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Law for the Encouragement and Incentivisation of Research and Development, 5786-2026

חוק לעידוד ולתמרוץ מחקר ופיתוח, תשפ"ו-2026

Published: 2026-03-31Consolidated Hebrew text as of 2026-04-16 · Last amended 2026-03-31✓ Amendment status checked against the Knesset legislation record on 2026-09-28

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Unofficial English translation — for reference only. It may contain errors or omissions and cannot be relied on as a legal text. Only the Hebrew text published in Reshumot is legally binding.More

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Despite these checks, it may contain errors, omissions, or imprecise renderings of legal terminology and cross-references, and it may not yet reflect the latest amendments. It cannot be relied upon as a legal text.

The Hebrew text as published in Reshumot (ספר החוקים) and on the Knesset website is the sole authoritative and legally binding version. In any discrepancy, the Hebrew text prevails.

This translation is provided for informational purposes only and does not constitute legal advice. For use in legal proceedings, request a certified Expert Legal Opinion.

Definitions§

(a)In this Law –

"Development Area A" – as its meaning in Part 1 of the Second Schedule to the Law for the Encouragement of Capital Investment;

"means of control", "together with another" and "relative" – as defined in section 88 of the Ordinance;

"research and development expenditure" – expenditure classified as research and development expenditure under generally accepted accounting principles, including such expenditure that has been capitalised;

"qualifying research and development expenditure" – research and development expenditure of an industrial enterprise listed below, reduced by the amounts of grants given in respect of the research and development expenditure of the enterprise, provided that, for this purpose, grants given in respect of the acquisition of buildings shall not be deducted:

(1)100% of the payroll cost of employees of the enterprise engaged in research and development activity in Israel; for this purpose, "payroll cost" – wages paid to employees of the enterprise, as reported in Form 0126 submitted by the eligible company pursuant to the Income Tax (Deduction from Salary and Wages) Regulations, 5753-1993, with the following modifications:

(a)with the addition of any amount paid by an employer to a training fund or a provident fund, if under section 3 of the Ordinance it is not regarded as employment income at the time it was paid to the training fund or the provident fund;

(b)with the addition of the amount of insurance premiums paid by an employer in respect of an employee under the National Insurance Law [Consolidated Version], 5755-1995;

(c)less retirement or death grants as their meaning in section 9(7a) of the Ordinance;

(d)less expenditure in respect of equity-based compensation not allowed as a deduction under section 102(d)(1) of the Ordinance;

(2)the amount of depreciation that may be deducted in the tax year under the Income Tax (Depreciation) Regulations, 1941, in respect of productive assets used in Israel in that tax year for the purposes of the research and development activity of the enterprise, excluding the amount of depreciation added by reason of the capitalisation of research and development expenditure; and in respect of productive assets serving the enterprise as aforesaid that are not owned by the owner of the enterprise – the usage fees paid for the use of such assets in the tax year;

(3)65% of the total research and development expenditure incurred by the enterprise in the tax year in order to carry out research and development activity through sub-contractors –

(a)in Israel, provided that the group to which the sub-contractor belongs has not claimed a tax credit in respect thereof under this Law; for this purpose, "sub-contractor" – excluding a relative of the eligible company that owns the enterprise;

(b)outside Israel, in order to carry out clinical and toxicological trials that cannot be carried out in Israel, and also in order to carry out other activities, of types to be prescribed by the Minister of Finance, that could not have been carried out in Israel;

(4)the research and development expenditure incurred by the enterprise in the tax year through a sub-contractor who is an Israeli resident and a relative of the eligible company that owns the enterprise, up to the amount of the sub-contractor's expenditure that would have been recognised as qualifying research and development expenditure of the enterprise had the enterprise itself incurred that expenditure, provided that the group to which the sub-contractor belongs has not claimed a tax credit in respect thereof under this Law; where the Director has found that the amount of the sub-contractor's expenditure as aforesaid cannot be proved, the Director may approve that 65% of the total research and development expenditure incurred by the enterprise in the tax year in order to carry out research and development activity through such sub-contractor shall be regarded as qualifying expenditure;

