The revelation in "Globes" of the Israel Tax Authority’s intention of promoting legislation under which people who have served in IDF technology units who go on to found technology companies or ventures will be obliged to register them in Israel and pay tax in Israel for a decade, even if they have relocated abroad, has raised a storm in Israel’s technology sector. The responses range from incredulity, to fears of a brain drain, to statements such as "there’s no chance of this progressing" and "it’s a bluff that will burst", to expressions of support for the move.
"This is complete stupidity. Because of this initiative, anyone who has even a shekel for opening a company in Israel will set it up in Silicon Valley, and after ten years of activity will not return here, will never return," says Haim Sadger, founding partner of S Capital. "No-one will go back to a country that tells him what to do and how to manage his business affairs."
Sadger says that in the current global atmosphere it’s hard for Israeli technology entrepreneurs to recruit serious investors, and so they sometimes have to open companies overseas, but they remain resident in Israel and pay tax here. "At this time, and with the great ‘love’ of Zion that there is overseas, registering a company in Israel is not easy. We know that there are investors around the world, very large investors, who have decided to stop investing in Israel. If you have a US company registered in the US, then even if everyone is actually in Israel you can hide behind that fig leaf, and the Tax Authority collects money from you when you make your exit. How much money did it collect in the case of Wiz from Assaf Rappaport and his employees? Tons. If it promotes this bill, it won’t collect anything."
It will receive tax from them for a decade after they leave the IDF.
Sadger: "But after a decade it won’t receive anything, unless there’s someone who will repair the damage when high tech flees this place. Our country doesn’t live off its reserves of oil or other resources it has in the ground. Since 1996, it has lived and existed only on high tech. And now it’s going to dismantle it? I have no doubt that if this happens, within a decade Israel’s technology sector will be much weaker, and, far worse than that, the State of Israel will be much weaker."
Under the bill being formulated, a draft of which was exposed by "Globes", people who have served in technology units will be obliged to register any company they found within the first decade after they are demobilized as a company resident in Israel, which will accordingly be taxed in Israel. It is also proposed that the founders will be considered resident in Israel for a decade even if they relocate abroad.
The planned legislation will apply to anyone who has served in the regular or career army for 24 months or more in a unit the main activity of which is technological research and development, cybersecurity, or technological intelligence. Signals intelligence unit 8200 is one of the best-known units whose personnel will be affected. There is also 9900, which collects visual and geospatial intelligence, the Lotem telecommunications and IT unit, the Mamram computing unit, and others.
The Israel Tax Authority explains that the state invests huge resources in training soldiers in the elite units, but instead of benefitting from the fruits of the investment it is forced to watch while those who have served in them transfer their business activity to other countries.
"Mostly from elite units
The Tax Authority’s intention of promoting the legislation has led to stormy discussions on tech workers’ WhatsApp groups and in social media. On the Haguru X account, one of the best known investment pages on the web, a table was displayed showing some of the biggest exits of Israeli companies led by people who served in elite units in the IDF. Among them is the exit of cybersecurity company Avalor, founded by Raanan Raz and Kfir Tishbi, who served in Mamram. The company was sold to Zscaler of the US for $350 million in 2024. Raz responded: "What Avalor does and what I did in the army are so unconnected it’s amazing. Besides that, I served in the career army for four years, and the company was founded twelve years after I was released. God preserve us, how much tax I’ve paid!"
The table indicates that behind all the big exits of the past decade, at least one of the founders served in an elite technology unit: 8200, Talpiot, Mamram, cybersecurity units in the various forces, and others, and they garnered many billions of dollars in aggregate, but in many cases the companies were registered overseas and so the tax on the sale of the IP did not accrue to Israel.
A study by Omer Doron with Prof. Ilya Strebulaev of Stanford University reported by "Globes" found that about 10% of all Israeli unicorns were founded by people who served in the Talpiot program. According to the findings, the proportion of entrepreneurs among people who served in the unit is the highest in the world, and is five times greater than among graduates of Stanford’s MBA program.
This was precisely the motivation for the Israel Tax Authority to take steps to keep the proceeds of Israel’s tech industry in Israel for a decade. It could be said that the acquisition of Wiz by Google was the straw that broke the camel’s back. It was a pretty heavy straw. The State of Israel could have benefitted from taxation of the sale of the IP for $32 billion. Instead, it had to make do with taxation of the gains of the Israeli founders.
"If the person who served in a technology unit has other income overseas, we’re not looking for that," a senior Tax Authority source said. "We only seek to tax the technological ventures that he sets up, the IP companies. Behind the vast majority of the big exits are people who served in the elite technology units. Nearly everyone who leaves 8200 founds a startup. Some succeed and some don’t, but those that do should pay tax in Israel.
