The implementation of "Pillar Two", the global taxation mechanism formulated by the OECD, has been delayed in the Knesset Finance Committee. Pillar Two imposes a minimum tax rate of 15% on multinational companies with annual turnover of at least €750 million. The law was passed by the Knesset a year ago, and came into effect at the beginning of 2026, but the regulations required for implementing it have not yet been approved because of objections by opposition members of Knesset.
The opposition is making approval of the regulations conditional upon section 46 recognition for between 300 and 400 non-profit organizations that have been waiting for it for months, but the matter has been stuck because of objections from the haredi (ultra-Orthodox Jewish) parties. (Section 46 of the Tax Ordinance allows private donors to recognized non-profit organizations to receive a tax rebate of 35% of the donation. Corporate donors are entitled to a rebate of 23%.) Ministry of Finance officials warn that the delay leaves technology companies active in Israel in a regulatory fog, and could harm Israel’s status in the OECD and its attractiveness as a technology investment destination. The Ministry of Finance estimates that about 150 multinational companies are affected by the legislation.
Sources at the Ministry of Finance told "Globes", "Delay in Israel receiving qualified status beyond the end of 2026 is liable to force companies to make accounting provisions in their financial statements and to report to their investors to the effect that there is a risk that the relaxations will not be passed.
"Passing the regulations at a late stage is liable to lead to the unnecessary complexity involved in retroactive corrections to financial statements in 2027."
In the past year, the Ministry of Finance has promoted the adaptation of the local tax system to global standards and the adoption of the OECD’s minimum tax mechanism. Pillar Two is part of the OECD’s BEPS (base erosion and profit shifting) initiative to which 140 countries are party. Its aim is to put an end to competition between countries in cutting tax rates in order to attract foreign companies.
Most local companies that do not have preferred enterprise status pay the full regular rate of companies tax of 23% and are not affected by Pillar Two.
Under the plan formulated by the Ministry of Finance and the Israel Tax Authority, Israel will adopt the QDMTT (qualified domestic minimum top-up tax). Although the standard rate of companies tax in Israel is 23%, many multinational corporations have benefitted up to now from reduced rates of between 6% and 12% under the Law for the Encouragement of Capital Investment.
Under the new mechanism, if a multinational company pays an effective tax rate in Israel of less than 15%, the Israel Tax Authority will collect a "top-up tax" that will bring the rate up to 15%.
Under the OECD rules, if Israel does not collect the top-up to 15%, the company’s mother country (the country where the main headquarters or top parent company of a multinational enterprise is located) will collect the difference. Adoption of the rule ensures that state revenues will remain in Israel and will not leak to other countries.
The Ministry of Finance stresses that completion of the legislation in the form of the regulations is a vital step towards ensuring business certainty for the companies concerned, and warns that prolonged delay in the Finance Committee could substantially harm Israel’s ability to compete for technological investment against the rest of the world.
In order for the Israeli legislation to be recognized internationally approval needs to be obtained from the OECD institutions. The OECD’s examination takes several months. Ministry of Finance sources say that any further delay will prevent Israel from receiving international recognition on time.
In such a situation, multinational companies will begin the fiscal year in a position of uncertainty. They will be required to deposit advance tax payments without clarity on tax rates, and they will not know how to report, and will have to enter into complicated offset mechanisms with foreign countries. The fear is of expensive bureaucracy, damage to Israel’s attractiveness as a destination for investment in R&D, and short-term loss of state revenues.
Opposition MKs believe, however, that it will be possible to carry out the work on the regulations in the Knesset Finance Committee after the election on October 27.
The Ministry of Finance said in response to the report, "The ministry requested the Knesset to approve the minimum companies tax rate in the Finance Committee urgently. The regulations are required for approval of the supplementary tax legislation in Israel as a QDMTT. In order for Israel to receive qualified status soon, the regulations need to be approved this year. Delay in obtaining qualified status is liable to lead to a considerable administrative burden on the companies, and in certain cases to excess tax payments internationally."
Published by Globes, Israel business news - en.globes.co.il - on September 28, 2026.
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