(5)expenditure for components, single-use equipment and consumable materials that were fully consumed during the tax year in the course of research and development activity in Israel;

(6)additional categories of research and development expenditure incurred by an enterprise in Israel as prescribed by the Minister of Finance, with the approval of the Finance Committee of the Knesset, provided that they serve to carry out research and development activity in Israel;

(7)research and development expenditure incurred by the enterprise in Israel that is not expenditure similar in nature to the categories of expenditure included in paragraphs (1) to (6), even if not included as expenditure under those paragraphs, and that is not expenditure for the lease of or depreciation on buildings, all up to a ceiling equal to 20% of the payroll cost of employees of the enterprise engaged in research and development activity in Israel as its meaning in paragraph (1), including the said payroll cost of the related sub-contractor whose expenditure was regarded as expenditure of the enterprise under paragraph (4);

"income from a preferred technological enterprise" – income of a technological enterprise derived or accrued in the ordinary course of business of the enterprise from a preferred intangible asset that is wholly or partly owned by the enterprise or in respect of which the enterprise holds a right of use, including each of the income items set out in paragraphs (1) to (7) of the definition of "technological income" in section 51x of the Law for the Encouragement of Capital Investment, reduced by discounts granted;

"income from a preferred enterprise" – income of a preferred enterprise, being income as set out in paragraphs (1) to (5) of the definition of "preferred income" in section 51 of the Law for the Encouragement of Capital Investment, provided that the income was derived or accrued in the ordinary course of business of the enterprise from its activity in Israel and the conditions set out in paragraphs (a) and (b) in the concluding part of that definition were fulfilled, as applicable, reduced by discounts granted;

"eligible company" – a body of persons in which the conditions set out in the opening part and in paragraphs (2) to (5) of the definition of "preferred company" in section 51 of the Law for the Encouragement of Capital Investment are fulfilled;

"Law for the Encouragement of Capital Investment" – Law for the Encouragement of Capital Investment, 5719-1959;

"Law for the Encouragement of Research, Development and Innovation in Industry" – Law for the Encouragement of Research, Development and Technological Innovation in Industry, 5744-1984;

"entity" – as defined in section 85a(b) of the Ordinance;

"ultimate parent entity" – an entity holding more than 50% of all means of control in each of the other entities, directly or indirectly, alone or together with another, provided that it shall not be regarded as the ultimate parent entity if it was so held by another entity and that entity held it throughout the entire tax year;

"the Director" – the Director as defined in the Ordinance, including any person authorised by the Director for the purposes of this Law;

"grant" – a grant, benefit, assistance, financing or financial support given by the State of Israel, a foreign state, a corporation or body established by law, a public authority, a local authority, or anyone acting on their behalf, but excluding a research and development grant or credit given under this Law or under the Law for the Encouragement of Knowledge-Intensive Industry (Temporary Provision), 5783-2023;

"research and development grant" – as its meaning in section 5(a);

"technological enterprise" – as defined in section 51x of the Law for the Encouragement of Capital Investment;

"preferred enterprise" and "industrial enterprise" – as defined in section 51 of the Law for the Encouragement of Capital Investment;

"research and development enterprise" – an industrial enterprise in which the conditions set out in paragraphs (2) or (3) of the definition of "preferred technological enterprise" in section 51x of the Law for the Encouragement of Capital Investment are fulfilled, and the total revenues in the tax year of the group to which the company owning the enterprise belongs were less than NIS 10 billion;

"special research and development enterprise" – an industrial enterprise in which the conditions set out in paragraphs (2) or (3) of the definition of "preferred technological enterprise" in section 51x of the Law for the Encouragement of Capital Investment are fulfilled, and the total revenues in the tax year of the group to which the company owning the enterprise belongs were NIS 10 billion or more;

"productive assets" – machinery and other equipment serving an industrial enterprise in respect of which depreciation expenditure is recorded in the research and development expenditure of the enterprise, excluding a private vehicle or commercial vehicle as defined in the Traffic Ordinance [New Version], and excluding buildings;

