On 5 May 2026, Draft Property Tax and Compensation Fund (Payment of Compensation) (War Damage and Indirect Damage) (Temporary Order) Regulations, 5786-2026 were published (the Draft Regulations). The Draft Regulations seek to establish a designated compensation mechanism for damages caused to businesses during Operation “Roaring Lion”, with an emphasis being placed on areas that were significantly impacted for a prolonged period by the war and the security restrictions consequentially imposed on them. According to the explanatory notes, the Draft Regulations are based on the distinction made between the broad economic damage to which the entire economy was subject and the more severe damage that was caused to areas that have been defined, based on security and functional criteria, as ‘the Special Zone. It was thus suggested to grant businesses operating in these areas increased compensation tracks, similar to the outlines determined in the past within the framework of the Property Tax Regulations during the “Iron Swords” war.
According to the proposal, the Draft Regulations apply to indirect damages that were caused during the period commencing from 1 March 2026 until 30 April 2026 and with regard to the wage track, the qualifying period applies only from 1 March 2026 until 16 April 2026. The Draft Regulations contain a detailed list of settlements and areas deemed, according to the proposal, a “Special Zone”. From the explanatory notes it emerges that the selection of those areas was based on cumulative security and functional criteria, including the prolonged period of stringent restrictions ascribed as levels “red” and “orange” by Home Front Command, the extremely short defensive times, the high scope of warnings and the application of additional stringent directives.
The Draft Regulations propose four alternative compensation tracks for businesses impacted in the Special Zone:
– “Turnover track”—a track based on a decline in business turnover during the eligibility period relative to the base period, up to a compensation ceiling of NIS 5 million for the dealer, and provided that he in any event paid his employees a wage for a day of absenteeism due to the security situation.
– “Wage track”—fixed compensation in the amount of NIS 520 for each working day paid to an employee who is absent due to the security situation, in the circumstances set out in the Draft Regulations, including absenteeism due to closure of the educational institution in which the employee is employed or due to the prohibition of gatherings, the absence of a person with a disability living in the Special Zone, or of a relative who is absent from work in order to supervise or take care of him, as well as absenteeism for the purpose of supervising a child due to the closure of an educational institution, all subject to the terms and conditions set out in the Draft Regulations.
– “Agriculture track”—a designated track for agricultural businesses, within which it is proposed to set compensation in the amount of NIS 12,844 multiplied by the number of employees employed by the injured party in those areas of the Special Zone comprising agricultural crops, up to a ceiling of NIS 5 million for a period of two months.
– “Execution contractor’s track”—a designated compensation track for construction contractors working in the Special Zone, up to a compensation ceiling of NIS 5 million for a period of two months; it is clarified that a construction contractor will not be entitled to the turnover track.
The Draft Regulations clarify that the compensation will be given only for damage caused due to the hostilities, and that as a rule, one of the principal eligibility conditions is the payment of wages to employees for the relevant days of absenteeism. In addition, the Draft Regulations specify a series of restrictions for its applicability, and among other things, it is clarified that the Draft Regulations will not apply to the state, healthcare funds, certain budgeted bodies, public institutions that do not qualify as an “eligible public institution”, businesses that were closed prior to commencement of the determining period, or businesses that were not operating prior to the relevant period. It is further clarified that an injured party who is entitled to compensation under the red track by virtue of the principal regulations will be entitled to choose between compensation under the existing track and that granted in accordance with the Draft Regulations, but will not be entitled to benefit from double compensation. Similarly, someone receiving compensation on the strength of the proposed Draft Regulations will not be entitled to receive compensation under the Economic Assistance Program Law.
Claims for compensation are to be submitted online, beginning from the 16th of the month following the end of the relevant eligibility period and will expire four months thereafter.
In the December 2025 tax newsflash, we reviewed the Minimum Corporate Tax on Multinational Groups Law, 5786-2025, which aims to impose corporate tax in Israel in accordance with the GloBE rules that were crystallized as part of the OECD’s Pillar Two project. In that same article, we also addressed the proposed incentive array for Israeli resident companies belonging to multinational groups, which is intended to balance the impact of the minimum tax regime on their activity in Israel (you can read the full article here).
On 27 April 2026, a draft of the Minimum Corporate Tax Regulations on Multinational Groups, 5786-2026 was published (the Draft Regulations), with the aim of completing implementation of the law in Israel. The Draft Regulations do not apply new mechanisms, but rather seek to anchor in the domestic law a series of mechanisms and relaxations as set out in the OECD’s unified interpretation of the GloBE rules, including the establishment of permanent and temporary safe harbour mechanisms, as well as a series of choices designed to facilitate a simple, efficient and uniform application of the rules. It should also be emphasized that implementation of the Regulations constitutes an essential condition for recognition of the minimum tax regime in Israel as a qualified QDMTT regime.
