The Knesset Finance Committee on Sunday okayed a bill to grant tax credits for corporate research and development (R&D) expenses, in a bid to keep multinational tech firms in Israel.

The “Research and Development Law,” which can now be held to a full plenum vote, comes as over two years of war and uncertainty about Israeli democracy have fueled concerns of stagnation and brain drain in the tech sector, which remains the main driver of the country’s economy.

The bill also seeks to offset an OECD-brokered tax hike on large companies, and comes as a strong shekel has raised payroll and other expenses for firms based abroad that have R&D centers in Israel.

The legislation introduces a direct tax credit for R&D expenses, letting companies keep a larger share of their revenue than they would under the current practice of deducting the costs from taxable income. The tax credit amounts to billions of shekels.

Under the legislation, companies operating in Israel’s socio-economic periphery will also enjoy additional benefits, including expanded eligibility for the tax credit.

If passed, the bill will apply retroactively to qualifying companies’ R&D expenses from January 1,........

© The Times of Israel