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31 July 2024

Israel to adopt local minimum tax regime (QDMTT) from 2026

  • The Israeli Minister of Finance provided an official statement expressing the intention to adopt a local qualifying domestic minimum top-up tax (QDMTT) from 2026 onward.
  • Implementation of an Income Inclusion Rule and Under-taxed Payment Rule will be reviewed following the introduction of the QDMTT.
  • In-scope multinational enterprises should consult with their tax advisors regarding the effect of the intended introduction of Israeli QDMTT and examine the implications applicable to them.
 

On 29 July 2024, the Israeli Ministry of Finance announced that it intends to implement a QDMTT in Israel from 2026 onward, applicable to multinational enterprises (MNEs) with total consolidated revenue exceeding €750m in two of the preceding four years.

This is the first time in several years that the state of Israel officially expressed its intention to move forward with the implementation of Pillar Two. In 2021, the former Minister of Finance had declared that Israel would adopt Pillar Two to be aligned with the international standard and to provide certainty for MNEs within the scope of Pillar Two.

Israel will examine adoption of the Income Inclusion Rule (IIR) and the Under-taxed Payment Rule (UTPR) after the implementation period for the Israeli QDMTT mechanism has passed.         

Next steps

As the intended implementation of a QDMTT provides more certainty around future Israeli legislation on Pillar Two, in-scope MNEs should plan ahead and prepare for the anticipated change. For example, in-scope MNEs should take immediate action and examine their potential exposure to top-up taxes.

Note that the Ministry of Finance and the Tax Authority have collaborated with the industry, stakeholders, and investors in preparing their QDMTT announcement. Therefore, in-scope MNEs should consult on ways to cooperate with the authorities responsible for drafting upcoming QDMTT legislation in a manner that shares their experience and perspective.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Israel, Tel Aviv

Ernst & Young LLP, Israeli Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2024-1469

 
 

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