Operation “Am Kalvi” – Compensation Scheme for Indirect Damages to Businesses

We would like to inform you that on July 21, 2025, the Knesset approved the Economic Assistance Plan Law (Temporary Provision – Iron Swords), 2025 (hereinafter: the “Law“) (click here to read the approved Law). The compensation framework is similar to the one implemented following the ‘Iron Swords’ war, such that businesses that suffered significant indirect damages as a result of Operation ‘Am K’Lavi’, during the period from June 13, 2025, to June 24, 2025, will be eligible for compensation. Additionally, the period has been extended for businesses that suffered direct damage, and compensation has been set for indirect damage in the form of rental fees for individuals whose rented properties were directly affected, all as detailed below:

Filing a Claim:

Claims for compensation may be submitted via the following link from July 22, 2025, until October 22, 2025. In most cases, compensation payments are expected to be made within 7 to 14 days from the date the claim is submitted. In cases that require a more thorough review or additional documentation, processing may take longer — but no more than 8 months from the date of submission. If no decision is made within 21 days, an advance payment of 60% of the claimed amount will be issued. If no decision is made within 150 days, an additional 10% advance will be paid. It should be noted that the option to submit claims has not yet been opened for businesses affected by direct damage (damage to buildings, inventory, and business equipment) or for landlords seeking compensation for loss of rental income.

 

Eligibility Criteria for Filing a Claim:

Compensation will be granted to businesses across Israel that were established by May 31, 2025, had an annual turnover in the base year (as defined below) between NIS 12,000 to NIS 400 million, and experienced a turnover in June 2025 of more than 25% (for monthly VAT filers) or 12.5% (for bi-monthly VAT filers). Additional requirements include submission of Form 102 (employee withholding report) for June 2025, and submission of the periodic VAT return for both base period and the eligibility period.

* Definition of Base Year: for businesses established before January 1, 2022 – the base year is 2022. For businesses established in 2022 or later – the base year is the later of: The date the business began operations, or January 1, 2025, and ends on:

• May 31, 2025 for monthly filers, public institutions, and exempt dealers;
• April 30, 2025 for bi-monthly filers.

 

The compensation amount will be determined based on the size of the business; however, no compensation will be granted to businesses with an annual turnover exceeding NIS 400 million.

1. Businesses with an annual turnover in the base year between NIS 12,000 and NIS 300,000, that experienced a decrease in revenue of at least 25% (for monthly VAT filers) or 12.5% (for bi-monthly VAT filers) will be eligible for fixed compensation amounts, as specified in the table below:

	Turnover Decrease (Monthly)
Annual Turnover Ceiling	25%- 40%	40%-60%	60%-80%	80%-100%
50,000 ₪	1,833 ₪	1,833 ₪	1,833 ₪	1,833 ₪
90,000 ₪	3,300 ₪	3,300 ₪	3,300 ₪	3,300 ₪
120,000 ₪	4,400 ₪	4,400 ₪	4,400 ₪	4,400 ₪
150,000 ₪	2,776₪	4,164₪	6,662 ₪	8,328 ₪
200,000 ₪	3,273 ₪	4,910 ₪	7,855 ₪	9,819 ₪
250,000 ₪	4,190 ₪	6,285 ₪	10,056 ₪	12,570 ₪
300,000 ₪	4,897 ₪	7,346 ₪	11,753 ₪	14,691 ₪

VAT-exempt businesses (e.g., small-scale businesses), will receive fixed compensation amounts based on their annual turnover: NIS 1,833 for businesses with turnover up to NIS 50,000; NIS 3,300 for turnover up to NIS 90,000; and NIS 4,400 for turnover up to NIS 120,000.

