Israel corporate tax - guide for international expansion

Are you considering expanding your business operations to Israel? Understanding the country's corporate tax landscape is essential for making informed strategic decisions about entering this dynamic Middle Eastern market.

Israel offers a sophisticated economy with a thriving high-tech sector, but navigating its corporate tax obligations requires careful planning. From understanding tax rates to managing compliance requirements, getting the fundamentals right from the start will set your business up for success. Whether you're establishing a local presence or acquiring an Israeli entity, having the right financial infrastructure is crucial - and that's where Wise Business can help streamline your international operations and local payments.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Israel corporate tax rate in 2025

The standard corporate income tax rate in Israel is 23% for most companies, which has remained stable in recent years and is competitive within the OECD framework¹

Israel's corporate tax system applies to both resident and non-resident companies, with resident companies taxed on their worldwide income. A company is considered an Israeli tax resident if it is incorporated in Israel or if its management and control are exercised in Israel. The 23% rate applies to most business profits, making Israel's corporate tax rate relatively moderate compared to other developed economies.¹

For certain qualifying companies, Israel offers preferential tax regimes. Companies operating under the Law for the Encouragement of Capital Investments may benefit from reduced tax rates, sometimes as low as 7.5% to 16% depending on the location and nature of their operations. Additionally, companies in designated development areas or those meeting specific investment criteria may qualify for various tax incentives designed to promote economic development and innovation.²

How to pay corporate tax in Israel

Corporate tax payments in Israel are made in Israeli New Shekels (ILS) through the Israeli Tax Authority's digital systems and approved payment methods.⁴

The Israeli Tax Authority requires companies to file annual corporate tax returns and make payments through their online portal system. Companies must submit their annual tax return by the end of the fifth month following the end of their tax year (typically by 31 May for companies with a calendar year-end). The tax authority accepts payments through bank transfers, direct debits, and approved electronic payment systems.³

Israeli companies are required to make advance tax payments during the tax year, typically in six instalments. These advance payments are based on the previous year's tax liability or estimated current year profits. The final balance is settled when filing the annual return.³

Late payment of corporate taxes incurs interest charges at rates set by the Israeli Tax Authority, typically around 4% annually, plus potential penalties for non-compliance.³ The amount would typically be paid through advance instalments during the year, with any final adjustment made when filing the annual return.³

Let's consider a practical example: if your company has annual revenue of 5.7 million ISL (approximately £1.5 million) with a 10% profit margin, your taxable profit would be 570,000 ILS. At Israel's standard corporate tax rate of 23%, your annual tax liability would be:

70,000 ILS × 23% = 131,100 ISL

When expanding your business to Israel, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to manage international finances. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in Israel

You can keep your company fully compliant with Israeli tax laws by following these regulations:

• Register for taxes promptly: Companies must register with the Israeli Tax Authority after incorporation. This includes corporate tax, VAT, and payroll taxes. Early registration ensures smooth operations and prevents late registration penalties.
• Understand filing deadlines: Israeli companies are generally required to file annual corporate tax returns within five months of the end of the fiscal year.⁵ Accurate corporate tax calculation and timely submission are essential to avoid fines or interest charges.
• Set aside funds for tax obligations: Businesses should make a corporate tax provision during the year to cover expected liabilities. This ensures liquidity when corporate tax payments fall due and prevents disruptions in cash flow.
• Maintain accurate records: Companies must keep proper accounting records, invoices, and payroll documentation. These records are key for audits and support accurate corporate tax planning.
• File VAT returns regularly: VAT is usually reported monthly or bi-monthly, depending on the company size. Timely VAT and corporate tax compliance are critical to avoid penalties.
• Seek professional support: Tax rules in Israel can be complex, especially for businesses with cross-border operations. Expert advice or digital systems can help manage corporate tax calculations, improve reporting, and ensure compliance with domestic and international standards.

Pro tip: Staying on top of tax deadlines and building a proactive approach to corporate tax management will keep your business in good standing with the Israeli Tax Authority.

International Expansion to Israel

Expanding into Israel requires a thorough understanding of its corporate tax system. Economic policies of this country play a central role in making or breaking a business. Fortunately, it presents economic stability, which, combined with a dynamic innovation system, earned it the title “Startup Nation.” The government actively supports foreign investors through the Ministry of Economy and Industry’s Invest in Israel office, which guides new entrants on Israeli laws, regulations, VAT, and corporate tax obligations.⁶

Establishing a business in this region is quite straightforward. According to the Ministry of Finance, establishing a private limited company typically involves four procedures, which can be completed in approximately 12 days. Israel also maintains bilateral investment treaties with major economies, creating a secure framework for cross-border activity.

Several factors enhance Israel’s appeal to international businesses:

• A high-skilled, multilingual workforce, with 46% of 25–34-year-olds holding a tertiary education degree (OECD, 2022).⁶
• Strong R&D capacity, with the world’s highest R&D intensity, nearly double the OECD average.⁶
• Over 270 multinational corporations operate over 320 advanced R&D facilities across the country.⁷
• A robust entrepreneurial ecosystem supported by more than 7,000 startups and 176 innovation hubs.⁸

Global investors also benefit from Israel’s clear tax framework. Companies must understand the Israeli corporate tax rate and how international corporate tax laws affect their operations. This is particularly important in light of the ongoing discussions on the global minimum corporate tax rate and tax refund mechanisms.

You can set up your business in Israel by following the steps below:⁹

1. Conduct market research to evaluate demand and consumer behavior.
2. Prepare a comprehensive business plan.
3. Select a business location and register a business name.
4. Choose the appropriate legal structure.
5. Register with the Registrar of Companies.
6. Set up tax registration with the Income Tax Office (Mas Ahnassa).
7. Open a local bank account.

