Israel's tax authority has introduced expanded reporting obligations for foreign entities with economic activity in the country. The changes took effect on January 1, 2026, and apply to the 2025 tax year – meaning the first affected filing cycle is already underway. Foreign companies that have not yet reviewed their Israeli exposure risk penalties, forced assessments, and reputational damage with Israeli counterparties.
The new requirements obligate foreign entities to file detailed disclosure reports with the Israeli Tax Authority whenever their Israeli-sourced income, assets, or operational presence crosses defined thresholds. Corporate income tax obligations now apply to a broader set of cross-border arrangements, and the compliance deadline for the 2025 annual cycle falls on June 30, 2026, for most foreign filers. Entities that maintain a permanent establishment in Israel, earn Israeli-sourced passive income subject to withholding tax, or hold assets through Israeli intermediaries are directly in scope.
This alert summarises what changed, which business categories are affected, and the immediate steps that international companies should take before the filing deadline.
What changed – the regulatory development and effective date
Israel's tax legislation has long distinguished between residents and non-residents. The recent amendments expand the disclosure obligations that apply specifically to foreign entities. Three changes are central.
First, the definition of reportable presence has been broadened. Previously, a foreign entity needed a registered branch or subsidiary to trigger filing obligations. Under the amended rules, recurring commercial activity conducted remotely – including digital services supplied to Israeli customers – can now constitute a reportable connection to the Israeli tax system. The concept of permanent establishment under Israeli tax law has been updated to reflect this digital economy reality.
Second, withholding tax reporting has been tightened. Israeli-resident payers who make payments to foreign entities for services, royalties, or interest must now file more detailed returns. Foreign recipients are jointly responsible for ensuring their tax residency documentation is current. Without a valid tax treaty certificate, Israeli withholding tax applies at the standard rate to the gross payment.
Third, the Israeli Tax Authority now requires certain foreign holding structures to disclose beneficial ownership information when those structures hold Israeli real estate or shares in Israeli companies. This applies regardless of whether the foreign entity has previously filed in Israel.
All three changes apply from January 1, 2026, with the first compliance deadline set for June 30, 2026, covering the 2025 fiscal year.
Who is affected – threshold criteria and business categories
The amendments target four primary categories of foreign entity.
Foreign companies with recurring Israeli revenue. Any foreign entity that repeatedly supplies goods, services, or digital products to Israeli clients – and whose Israeli-sourced income exceeds the annual reporting threshold – must file. The threshold is assessed on gross revenue derived from Israeli sources, not on net profit. Entities approaching the threshold during 2025 should assume they are in scope.
Foreign entities with passive Israeli income. Recipients of dividends, interest, royalties, or rental income from Israeli sources are subject to withholding tax under Israeli tax legislation. Foreign entities relying on a reduced rate under an applicable tax treaty must hold current residency certification from their home jurisdiction. Without it, the exemption or reduced rate does not apply, and the Israeli payer is obligated to withhold at the full statutory rate.
Foreign holding structures with Israeli assets. Offshore vehicles. whether incorporated in low-tax jurisdictions or structured as trusts. that hold Israeli real estate or equity stakes in Israeli companies must now disclose the underlying beneficial ownership chain. The obligation arises at the asset level, not at the entity level, so a foreign holding company that indirectly owns Israeli property through a subsidiary is still caught.
Entities with potential permanent establishment exposure. Foreign companies whose employees, agents, or digital infrastructure regularly serve Israeli clients may have created a permanent establishment without intending to. Once a permanent establishment is deemed to exist, the entity becomes liable for Israeli corporate income tax on the profits attributable to that establishment.
For international companies navigating these rules alongside broader regional considerations, our analysis of tax reporting developments in the UAE provides a useful comparative perspective on how neighbouring jurisdictions are tightening cross-border disclosure regimes.
To receive an expert assessment of your Israeli tax exposure and reporting obligations, contact us at info@ferrazwhitmore.com.
Immediate actions for international companies
The June 30, 2026 deadline is close. The following actions should be completed without delay.
- Map your Israeli economic footprint. Review all revenue streams, contracts, and assets connected to Israel. Identify whether any arrangement – including digital service delivery or agency relationships – meets the updated permanent establishment criteria under Israeli tax legislation.
- Verify withholding tax treaty positions. If your entity benefits from a reduced withholding tax rate under a bilateral tax treaty, confirm that your residency certificate is current and has been provided to the Israeli payer. Expired or absent documentation exposes both parties to the standard rate.
- Prepare beneficial ownership disclosures. Foreign structures holding Israeli real estate or company shares must compile the documentation required for the new beneficial ownership disclosure regime. This includes identifying each beneficial owner above the applicable ownership threshold.
- Assess corporate income tax registration obligations. If a permanent establishment has been created, the entity must register with the Israeli Tax Authority and file a corporate income tax return for 2025. Failure to register before the deadline triggers automatic penalties under Israeli tax legislation.
- Engage local Israeli counsel and cross-border tax advisers. The interaction between Israeli domestic tax rules, applicable tax treaty provisions, and home-country reporting requirements is technically demanding. Errors in characterising the Israeli connection – for example, misclassifying a permanent establishment as a mere agency arrangement – can result in double taxation.
For a tailored strategy on cross-border tax compliance and permanent establishment analysis in Israel, reach out to our team at info@ferrazwhitmore.com.
Foreign entities with broader Israeli legal exposure. including corporate structuring, equity arrangements. Alternatively, commercial contracts. should also review our overview of corporate law services in Israel. Additionally. Our dedicated coverage of Israeli tax law advisory for international clients.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our tax law practice covers Israeli tax reporting obligations, withholding tax structuring, tax treaty analysis, and permanent establishment assessments for foreign entities entering or already active in Israel. We work with international entrepreneurs, institutional investors, and in-house legal teams who require cross-border tax counsel across civil law and common law systems. Our team includes practitioners with experience before tax authorities and arbitral bodies in the Middle East and Asia-Pacific region. As a law firm in Israel-related matters, we bring both Portuguese and common law analytical perspectives to complex multi-jurisdictional engagements. To discuss your Israeli tax residency position or compliance timeline, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.