Profits of an Israeli company are taxed first at the corporate level. When the company distributes a dividend, the shareholder is taxed again: the company withholds dividend tax at source and pays it to the Israel Tax Authority. The rate depends mainly on whether the shareholder holds a material stake, and high earners may also owe surtax. Foreign shareholders should also check the relevant tax treaty.
The short answer: profit paid out of an Israeli company is taxed twice. The company first pays corporate tax at 23%, and the shareholder then pays dividend tax on what is distributed: 25% for most individual shareholders and 30% for a substantial shareholder, meaning someone who holds 10% or more. High earners may also owe surtax. The company withholds the dividend tax when it pays, so the shareholder receives the net amount.
This guide is for English-speaking owners of Israeli companies, including olim who moved their business into a company and shareholders who live abroad. It covers the rates, the rules a company must meet before it distributes, and how dividends compare with paying yourself a salary.
An Israeli company pays corporate income tax on its taxable profit. When it distributes what is left as a dividend, a second tax event occurs at the shareholder level. As an illustration only, for a substantial shareholder below the surtax threshold:
Different rates can apply in particular cases, for example dividends paid out of income that benefited from Preferred Enterprise rates, which carry a reduced dividend rate of 20%. See doing business in Israel for those incentives.
A substantial shareholder holds, directly or indirectly, alone or together with others, at least 10% of one of the company's means of control, such as shares, voting rights or the right to appoint a director. In a small owner-managed company, the owners are almost always substantial shareholders, so 30% is usually the rate that matters.
An individual whose taxable income for 2026 exceeds ILS 721,560 pays an additional 3% on the excess, plus a further 2% on capital income such as dividends. A large dividend in a single year can push you over the threshold, so the size and timing of distributions are worth planning. Our year-end tax checklist covers the timing.
Under the Companies Law, a company may distribute a dividend only if it passes two tests:
The board approves the distribution and records the decision. The company then withholds the tax, reports it and pays it to the Tax Authority. A dividend that was not properly approved, or that was taken out informally through the owner's current account, causes problems of its own in the audit and in the owner's tax position.
Owners of small companies usually take money out as a mix of salary and dividends, and the right mix depends on the numbers:
For many owners the answer is a reasonable salary plus dividends from the remaining profit, reviewed each year as income changes. Run the comparison with real figures: the right answer for a company with a modest profit is often different from the answer for one earning several times as much.
Not distributing has a cost too. For closely held companies, Amendment 277 can impose an additional annual tax on excess retained profits, and distributing at the level set by the law exempts the company for that year. The decision about whether to distribute should look at both sides together, and it has to be made before the year closes.
If you live outside Israel, Israeli tax is still withheld from dividends paid by an Israeli company. A tax treaty between Israel and your country of residence may reduce the withholding rate, but only if the paperwork supporting the treaty rate is in place before the payment. Your country of residence may tax the dividend as well, usually with credit for the Israeli tax. If you are leaving Israel and the company has retained earnings, read how to stop being an Israeli tax resident first, because the timing of a distribution relative to your move can matter.
The company reports the withholding during the year and in its annual reports. As a shareholder, you report dividends in your personal annual return, and a substantial shareholder who withdrew more than ILS 100,000 from the company attaches Form 1350. See Form 1301 and what an Israeli company is required to file each year.
Planning the salary and dividend mix is part of our ongoing work with company owners. See our English-speaking accountant service and moving from osek murshe to a company, or call +972-52-448-5784 to book a consultation call. We handle Israeli tax and accounting only. We are not a US CPA firm.
The shareholder is liable, but the company withholds the tax at source when it pays the dividend and remits it to the Israel Tax Authority.
As a rule no, which is one of the main differences from salary. There are exceptions, so the specific structure is worth checking.
It can be, under a tax treaty between Israel and your country of residence, provided the right documentation is in place before the payment.
Dividends paid by an Israeli company to an individual shareholder are subject to tax, at a rate that depends among other things on whether the shareholder is a substantial shareholder. Planning the mix of salary and dividends is part of the ongoing work of an accountancy firm with company clients.