"research and development activity" – an activity of research and development; for this purpose, "research" and "development" – as defined in section 4 of the Law for the Encouragement of Research, Development and Innovation in Industry;

"the Ordinance" – the Income Tax Ordinance [New Version];

"group" – a group comprising all entities having the same ultimate parent entity in any tax year and the ultimate parent entity itself;

"eligible group" – a group in which all of the following are fulfilled in the tax year:

(1)the aggregate income of all eligible companies belonging to the group in the tax year, being income from a preferred enterprise or income from a preferred technological enterprise –

(a)was at least NIS 100 million; this amount shall be adjusted on 1 January of each year according to the rate of increase of the index in the preceding tax year; and –

(b)constituted at least 55% of the total income of companies belonging to the group that are Israeli residents, provided that for this purpose a dividend received directly from another company belonging to the group shall not be included in the income of a company;

provided that for the purposes of this definition, income received from another eligible company belonging to the group shall not be included in the income of an eligible company;

(2)the eligible companies belonging to the group employ in the tax year, in aggregate, 200 or more full-time employees in Israel in the tax year, or employed on average, in the tax year and the two preceding tax years, in aggregate 200 or more full-time employees in Israel and not fewer than 150 employees in each of those tax years; for this purpose, an employee employed up to four working hours per day shall be regarded as a half-time employee, and an employee employed for only part of the tax year shall be regarded as a part-time employee at a rate equal to the proportional part of the tax year during which the employee is employed;

"Innovation Authority" – the National Authority for Technological Innovation, established under section 5 of the Law for the Encouragement of Research, Development and Innovation in Industry;

"research and development activity year" – the tax year in which the research and development expenditure in respect of which an application for a tax credit under section 2 is submitted was incurred.

(b)Every other term in this Law shall have the meaning it has in the Ordinance, unless expressly stated otherwise.

Entitlement to a Tax Credit§

(a)An eligible company that incurred qualifying research and development expenditure in a tax year and belonged to the same eligible group throughout the entire tax year is entitled to a tax credit in accordance with the provisions of subsection (c), provided all of the following are fulfilled:

(1)all the eligible companies belonging to the eligible group have authorised one of them to submit on their behalf reports in respect of their qualifying research and development expenditure for that tax year, and to be the assessed in that regard as provided in section 4 (in this Law – the representative company);

(2)the representative company submitted to the Innovation Authority, within 24 months of the end of the research and development activity year, an application for approval of the classification of the research and development expenditure of all eligible companies belonging to the group as qualifying expenditure, together with the power of attorney referred to in paragraph (1), and the application was approved by the Innovation Authority as provided in subsection (b);

(3)the representative company submitted to the assessing officer a consolidated report (hereinafter – the consolidated report), in the form prescribed by the Director, which includes, inter alia, the particulars set out in sub-paragraphs (a) to (d) below, together with the power of attorney pursuant to paragraph (1) and the Innovation Authority's approval referred to in paragraph (2):

(a)the details of the group establishing that it is an eligible group;

(b)a report in respect of the qualifying research and development expenditure incurred in the tax year by each of the eligible companies belonging to the group;

(c)the amount of the tax credit to which the group as a whole is entitled and the manner in which the credit is calculated, as provided in section 3;

(d)details of how the amount of the tax credit to which the group as a whole is entitled is to be distributed among the eligible companies belonging to the group; the representative company may not retract the attribution of the expected tax credit amount to each of the eligible companies after the submission of the consolidated report;

(4)the eligible company submitted an application to receive a tax credit in accordance with the provisions of subsection (c).

