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.
An Israeli company pays corporate income tax on its profits. Distributing those profits as a dividend creates a second tax event for the shareholder. The company withholds the dividend tax when it pays, reports it and remits it to the Israel Tax Authority, so the shareholder receives the net amount.
The dividend tax rate is not uniform. It differs between material and non-material shareholders, and an individual with high annual income may also owe surtax, which applies at a higher rate to passive income such as dividends.
Under the Israeli Companies Law, a company may distribute only if it passes two tests: a profit test and a solvency test, meaning there is no reasonable concern that the distribution will prevent it from meeting its obligations. The board approves the distribution and records the decision.
If the shareholder lives abroad, the withholding rate may be affected by a tax treaty between Israel and the shareholder's country, and the dividend may also be taxable there, usually with credit for the Israeli tax. The paperwork that supports a treaty rate needs to be in place before the payment.
For closely held companies, not distributing has a cost too: excess retained profits may attract an annual additional tax, and distributing at the level set by law exempts the company for that year. The right decision looks at both sides together.
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.