"It’s like taxation of natural resources, the natural gas, mines, and so on, which are hard to transfer abroad. In the same way, we seek to tax the resource that the state developed and invested in."
The Tax Authority believes in the move, and compares it, mutatis mutandis, to the reform of the trapped profits that changed the tax position of many companies and was heavily criticized, but nevertheless passed every legislative stage, and even the test of the High Court of Justice.
"Law of the trapped soldiers"
In the tech industry too the comparison is made with the legislation on trapped profits, but negatively. "The aim is worthy, but the proposal is divorced from reality. After the Trapped Profits Law, they’re formulating the Trapped Soldiers Law," says Karin Mayer Rubinstein, CEO and president of IATI (Israel Advanced Technology Industries), the tech industry’s representative body. "The solution to the issue of startups incorporating overseas won’t be brought about by penalties, but by providing incentives. Some of the incentives can be adopted from the US, where an exemption from capital gains tax on gains of up to $15 million on the sale of a startup is available after a certain holding period."
Rubinstein says that the Tax Authority is acting rightly in seeking a solution to the problem of the flight of high tech from Israel. "There’s an issue here that could really paralyze the State of Israel in the next five to ten years.
"From data we have gathered, if you look at the last 30 deals involving substantial investment of over $20 million in startups, you’ll see that 80% of these companies were incorporated in the US. When a company is registered overseas, in the end employees transfer there as well, and the center of activity often transfers there, so what will happen to state revenue from taxation in another five to ten years, when as is well known high tech is the growth engine of the economy?"
She says, however, that the solution being formulated won’t solve the problem. "We need creative solutions, chiefly solutions arising out of dialogue. The Tax Authority needs to sit with the industry, as it often does. This time we discovered the initiative from an article in Globes. The proposed solution is bad for the country’s branding. The whole world knows how the industry works here and how the army and the industry work together. The proposal is also impractical and unenforceable. In the short term the state might see some money, but in the long term it will lose a whole industry."
Lior Frenkel, chairperson of the Cyber Companies Forum in the Israeli High Tech Association, also thinks that the legislation is a mistake. "The bill is immoral and impractical, and we express our downright opposition to its advancement. This is not the way. We should rather create an advanced, incentivizing business environment for this sector in Israel."
"I’d be happy for Israel to receive something"
Not everyone is rushing to criticize though. A serial founder in cybersecurity who was released from unit 8200 and has made several exits since then explains that if company founders are not subject to double taxation because of the proposal, and the tax is paid only in Israel and not simultaneously in additional countries, he sees no problem with the bill.
"First of all, I don’t think that it’s going to make the elite units lose candidates. No eighteen year-old will think twice before signing on, because we hardly thought a year ahead when we were conscripted," he says.
"Secondly, it doesn’t really matter whether you found your company in Israel or the US, because you pay taxes where you live. Assaf Rappaport paid a huge amount of tax to the Israel Tax Authority. The only question is whether the intellectual property will be subject to double taxation."
On that question, the Tax Authority told "Globes" that there would be no double taxation. "We know how to talk to the tax authorities abroad, and entrepreneurs will not be taxed twice," they promise. It’s not clear how this will work, and whether all the potential countries will agree so easily to forego billions in favor of Israel, but the Tax Authority believes that there is no obstacle to the legislation in this respect.
"If there’s no problem of double taxation then there’s no problem with this legislation," the technology entrepreneur says. "If tomorrow morning the State of Israel takes care that I can move to the US and not pay tax there but in Israel, it’s even positive. I’m happy that it’s my country that gains the money. Most Israeli founders, at least in cyber, move to New York, where the level of taxation is almost exactly the same as in Israel, so they won’t be adversely affected. The army gave me a great deal, it changed my life, and later I sold my company, so why not pay something back to the State of Israel if I’m not harmed by that? I prefer that the State of Israel should receive the money. I’ll even be happy about it."
Ministry of Finance sources said that they were not aware of a concrete proposal, and that no staff work had been done on the matter. They added that "the question of the intellectual property acquired during service in public institutions, including in the IDF, is worthy of being examined in itself in a variety of aspects.
""We will shortly examine the matter in depth in order to formulate insights, taking into account the public interest, what happens around the world, and all the relevant aspects. If this work crystallizes into practical recommendations, it will be done in an orderly, public, and professional way, in consultation with all the relevant parties."
Published by Globes, Israel business news - en.globes.co.il - on May 27, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.