It should be noted that the calculation of the decline in business turnover will be based on the following base periods:

• For monthly VAT filers, VAT-exempt dealers, eligible public institutions, or contractors reporting on a cash basis – the eligibility period for compensation is June 2025. Accordingly, the base period for comparison is June 2023.
• For bi-monthly VAT filers and registered VAT dealers not reporting on a cash basis – the eligibility period for compensation is May and June 2025. Accordingly, the base period for comparison is May and June 2023.
• For registered VAT dealer reporting on a cash basis:
• If the business reports on a monthly basis, or is an exempt dealer or an eligible public institution, or is a contractor performing works– the eligibility period for compensation is July 2025, and the base period for comparison is July 2023.
• If the business reports on a bi-monthly basis – the eligibility period is July and August 2025, and the base period for comparison is July and August 2023.
• For registered VAT dealers that began operating between January 1, 2023, and April 30, 2025: in general, the base period for comparing turnover decline will be calculated based on the monthly average turnover from the later of: the start date of operations, or January 1, 2025, until: April 30, 2025 for bi-monthly VAT filers, or May 31, 2025 for monthly VAT filers. (For further details, please refer to the provisions outlined in the law).

 

2. Businesses with an annual turnover in the base year between NIS 300,000 and NIS 400 million that experienced a decline of at least 25% in monthly turnover or 12.5% in bi-monthly turnover, will be eligible for compensation consisting of Input VAT refund (expense reimbursement) and wage expense reimbursement:

Wage Expenses – The compensation amount will be calculated as follows: 75% × the wage expenses paid to employees for June 2025, as reported in Form 102, or the average monthly wage for June 2025 according to the National Insurance Institute (whichever is lower). (Note: A different definition applies to public institutions and kibbutzim). The resulting amount will then be multiplied by 1.25 (The multiplication by 1.25 is intended to reflect the full wage cost borne by the employer, which includes additional expenses beyond the gross salary reported to the Tax Authority. Nonprofits and public benefit organizations (NPOs) shall apply a multiplier of 1.325 instead.) The resulting amount must then be multiplied by the percentage decline in business turnover. It should be noted that the total grant amount shall not exceed ₪600,000.

• Please note that from the total wage expenses during the eligibility period, amounts paid by the National Insurance Institute to the employer as reimbursement for reserve duty compensation paid to employees—according to Chapter 12 of the National Insurance Law—must be deducted. Additionally, any employee who was placed on unpaid leave or who used a vacation day during the period between June 13–24, 2025, shall not be counted in the number of employees for the purpose of this calculation.

 

• Non-wage expenses – In addition to compensation for wage expenses, registered VAT dealers will also receive compensation for non-wage expenses, based on the percentage decline in business revenue, as detailed in the following table:

 

Revenue Decline Rate (Monthly / Bi-monthly Reporting)	Compensation Multiplier – Input Component (Expense Reimbursement)
40%-25% / 20%- 12.5%	7%
60%-40% / 30%-20%	11%
80%-60% / 40%-30%	15%
100%-80% / 50%-40%	22%

In other words, the average amount of expenses/inputs from the period September 2022 to August 2023 (including zero-rated VAT inputs) should be multiplied by the compensation multiplier (7%, 11%, 15%, or 22%), as determined by the percentage decline in turnover (for monthly filers – comparing June 2023 to June 2025).

 

• Due to the unique characteristics of certain types of registered VAT dealers, the Director of the Tax Authority is authorized to set an alternative coefficient for those dealers, which will be multiplied by the relevant “Compensation Multiplier – Input Component” for each dealer. For example:
  • A coefficient of 0.35 applies to dealers engaged in the wholesale or retail sale of fuel;
  • A coefficient of 0.19 applies to those involved in the import and export of precious stones during 2024 and 2025, who are eligible for the exemption under Section 33 of the VAT Law;
  • A coefficient of 0.68 applies to construction contractors.

 

It should be noted that the amount of eligible expenses (i.e., fixed expenses plus the qualifying portion of wage expenses) for which compensation may be granted will be capped based on the size of the business and its annual turnover:

• • For a business with an annual turnover in the base year not exceeding ₪100 million, the maximum eligible expenses for compensation will be ₪600,000.
  • For a business with an annual turnover in the base year exceeding ₪100 million but not exceeding ₪300 million, the cap will be:
  • ₪600,000 plus 0.3% of the portion of the turnover that exceeds ₪100 million.
  • For businesses with an annual turnover in the base year greater than ₪300 million and up to ₪400 million, the maximum eligible expenses for compensation will be ₪1.2 million.

