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

Further to the client update we published on June 26, 2025 (click here), we would like to inform you that, in accordance with the Ministry of Finance’s proposed scheme for compensating businesses for indirect damages (click here to view the presentation), a Memorandum of Law for the Financial Assistance Program (Temporary Order – Operation “Am Kalvi”), 5785–2025 [Compensation for Damages Caused During Operation “Am Kalvi”] has been published (hereinafter: the Memorandum) (click here to read the full Memorandum) The Memorandum was published for public comments, will then be published as a bill and discussed in the Knesset, and accordingly is still subject to changes . Subject to the completion of the legislative process as planned, the Ministry of Finance is expected to open the Tax Authority’s system for the submission of compensation claims starting July 16, 2025. Under the expected compensation scheme, similar to the one implemented following the “Iron Swords” War , businesses that suffered significant indirect damages as a result of Operation “Am Kalvi”, during the period from June 13, 2025 to June 24, 2025, will be entitled to compensation. The amount of compensation will be calculated according to the decrease in turnover, the amount of fixed expenses, and the wages paid to employees. The specific amount of compensation will be determined based on the size of the business:   1. Businesses with an annual turnover of up to 300,000 NIS, which experienced a decrease of at least 25% in monthly turnover or 5% in bi-monthly turnover, will be entitled to fixed compensation amounts, as detailed in the table below:  

	Turnover Decrease  (Monthly Reporting)
Annual Turnover Range	25%- 40%	40%-60%	60%-80%	80%-100%
12,000 ₪ – 50,000 ₪	1,750 ₪	1,750 ₪	1,750 ₪	1,750 ₪
50,001 ₪ – 90,000 ₪	3,150 ₪	3,150 ₪	3,150 ₪	3,150 ₪
90,001 ₪ – 107,000 ₪	4,200 ₪	4,200 ₪	4,200 ₪	4,200 ₪
107,001 ₪ – 150,000 ₪	2,650 ₪	3,975 ₪	6,360 ₪	7,950 ₪
150,001 ₪ – 200,000 ₪	3,125 ₪	4,687.5 ₪	7,500 ₪	9,975 ₪
200,001 ₪ – 250,000 ₪	4,000 ₪	6,000 NIS	9,600 ₪	12,000 ₪
250,001 ₪ – 300,000 ₪	4,675 ₪	7,013.5 ₪	11,220 ₪	14,025 ₪

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

• A “dealer” (a VAT-registered entity) reporting using the monthly method, an exempt dealer, or a public institution – the comparison will be made against the turnover for June 2024.
• A “dealer” (a VAT-registered entity) reporting using the bi-monthly method – the comparison will be made against the turnover for May and June 2024.
• A “dealer” (a VAT-registered entity) reporting on a cash basis – the comparison will be made against the turnover for July 2024.
• An execution contractor – the comparison will be made against the turnover for July and August 2024.
• Businesses located along the Lebanese border or in the Gaza Envelope, which suffered indirect damages as a result of the “Iron Swords” War, may compare the decline in turnover to the corresponding periods in 2023

  2.Businesses with an annual turnover exceeding NIS 300,000 and not exceeding NIS 400 million:

• • The amount of compensation for wage expenses will be calculated as follows:

75% of the wages paid to employees for the qualifying period, multiplied by 1.25. It should be noted that:

– Compensation will be provided both for employees who were actually employed during the qualifying period and for employees who did not report to work during this period, regardless of the reason for their absence.

 – Nevertheless, in order to prevent excessive compensation for businesses with a high average wage level, it is proposed that the total compensation shall not exceed the national average wage, multiplied by the number of employees who were actually paid wages during the qualifying period, and further multiplied by 1.25. The multiplication by 1.25 is intended to reflect the employer’s full wage-related costs, including additional expenses beyond the gross salary reported to the Tax Authority.

 – Employees who were placed on unpaid leave or were not paid wages at all due to absences during the qualifying period will not be counted for the purpose of this calculation.

 – In addition, it is proposed that from the total wage expenses for the eligibility period, amounts paid by the National Insurance Institute to the employer as reimbursement for reserve duty benefits paid to employees shall be deducted, in accordance with Chapter 12 of the National Insurance Law.