(b)Where an application has been submitted to the Innovation Authority under subsection (a)(2), the Authority shall notify the representative company and the Director, within 150 days of the date on which it confirmed receipt of the application and the documents accompanying it, whether it has decided to approve that the expenditure detailed in the application is classified as qualifying research and development expenditure, in whole or in part, or to reject the application, and what the reasons for the decision are; where the Innovation Authority has not notified its decision on the application by the end of that period, it shall be deemed to have given approval that the expenditure detailed in the application is classified as qualifying research and development expenditure; however, where the Innovation Authority required the representative company to complete documents, the period of time from the date of the demand until the date of completion of the documents by the representative company shall not be counted towards the period for giving a decision as aforesaid, unless the demand was completed within 10 days.

(c)An eligible company as referred to in subsection (a) is entitled to submit an application for a tax credit, in the amount of the tax credit attributed to it in the consolidated report, pursuant to one of the following options:

(1)an application for a credit against income tax for which it is liable, in respect of income derived or accrued in the tax year following the tax year after the research and development activity year; an application under this paragraph shall be submitted together with the annual report under section 131 of the Ordinance in respect of that tax year, and the consolidated report shall be attached thereto;

(2)an application for a credit against supplementary domestic tax, as defined in the Minimum Corporate Tax in a Multinational Group Law, 5786-2025, for which it is liable in respect of income derived in the research and development activity year; an application under this paragraph shall be submitted together with the report submitted under section 4 of that Law in respect of the research and development activity year, and the consolidated report shall be attached thereto.

(d)A tax credit as referred to in subsection (c) that could not be utilised, in whole or in part, in the tax year referred to in that subsection, may be utilised in successive tax years up to the tax year preceding the year in which a notice of a demand for a research and development grant under section 5(b) may be submitted, against income tax or supplementary domestic tax liability for each such tax year, provided that a tax credit as aforesaid that could already have been utilised in earlier tax years shall not be utilised.

Calculation of the Credit Amount§

(a)The amount of the tax credit to which an eligible group is entitled for a tax year shall be the total amount obtained by adding all of the following:

(1)the total qualifying research and development expenditure of industrial enterprises owned by eligible companies belonging to the group, being industrial enterprises in Development Area A or special research and development enterprises –

(a)multiplied by the rate up to the threshold and by 25%;

(b)multiplied by the rate above the threshold and by 30%;

(2)the total qualifying research and development expenditure of industrial enterprises owned by eligible companies belonging to the group, being research and development enterprises –

(a)multiplied by the rate up to the threshold and by 3%;

(b)multiplied by the rate above the threshold and by 4%.

(b)In this section –

"total expenditure above the threshold" – the total qualifying research and development expenditure of all eligible companies belonging to the eligible group, reduced by NIS 1.05 billion, provided that if the result obtained is less than zero it shall be treated as zero;

"the rate up to the threshold" – the result obtained by dividing NIS 1.05 billion by the total qualifying research and development expenditure of all eligible companies belonging to the eligible group, provided that if the result obtained is greater than one it shall be treated as one;

"the rate above the threshold" – the result obtained by dividing the total expenditure above the threshold by the total qualifying research and development expenditure of all eligible companies belonging to the eligible group.

Assessment of the Tax Credit§

(a)Where the representative company has submitted a consolidated report under section 2(a)(3), the assessing officer shall send to the representative company and to the remaining eligible companies belonging to the eligible group a notice of the amount of the tax credit to which the group as a whole is entitled and the amount of the tax credit to which each of them is entitled, in accordance with the consolidated report.

(b)The assessing officer may assess the consolidated report and determine, according to the officer's best judgment, the amount of the tax credit to which the representative company and the remaining eligible companies belonging to the eligible group are entitled, as part of the assessment proceedings of the report of the representative company submitted under section 131 of the Ordinance, in the tax year in which the consolidated report was submitted.

(c)Where an assessment of the consolidated report has been made as provided in subsection (b), the assessing officer may determine the tax credit of an eligible company belonging to the eligible group, in accordance with the assessment of the consolidated report, within two years of the end of the tax year in which the assessment of the consolidated report was determined or at the time at which the officer is entitled to assess the income of the eligible company in the year in which it claimed the tax credit in accordance with the consolidated report, whichever is the later.