Israel’s open and well-regulated economy makes it suitable for several industries. One needs to know all the corporate policies and solid business tipsto avoid potential failures.

Incorporation of Business in Israel

To incorporate a business in Israel, register with the Registrar of Companies at the Ministry of Justice. The process is relatively easy and typically requires four main procedures, which can be completed in about 12 working days. Businesses must provide the following information when applying for registration:¹⁰

• Company name: a unique name distinguishing the business from others already registered.
• Type of company: choosing the appropriate legal entity type (explained below).
• Articles of Association: a legal document that outlines the company's rules, purpose, and operating procedures.
• Registered office: a physical address in Israel that serves as the official business location.
• Directors: individuals responsible for managing the company on behalf of its shareholders.
• Shareholders: owners of the company who hold issued share capital.
• Company secretary (optional but recommended): assists in ensuring compliance with reporting requirements and corporate tax management.
• Tax registration: businesses must register with the Income Tax Authority (Mas Ahnassa) and VAT authorities to handle corporate tax payments and filings.

Business Entities in Israel

Under the Israeli Companies Ordinance (ICO), a company is defined as a corporation that is established and registered in Israel in line with Israeli law. The following are the most common business entity types:¹¹

• Private Company Limited by Shares (Ltd): The most popular option for both local and foreign investors. Shareholders enjoy limited liability. The company must file annual reports and corporate tax returns. Many businesses use corporate tax return software to simplify reporting and ensure accuracy.
• Public Company (PLC): Suitable for larger businesses that plan to raise capital from the public or list on the Tel Aviv Stock Exchange. It requires at least two directors and has no limit on shareholders. Due to complex reporting obligations, corporate tax planning becomes particularly important for these entities.
• Partnerships: Two or more individuals or entities can form a general or limited partnership. General partners have unlimited liability, while limited partners’ liability is restricted to their capital contribution. Tax treatment follows individual income tax rules, although corporate tax planning may still apply depending on the structure.
• Non-Profit Association (Amutah): Designed for charities, social organizations, and NGOs. These entities do not issue shares and must reinvest all income into their stated objectives.

International corporate tax best practices

Managing international corporate tax obligations requires a strategic approach that balances compliance with efficiency and cost-effectiveness.

Stay compliant with local and international tax laws

Ensure your business is properly registered with the Israeli Tax Authority and maintains accurate records in accordance with Israeli accounting standards. File all required returns on time and stay updated with changes in local tax legislation. Israel's tax system is sophisticated and requires careful attention to compliance requirements.

Leverage double taxation treaties

Israel has an extensive network of double taxation agreements with over 60 countries, including the UK, US, and most EU member states. These treaties can significantly reduce withholding taxes on dividends, royalties, and interest payments, and help prevent double taxation of the same income. Understanding and properly applying these treaties can result in substantial tax savings for international businesses.

Maintain transparent financial records

Keep detailed and accurate financial records that comply with both Israeli requirements and international standards. This not only ensures compliance but also facilitates efficient tax planning and reduces the risk of disputes with tax authorities. Proper documentation is essential for claiming treaty benefits and various tax incentives available in Israel.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to Israel efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate tax in Israel

Who is liable for corporate tax in Israel?

All companies incorporated in Israel are liable for corporate tax on their worldwide income. Foreign companies are subject to Israeli corporate tax only on income derived from Israeli sources, including income from a permanent establishment in Israel. The tax applies to profits from business activities, capital gains, and passive income such as dividends and interest.

Are there any tax incentives for businesses in Israel?

Yes, Israel offers several tax incentive programmes. The Law for the Encouragement of Capital Investments provides reduced tax rates for qualifying industrial enterprises, particularly in development areas. High-tech companies may benefit from the Innovation Box regime with preferential rates on IP-derived income. Additionally, companies in designated development zones can receive tax holidays and reduced rates for specified periods.

What is the tax treatment of dividends in Israel?

Dividends distributed by Israeli companies are generally subject to withholding tax at rates of 25% to 30%, depending on the recipient.¹² However, these rates can be significantly reduced under double taxation treaties. For example, dividends paid to UK companies may qualify for reduced withholding tax rates of 5% to 15% under the Israel-UK tax treaty, subject to meeting certain conditions.¹³

What is the process for registering for corporate tax in Israel?

Companies must register with the Israeli Tax Authority within 30 days of incorporation or commencing business activities in Israel. Registration requires submitting incorporation documents, details of business activities, and information about shareholders and directors. Foreign companies establishing a permanent establishment must also register and obtain a tax identification number.

What are the common pitfalls to avoid regarding corporate tax in Israel?

Common mistakes include failing to register on time, inadequate record-keeping, missing advance payment deadlines, and not properly applying double taxation treaty benefits. Many companies also overlook available tax incentives or fail to maintain proper transfer pricing documentation for related-party transactions. It's crucial to engage local tax expertise early in the process to avoid these pitfalls.

Sources used in this article:

1. PwC Tax Summaries: Israel Corporate Income Taxes
2. PwC Tax Summaries: Israel Tax Credits and Incentives
3. PwC Tax Summaries: Israel Tax Administration
4. Gov.il: Income Tax Payment Online
5. Escalon: How to Start a Business in Israel
6. U.S. Department of State: 2024 Investment Climate Statements - Israel
7. Landmark Ventures: 7 Reasons to Invest in Israel
8. Startup Nation Central: Why Israel
9. Venture Overseas: Why Start a Business in Israel
10. Gov.il: Company Registration
11. Israel Business: Legal Aspects of Company Registration
12. PwC Tax Summaries: Israel Withholding Taxes
13. Gov.uk: Double Taxation Relief

Sources last checked 22/09/2025