Defense R&D Tax Incentives
Israeli government programs (MAFAT, IIA, SIBAT) offering grants, tax breaks, and financing for defense R&D. Key funding source for Israeli defense-tech startups.
Defense R&D Tax Incentives are government programs offering tax breaks, grants, or subsidized financing to companies and research institutions conducting defense-related research and development. Israel operates one of the world's most generous defense R&D incentive regimes, supporting both private defense contractors and startup innovation.
Primary Programs
MAFAT Grants: The Directorate of Defense R&D provides grants (typically 40–100% of project costs) to private companies, startups, and universities for defense technology development. MAFAT prioritizes autonomous systems, cyber defense, AI-enabled weapons, and emerging threats. Grants range from several hundred thousand shekels to tens of millions for major programs.
IIA Grants: The Israel Innovation Authority co-funds R&D projects with private investors; defense companies qualify for preferential terms.
SIBAT Incentives: For defense export-oriented R&D, SIBAT (Israel's defense export agency) provides export financing and marketing support.
Tax Benefits
Defense contractors operating under Preferred Technological Enterprise (PTE) status receive reduced corporate tax (15% vs. standard 23%). This applies to companies deriving >40% revenue from defense/security sectors.
Strategic Rationale
Defense R&D incentives drive innovation in high-risk, long-development-cycle technologies that private markets underfund. Israel's security environment justifies sustained investment in: autonomous systems, cyber defense, advanced materials, sensor technologies, and AI-enabled command-and-control. The programs also anchor Israeli tech talent and prevent brain drain to civilian sectors.
Private Sector Integration
Israeli startups in cybersecurity, drone technology, and AI increasingly access MAFAT/IIA grants as co-investment with venture capital. This hybrid model (government + private capital) has accelerated Israeli defense-tech scaling and enabled commercial-defense crossover (e.g., cybersecurity tools used by both military and enterprise).