At the heart of the Draft Regulations is the anchoring of two key safe harbour mechanisms: temporary for the transition period, based on qualified transitional Country-by-Country Reporting (CbCR) Safe Harbour, and permanent for a non-material participating entity. The purpose of these arrangements is to reduce the burden of compliance and facilitate a more efficient and simple implementation of the minimum tax regime in cases deemed appropriate for this.
Alongside this, the Draft Regulations include a number of additional substantive choices, which were copied from an interpretation of the rules and adapted to the Israeli tax regime. Among other things, there was determined the possibility of including in the GloBE income dividends sourced from the holding of shares in an investment portfolio, certain profits and losses derived from holding a means of control, as well as provisions regarding the exclusion of certain components from the application of covered taxes or from the GloBE income, based on specified conditions. In addition, it was proposed to establish a mechanism that will allow, in certain cases, to postpone an amount of additional ongoing supplementary tax for successive years. The Draft Regulations also include technical provisions regarding the method of currency conversion, which are intended to regulate the manner of translating the threshold amounts and supplementary tax, when the calculation or payment is made in a currency other than euros or shekels, as applicable.
It therefore seems that the Draft Regulations constitute an important implementation stage in completing the adoption of the Pillar Two regime in Israel. Beyond the technical aspect, it has considerable practical significance for multinational groups operating in Israel, as it defines the simplicity of the main mechanisms and the space of choice available to them. Given the complexity of the new regime, the relevant groups should prepare ahead and examine the applicability of the various relaxations and choices established within its framework.
A ruling was recently rendered by the Lod-Central District Court in the case of Tax Appeal 32261-05-22 David Moshe Towers in Jerusalem – Initiated and Open Ltd. v. Netanya Value Added Tax Manager, which addressed the question as to whether a building contractor who sold a building for rent to a purchaser who stepped into the former’s shoes under the Encouragement of Capital Investments Law (the ECI Law), would be entitled to a VAT exemption, even if it had not leased the apartments for five years.
As is well known, section 53B(c) of the ECI Law permits, under certain conditions, a building contractor to enjoy such benefits even if it sold the building to a purchaser who undertakes to continue leasing the apartments. On the other hand, section 31(A1) of the VAT Law, in its form prior to Amendment 59 of the said Law dated 18 November 2021, granted an exemption only when the apartments were leased for at least five years, and only within the ambit of Amendment 59 was an alternative to sale expressly added in accordance with section 53B(c)(1) of the ECI Law.
In the case at hand, the appellant constructed a building designated for rental purposes, received approval in this regard under the ECI Law, began to lease the apartments, and subsequently sold the building as a single unit to Apartment For Rent – Rental Housing Government Company Ltd. with conversion of the letter of approval, pursuant to law. The appellant reported the transaction as VAT-exempt, but the VAT Manager determined that the conditions for obtaining the exemption were not met, since the appellant had not leased the apartment for at least five years.
The court rejected the appeal and held that the appellant is not entitled to a VAT-exemption. The principal reasons underlying the decision were as follows:
– The language of section 31(A1) of the VAT Law, in its form prior to Amendment 59, grants an exemption only when the apartments are leased for at least five years, and therefore it cannot apply to a sale that occurred prior to completion of the lease period by the seller.
– The fact that the ECI Law permits, under certain conditions, a sale to a purchaser who steps into the seller’s shoes, does not automatically affect application of the exemption under the VAT Law.
– Amendment 59 of the VAT Law, which expressly added a sale pursuant to section 53B(c)(1) of the ECI Law, does not constitute a clarifying amendment, but rather an amendment that broadened application of the exemption from this point onward.
In addition, the court held that since the appellant had returned the input tax that was withheld, this amount should be returned to it together with linkage differentials and interest, or otherwise set-off against the amount of VAT it was charged.
The ruling clarifies that even when a transaction complies with the conditions of the ECI Law, this itself does not guarantee an exemption from VAT. From a practical viewpoint, project developers and contractors engaging in the field of rental housing should meticulously examine the date of the transaction, the wording of the applicable law at that time, and the tax ramifications emanating from the transaction structure.
* The newsflash is intended to provide subscribers with general information only and should not in any way be regarded as firm professional advice and/or a definitive legal opinion.
