes) are due by the 15th of the following month and are calculated by applying the prior year effective tax rate to that month’s turnover. New companies in their first year use a default advance rate set by the ITA. Underpayment of advances triggers interest and linkage differentials (hatzamat hadrei modia) under the Inflationary Adjustments Law, so accurate advance payments reduce year-end surprises. Companies that believe their current year profit will be significantly lower than the prior year can apply to reduce their advance payment rate by submitting a substantiated request to the assessing officer.
Frequently asked questions
What is the corporate tax rate in Israel in 2025?
The corporate tax rate in Israel for 2025 is 23%, applied as a flat rate on the company’s net taxable profit. This rate is set under the Companies Tax Ordinance and has been unchanged since 2018, when it was reduced from 24%. All Israeli-resident companies and foreign companies with a permanent establishment in Israel are subject to this rate on their Israeli-source income. The tax is calculated on taxable profit after allowable deductions, which include operating expenses, depreciation under ITA-approved schedules, research and development costs under specified conditions, and losses carried forward from prior years. There are no progressive brackets for corporate income: the first shekel of profit and the last shekel are taxed at the same 23%. Companies must file an annual tax return with the Israeli Tax Authority (ITA, misim.gov.il) within five months of the fiscal year end, or within three months if submitting electronically. Advance tax payments (mikes) are made monthly throughout the year based on the prior year liability and are offset against the final assessment.
Are there reduced corporate tax rates for startups or R&D-intensive companies in Israel?
Yes. Israel’s Law for the Encouragement of Capital Investments (Chok Leidud Hashkaot Hon) provides significant tax incentives for companies that qualify as Preferred Enterprises or Preferred Technological Enterprises. A Preferred Technological Enterprise located in a development area A receives a reduced corporate tax rate of 7.5%, while one located elsewhere in Israel pays 12%. A Special Preferred Technological Enterprise, which must have group revenues above 10 billion ILS, qualifies for a 6% rate. These reduced rates apply to income derived from intellectual property owned by the company that was developed (at least partially) in Israel. The incentives require a formal approved status from the Israel Investment Center, part of the Ministry of Economy. Additionally, under the Grants for R&D track administered by the Israel Innovation Authority (formerly MAGNET and MATIMOP), companies can receive non-dilutive grants for approved R&D expenditure. These grants reduce effective costs but do not directly reduce the corporate tax rate. Benefiting companies must comply with ongoing reporting requirements and, importantly, royalty obligations if the technology is commercialized, restricting the transfer of IP outside Israel without ITA approval.
How does the dividend tax interact with corporate tax in Israel?
Israeli corporate profits face two layers of taxation before reaching an individual shareholder. First, the company pays corporate tax at 23% on net taxable profit. When the after-tax profits are distributed as dividends to individual shareholders, a further withholding tax applies. For regular shareholders (holding less than 10% of the company), the withholding rate is 25%. For substantial shareholders (holding 10% or more at any point in the 12 months before distribution), the rate rises to 30%. The company deducts the withholding tax at source and remits it to the ITA. For Israeli resident individuals, this withholding is generally a final tax on the dividend income. On a pre-tax company profit of 100 ILS, the company retains 77 ILS after corporate tax. If distributed to a regular shareholder, 25% withholding on 77 ILS removes 19.25 ILS, leaving 57.75 ILS net in the shareholder’s hands. The combined effective rate is approximately 42.25%. For a substantial shareholder, the combined rate rises to approximately 46.1%. Dividends received by one Israeli company from another Israeli company are generally exempt from corporate tax, which prevents triple or quadruple taxation within a corporate group structure.
How does Israeli corporate tax compare to other tech-hub countries like Singapore and Ireland?
Israel’s 23% corporate tax rate is higher than the rates offered by two of its main competitors for technology investment. Singapore applies a headline rate of 17%, but its Startup Tax Exemption and Partial Tax Exemption schemes reduce effective rates substantially for new companies in their early years, and certain approved structures can achieve rates well below 10% on qualifying income. Ireland’s headline rate is 12.5% on active trading income and 25% on passive income, making it the lowest rate among EU member states for trading companies. This differential partly explains why many Israeli technology companies, particularly those with global IP, use holding structures in Ireland, the Netherlands, or Cyprus to reduce their overall tax burden, while keeping operations and R&D staff in Israel. However, Israel’s effective rate is often lower than the statutory 23% for qualifying technology companies that use the Preferred Technological Enterprise regime, where rates drop to 7.5% to 12% on IP-derived income. The OECD Global Minimum Tax (Pillar Two) at 15%, which came into force for large multinationals from 2024, sets a floor that affects very large groups regardless of the jurisdiction chosen, narrowing but not eliminating the differential between Israel’s 23% and Singapore’s or Ireland’s rates for smaller companies not subject to Pillar Two.