Chapter 10 (Encouragement and Incentivization of Research and Development) of the Economic Plan Bill (Legislative Amendments for the Implementation of Economic Policy for the 2026 Budget Year), 5786-2026

The law establishes new incentives for companies for research and development expenses. Eligible companies belonging to a qualifying group will be able to receive a tax credit for qualifying research and development expenses. To be eligible, all companies in the group must authorize one company to submit an application to the Israel Innovation Authority and subsequently a centralized report to the Director of the Israel Tax Authority. The application to the Israel Innovation Authority must be submitted within 24 months from the end of the research and development activity year. The Israel Innovation Authority must notify its decision within 180 days, unless additional documents are required. The credit amount is calculated as a percentage of the qualifying research and development expenses, with different tiers for enterprises in Development Area A or special R&D enterprises (15% up to a ceiling of 1.05 billion NIS, and 30% above the ceiling), and for other R&D enterprises (2% up to a ceiling of 1.05 billion NIS, and 4% above the ceiling). The representing company receives notification from the assessing officer regarding the total credit amount of the group and the portion each company is entitled to. The credit can be used against income tax in the following year, or against minimum corporate tax. Unused credit can be carried forward to subsequent years. Instead of a tax credit, an eligible company may choose to receive the credit amount as a cash grant if it has not been used for three years. The grant will be paid within 90 days of the application submission. If it is determined that an excess grant was paid, the company must repay the difference plus linkage differentials and interest. The law also sets provisions regarding the amendment of assessments and appeals, and allows the Minister of Finance, with the approval of the Finance Committee, to determine by order changes to the percentages and amounts specified in the law, or to determine the provision of a grant instead of a tax credit. Additionally, the law amends the Law for the Encouragement of Knowledge-Intensive Industry (Temporary Order) and establishes the possibility of receiving a tax credit for the acquisition of qualifying companies in 2026, as a substitute for a certain deduction.

Source: חומר רקע