(d)In the course of an objection or appeal against the assessment of an eligible company, the company may object to or appeal against the effect of the assessment of the consolidated report on its assessment, but not against the assessment of the consolidated report itself.

(e)Where an assessment has been made in respect of an eligible company belonging to an eligible group or its assessment has been amended in a manner that affects the data that served as the basis for the consolidated report, the assessing officer may amend the assessment of the consolidated report, and the provisions of subsections (c) and (d) shall apply to such an amendment, with the necessary modifications.

Research and Development Grant in lieu of Credit§

(a)An eligible company that is entitled to receive a tax credit under section 2 and has not made use of the credit in respect of tax years ending in the third year following the research and development activity year is entitled to receive the full amount of the unused credit as a payment in lieu of a tax credit (in this Law – research and development grant).

(b)In order to receive a research and development grant as referred to in subsection (a), the eligible company shall submit a notice to the Director, in a form to be prescribed, during the fourth year following the research and development activity year.

(c)Where an eligible company has submitted a notice as referred to in subsection (b), the research and development grant shall be paid to it within 90 days from the date of submission of the notice (hereinafter – the payment date), provided that if the eligible company was required to submit a report under section 131 or 135 of the Ordinance, and the final date for submitting such a report was prior to the payment date, and that report was not submitted by the payment date, the Director may defer payment of the research and development grant for a period not exceeding 90 days from the date on which the said reports are submitted.

(d)A research and development grant shall be paid to an eligible company through the Israel Tax Authority by crediting its bank account notified by it in the notice under subsection (b).

(e)Where the Director has requested from the eligible company additional particulars or documents required for the purpose of paying the grant, the period during which the company did not provide the Director with the particulars or documents as aforesaid shall not be counted within the period for making the payment as referred to in subsection (c).

(f)Notwithstanding the provisions of section 2(c), where an eligible company has submitted an application to receive the tax credit under that section, it may, in that same application, give notice that it wishes to waive its right to utilise the credit against an income tax liability or a supplementary local tax liability as referred to in section 2(c) or (d), and to receive instead the full amount of the credit as a research and development grant in the manner and at the times referred to in this section; where an eligible company has submitted such a notice, it shall not be entitled to withdraw it.

(g)Where it has been determined following an assessment under section 4 that a research and development grant was paid to an eligible company in an amount exceeding the amount to which it is entitled under this Law, the company shall repay the difference between those amounts (in this section – the excess amount) within 90 days from the date on which the assessing officer delivered to it a demand for repayment, together with linkage differentials and interest on the excess amount from the date of payment of the research and development grant until the date of repayment; the provisions of the Tax Collection Ordinance shall apply to the excess amount and to the linkage differentials and interest as aforesaid as if they were tax, and the provisions of the Tax Offset Law, 5740-1980, shall also apply to them as if they were a tax debt.

(h)Notwithstanding the provisions of subsection (g), where an objection or appeal has been lodged, the company may refrain from repaying the disputed excess amount until 30 days after the decision on the objection or after judgment has been given, as the case may be, if guarantees satisfactory to the Director have been provided to secure the repayment of the disputed excess amount.

(i)Where the research and development grant is paid to the eligible company after the date referred to in subsection (c), payment of the research and development grant shall be made together with linkage differentials and interest from that date until the date on which the research and development grant was actually paid.

Appeal§

Decisions of the assessing officer, the Director and the Innovation Authority under this Law may be appealed to the District Court, and for this purpose the provisions of sections 153 to 158 of the Ordinance shall apply, with the necessary modifications.

General Provisions§

The provisions under Part 10 of the Ordinance shall apply, with the necessary modifications, for the purposes of this Law.

Exemption from Value Added Tax§

A benefit under this Law shall not be regarded as part of the price of transactions of a dealer under section 12 of the Value Added Tax Law, 5736-1975.

Credit for the Purposes of Income Tax§

The amount of the credit under section 2 shall be regarded as a grant for the purposes of the Income Tax Ordinance [New Version], provided that the said credit could, had it not been offset under section 2(c), have been received as a research and development grant under section 5.