 

Additional Notes

A. Businesses that suffered direct damage preventing the use of their premises from the date the damage occurred and at least until July 31, 2025, will be entitled to additional compensation, in addition to the compensation for eligible expenses. The law recognizes three additional eligibility periods (July–August 2025, September–October 2025, and November–December 2025). For each of these periods, compensation will be granted if the damaged business premises remain unusable for at least 15 days during the relevant period. Compensation for each phase will be provided for fixed expenses, in accordance with the framework established for indirect damage compensation for businesses nationwide for June 2025. In addition, it was established that an individual who suffered direct damage as described above will be entitled to additional compensation equal to one-sixth of their taxable business income in the base year (taxable income under Sections 2(1) or 2(6) of the Israeli Income Tax Ordinance in the base year, including maternity allowance, pregnancy bed rest allowance, and reserve duty compensation, divided by the number of active months in the base year and multiplied by 12), provided that the amount does not exceed NIS 30,000, and multiplied by the rate of decrease in their turnover.

 

B. Compensation for Loss of Rental Income (Including Commercial Properties) by Private Individuals Who Are Not Registered VAT Dealers –
Private individuals who own residential or commercial properties that were damaged as a result of the war may be entitled to compensation equal to the last rent payment received, for the duration of the rehabilitation period during which the property could not be used, as determined by the Property Tax and Compensation Fund. Eligibility is subject to the following cumulative conditions: the property was rented out on the date the damage occurred or during the three months preceding that date; The property was declared unfit for use for a period of at least one month; No rent was received by the owner for the rehabilitation period.

 

C. Assistance for Public Institutions- With regard to a public institution, as defined (an entity that is not a state institution and operates for purposes such as education, culture, religion, science, art, welfare, health, sports, or a similar goal, where at least one quarter of its income does not derive from government support or donations, and at least one quarter of its income—as reported in a tax return submitted under Section 131 of the Income Tax Ordinance—comes from the sale of goods or services for consideration collected regularly during most months of the year), the Ministry of Finance will allocate a sum of no less than NIS 10 million to provide compensation to public institutions whose income, including donations, declined due to Operation “Im K’Lavi” (between June 13 and June 24, 2025), and who are not eligible for compensation under the Property Tax and Compensation Fund Law.

 

D. Entities Excluded from the Compensation Framework

The following entities and businesses will not be entitled to compensation:

• Those engaged in the sale of rights in real estate that constitutes business inventory in their hands.
• Those for whom, in the 2023 or 2024 tax years, more than 50% of the work performed consisted of long-term projects—such as construction ventures or projects like film production—executed over a period exceeding one year (excluding execution contractors).
• Financial institutions.
• Businesses that reported their closure to the Tax Authority, ceased operations prior to June 12, 2025, or show indications in their filings prior to Operation “Im K’Lavi” of being inactive.
• Entities engaged in agricultural activities.
• Entities directly or indirectly funded by the State, as well as entities in which the government holds full or partial ownership.
• Government companies and statutory corporations.

 

E. Restrictions on Transfer of Compensation Eligibility:

The law stipulates that a person whose annual turnover does not exceed NIS 300,000 may not transfer, pledge, or have seized their right to receive compensation—except for the purpose of child or spousal support payments pursuant to a court ruling.

 

F. Sanctions to Prevent Frivolous Claims: In order to minimize the submission of frivolous or exaggerated claims, the Director of the Israel Tax Authority is authorized to impose a fine on a taxpayer in the following cases:

• If the difference between the amount of compensation claimed by the dealer and the amount determined by the Director as actually due exceeds 50%, the Director may impose a fine of 25% of the difference, unless the dealer proves to the satisfaction of the Director that there was no negligence in filing the claim.
• In addition, it was determined that an increased penalty of 40% of the difference will be imposed in cases where the gap between the compensation amount claimed and the amount actually determined as due exceeds NIS 15,000 and constitutes more than 50% of the claimed compensation amount—and it was conclusively determined that the discrepancy resulted from a fictitious or artificial transaction.

 

We would be happy to offer you professional advice and support regarding all matters related to obtaining compensation for damages caused by Operation “Am K’Lavi.” We remain at your disposal for any questions or clarifications.