• Non-wage expenses:

In addition to compensation for wage expenses, businesses will also be entitled to compensation for non-wage expenses, based on the rate of decline in business turnover, as detailed in the following table:

Grant as a Percentage of Non-Wage Expenses	Injury / Rate of Decline in Revenue (Monthly Reporting /Bi-Monthly Reporting)
7%	25%-40% / 12.5%-20%
11%	40%-60% / 20%-30%
15%	60%-80% / 30%-40%
22%	50%-40% / 100%-80%

• It should be noted that due to the unique characteristics of certain types of dealers (meaning entities considered taxable persons for VAT purposes), it is proposed to allow the Director of the Tax Authority to determine an alternative coefficient for those dealers, which will be multiplied by the “grant as a percentage of non-salary expenses” relevant to that dealer. For example, for dealers engaged in wholesale or retail trade of fuel, the coefficient to be applied will be 0.35; for those engaged in the import and export of precious stones during 2024 and 2025 and therefore eligible for the exemption under Section 33 of the Value Added Tax Law, the coefficient to be applied will be 0.19; and for construction contractors, the coefficient to be applied will be 0.68.

 

• It should be noted that the amount of qualifying expenses eligible for compensation will be limited according to the size of the business and its annual turnover:
  • For businesses with an annual turnover not exceeding NIS 100 million, the ceiling for eligible expenses will be NIS 600,000.
  • For businesses with an annual turnover exceeding NIS 100 million and up to NIS 400 million, the ceiling on eligible expenses will increase linearly, up to a maximum of NIS 1.2 million.

    Additional Notes 1. Compensation for Direct Damage to a Business: For businesses that have suffered direct damage preventing the use of the business premises for a period of at least three months (between June 13, 2025, and August 31, 2025), the Memorandum of Law proposes the recognition of three additional qualifying periods: July and August 2025, September and October 2025, and November and December 2025. For each of these periods, the business may be entitled to additional compensation, provided that it meets the conditions set out in the outline, including a decrease in turnover.   2.Assistance to Public Institutions: In the case of a public institution as defined (an entity that is not a state institution and operates for educational, cultural, religious, scientific, artistic, welfare, health, sports, or similar purposes—at least one quarter of its income must not derive from subsidies and donations, and at least one quarter of its income, as reported in a report submitted under Section 131 of the Income Tax Ordinance, must be generated from the sale of services or products with regular payments throughout most months of the year), the Ministry of Finance has allocated approximately NIS 40 million to provide compensation to public institutions whose revenues, including donations, have decreased due to Operation “Am Kalvi.”   3.Entities Excluded from the Compensation Arrangement: The following entities and businesses will not be entitled to compensation under the proposed scheme:

• Businesses engaged in the sale of real estate rights classified as part of their commercial inventory.
• Entities for which more than 50% of the work performed during the 2023 or 2024 tax years consisted of prolonged activities, such as construction projects or film productions, carried out over a period exceeding one year (excluding construction contractors).
• Financial institutions.
• Businesses that have reported closure to the Tax Authority, ceased operations, or show indications of inactivity in business reports for the period preceding the qualifying period.
• Entities engaged in agriculture.
• Entities budgeted by the State, directly or indirectly, including those in which the government holds full or partial ownership.
• Government companies and statutory corporations.

  4.Compensation for Businesses with Annual Turnover Exceeding NIS 400 Million: The Ministry of Finance has allocated NIS 60 million for compensation to businesses in this category. However, the criteria for distributing these funds have not yet been determined.   5.Restrictions on the Transfer of Entitlement to Compensation: The Memorandum of Law proposes that the right to receive compensation shall not be transferable, or subject to seizure for individuals whose annual turnover does not exceed NIS 300,000, except for the purpose of paying alimony.   6.Sanctions to Prevent the Filing of Frivolous Claims: To minimize the submission of frivolous or inflated claims, it is proposed to authorize the Director of the Tax Authority to impose fines on a “dealer” (VAT- registered 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.
• Furthermore, it is proposed that if the difference between the claimed amount and the determined amount exceeds NIS 15,000 and also exceeds 50% of the compensation claimed, and it is conclusively determined that the discrepancy results from an artificial or fictitious transaction, the dealer will be subject to an increased fine.

    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.