Implementation and Regulations§

10.

(a)The Minister of Finance is responsible for the implementation of this Law.

(b)The Minister of Finance, with the approval of the Finance Committee of the Knesset –

(1)may, by Order, amend the percentages specified in the definition of "qualifying research and development expenditure" in section 1, and the amounts and percentages specified in the definition of "eligible group" in section 1;

(2)may, by Order, prescribe that it shall not be possible to receive the amount of the credit, in whole or in part, as a research and development grant under the provisions of section 5.

Amendment of the Law for the Encouragement of Knowledge-Intensive Industry (Temporary Provision)§

11.

In the Law for the Encouragement of Knowledge-Intensive Industry (Temporary Provision), 5783-2023, in section 7, the text thereof shall be designated "(a)" and after it the following shall be inserted:

"(b) (1) The Minister of Finance shall prescribe in Regulations, in respect of an amount paid by an acquiring company for the acquisition of means of control in an eligible company in the tax years 2023 to 2026, that in lieu of receiving the deduction under section 5, the acquiring company shall be entitled to elect to receive a tax credit, and the Minister may also prescribe rules for the calculation of the tax credit, conditions for the grant of the tax credit, conditions for the payment of the balance of the unused tax credit, and dates for payment as aforesaid; all provided that the provisions to be prescribed as aforesaid shall ensure comparable economic equivalence between the tax credit and the deduction under section 5; the first Regulations for the purposes of this paragraph shall be made by the fifteenth day of Tammuz 5786 (30 June 2026);

(2)Where it has been determined following an assessment that the tax credit was paid to the company as a payment in accordance with the provisions prescribed under paragraph (1), in an amount exceeding the amount of the credit to which it is entitled under this Law, the company shall repay the difference between those amounts (in this section – the excess amount) within 90 days from the date on which the assessing officer delivered to it a demand for repayment, together with linkage differentials and interest on the excess amount from the date of payment as aforesaid until the date of repayment; the provisions of the Tax Collection Ordinance shall apply to the excess amount and to the linkage differentials and interest as aforesaid as if they were tax, and the provisions of the Tax Offset Law, 5740-1980, shall also apply to them as if they were a tax debt;

(3)Notwithstanding the provisions of paragraph (2), where an objection or appeal has been lodged, the company may refrain from repaying the disputed excess amount until 30 days after the decision on the objection or after judgment has been given, as the case may be, if guarantees satisfactory to the Director have been provided to secure the repayment of the disputed excess amount;

(4)The tax credit under this section shall be regarded as a grant for the purposes of the Ordinance.".

Commencement and Application§

12.

This Law shall commence on the twelfth day of Tevet 5786 (1 January 2026) (hereinafter – the commencement date), and it shall apply in respect of qualifying research and development expenditure incurred by an eligible company from the tax year that commenced on the commencement date or thereafter.

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LawTax LawCorporate & BusinessAdministrative Law

חוק לעידוד ולתמרוץ מחקר ופיתוח, תשפ"ו-2026

Research and Development Encouragement Law

R&D Incentivisation Law

Encouragement of Research and Development Law

Research Development Law 5786

Hok Le-idud Umtirtz Mechkar U-Pituch

Israeli R&D Law

Research incentives law

Development incentives law

chok mechkar u-pituch

Law for the Encouragement and Incentivisation of Research and Development, 5786-2026

Definitions§Cite ✦

Entitlement to a Tax Credit§Cite ✦

Calculation of the Credit Amount§Cite ✦

Assessment of the Tax Credit§Cite ✦

Research and Development Grant in lieu of Credit§Cite ✦

Appeal§Cite ✦

General Provisions§Cite ✦

Exemption from Value Added Tax§Cite ✦

Credit for the Purposes of Income Tax§Cite ✦

Implementation and Regulations§Cite ✦

Amendment of the Law for the Encouragement of Knowledge-Intensive Industry (Temporary Provision)§Cite ✦

Commencement and Application§Cite ✦