On November 26, 2025, the Ministry of Finance published the Bill on Minimum Corporate Tax in a Multinational Group, 2025 (the “Bill”), aimed at implementing in Israel, the QDMTT mechanism (Qualified Domestic Minimum Top-Up Tax), one of the OECD’s Pillar 2 rules. If enacted, this would mark a significant step in Israel’s adoption of the BEPS (Base Erosion and Profit Shifting) project principles, intended to ensure a uniform minimum tax rate of 15% on the profits of multinational groups operating worldwide. Many countries have already incorporated these principles, some more broadly than Israel intends to do through this Bill.
The Bill is proposed to apply from the beginning of the 2026 tax year and will apply to income generated from that year onward. Its provisions will cover Israeli resident entities or permanent establishments in Israel that are part of a multinational group with annual turnover of at least EUR 750 million in at least two of the four fiscal years preceding the examined year (“Israeli Participating Entity”).
Background
Over the past decade, the OECD has promoted the BEPS (Base Erosion and Profit Shifting) Project. The project’s goal is to prevent erosion of the tax base and the shifting of profits by multinational corporations between jurisdictions, including by relocating activities to countries where the effective corporate tax rate is low. Approximately 140 countries, including Israel, participate in the project.
As part of BEPS, 15 Actions were published, including Action 1, which addresses the tax challenges of the digital economy (Action 1 – Addressing the Tax Challenges of the Digital Economy). This led to the development of a two-pillar policy model (for more details, see our client update from September 12, 2024).
Pillar 2, also known as the GloBE Rules (Global Anti-Base Erosion), is intended to ensure a minimum effective tax rate of 15% for multinational groups, regardless of their place of residence or activity.
Pillar 2 sets out three main mechanisms for imposing a top-up tax when the effective tax rate in a particular country is below 15%. One of these mechanisms is the QDMTT (Qualified Domestic Minimum Top-Up Tax).
In 2021, Israel, through the Ministry of Finance, announced its participation in the global framework for the taxation of the digital economy and the two-pillar program. In August 2024, the Minister of Finance decided to partially adopt the minimum tax regime, implementing only the QDMTT mechanism. Adopting the QDMTT mechanism will allow Israel to collect the top-up tax itself on income generated within its territory.
New Legislation
The Bill provides for implementing the QDMTT in Israel which, as the source country, is granted the primary and absolute right to collect the top-up tax, up to a 15% effective tax rate, on income generated within its territory. In other words, instead of allowing a foreign country to impose the top-up tax on profits generated in Israel but taxed at a lower rate, the QDMTT mechanism enables Israel to collect this tax itself. Tax paid under this mechanism is considered a domestic top-up tax, which is creditable against any foreign top-up tax.
Date of Entry into Force
The law will apply to the income of an Israeli participating entity starting from the 2026 tax year. For a company with a special tax year, that is, one that is not calendar, the same provision will apply, in accordance with its special 2026 tax year.
Accounting standards used in calculating the Top-Up Tax
The calculation of the Top-Up Tax will be based on International Financial Reporting Standards (IFRS), however, such calculation can also be made based on Israeli Financial Reporting Standards or US Generally Accepted Accounting Principles (USGAAP), based on the specific conditions set out in the Bill.
Substance Based Income Exclusion (SBIE)
The Bill provides for transitional relief for the exclusion of income based on activity thus implementing the OECD Pillar 2 rules mechanism, that allows the income subject to the Top-Up Tax (15%) to be reduced according to the amount of salary expenses and tangible assets.
Proportional Top-Up Tax Liability
An Israeli participating company may elect, instead of being liable for its own Top-Up Tax, to be liable for its proportional share of the total multinational group’s Israeli companies’ Top-Up Tax, such proportional Top-Up Tax will amount will be calculated based on the ratio between the GloBe Income of that entity and the total Globe Income of the multinational group’s Israeli companies of which the entity is a part.
As part of the bill, it was clarified that the “GoBE Income” of an Israeli participating entity that is less than zero will be considered as if it were zero – that is, no proportional share of the supplementary tax will be attributed to this entity.
Reporting
An Israeli participating entity to which the rules apply on January 1, 2026 is required to file a notification with the Israeli Tax Authority (the “ITA”) within 180 days of January 1, 2026.
An Israeli participating entity to which the rules do not apply on January 1, 2026, but which has become such an entity later on, is required to file a notification with the ITA within 90 days of the end of the tax year in which it became such an entity.
The Top-Up Tax report will be filed with the ITA in a designated form, which will be published by the ITA no later than 15 months after the end of the tax year for which it is filed.
Maintaining Israel’s Competitive Advantages
The Israeli Ministry of Finance published a Draft Bill recently proposing a mechanism compatible with Pillar 2 rules, that will enable Israel to maintain competitive advantages and attract international investments.
We will continue to update on that matter as the legislative proceedings progress and such mechanism becomes clearer.
Broad Impact on Israeli Companies with International Operations
It will take time to assess, from a broader economic perspective, whether this legislation (if enacted) will achieve its intended goals as set out in the Bill. The proposed framework is meant to ensure that taxes paid in Israel can be credited in other countries where these companies operate, helping to avoid double taxation. Still, there is uncertainty about how taxing rights over the profits of multinational groups will ultimately be divided among countries, and especially how the relevant countries will come to an agreement on this issue.
If adopted, the legislation is expected to have a broad impact on Israeli companies with international operations, as well as on multinational groups doing business in Israel. This will be especially relevant for companies that currently benefit from tax incentives or reduced tax rates in Israel, resulting in an effective tax rate of less than 15%. Such groups may need to revisit their ownership structures, how profits are generated and reported within the group, and, of course, prepare for the new reporting requirements.
We will continue to follow the legislative developments and are available to assist with any questions or concerns about compliance with the new requirements.
Our Tax Department is at the forefront of this field, advising on some of the most significant mergers and acquisitions in the Israeli market and providing ongoing, comprehensive support to both multinational and Israeli companies as they navigate a changing tax landscape. This includes assistance with tax audit preparation, planning and implementing restructurings before or after transactions, and representing clients in tax litigation before the courts.
The above content is a summary provided for informational purposes only and does not constitute legal advice. It should not be relied upon without obtaining further professional legal counsel.
