Israeli Accounting and Tax Frequently Asked Questions

Israeli income-tax residency and National Insurance residency are determined under separate legal and administrative frameworks. For income-tax purposes, Israeli residency is primarily determined under the center-of-life test, taking into account family, economic and social ties together with statutory day-count presumptions. The National Insurance Institute conducts a separate residency assessment. A person who has fully transferred their center of life abroad may apply to terminate Israeli National Insurance residency, depending on the relevant circumstances and procedures. As long as a person remains an Israeli resident for National Insurance purposes, National Insurance and health-insurance contributions may continue to apply depending on status and income. A determination or filing with one authority therefore does not necessarily determine the outcome before the other.

Ceasing Israeli tax residency may raise issues under Section 100A of the Israeli Income Tax Ordinance, commonly referred to as the exit-tax provision, as well as separate questions regarding stock options, RSUs and equity awards granted under Section 102 or other arrangements. The tax treatment and allocation between Israel and the destination country may depend on the type of award, grant date, vesting periods, periods of employment in and outside Israel, realization or sale dates, and the applicable tax treaty. A single linear allocation methodology should not be assumed to apply to every option or RSU arrangement. Where significant equity compensation exists, a case-specific review is required.

As a practical planning recommendation, Israeli tax and residency issues should be reviewed before the move, and complex cases are generally better assessed several months in advance. Early review is particularly useful where the individual has stock options or RSUs, shares in a private company or startup, an Israeli company or continuing business activity, real estate, split-family arrangements, significant investments, or continuing commercial relationships with Israel. Advance planning allows the individual to review center-of-life factors, potential exit-tax implications, the applicable tax treaty, reporting obligations and National Insurance considerations before implementing arrangements that may be difficult to change later.

There is no general legal requirement to obtain a CPA opinion in every relocation case. However, contemporaneous professional analysis and documentation may be particularly useful where the facts are mixed, including situations involving a spouse or children remaining temporarily in Israel, a home remaining available in Israel, continuing Israeli business or employment activity, significant Israeli assets, equity awards, or potential dual residency. Tax residency is determined based on the overall factual circumstances rather than any single factor.

Veteran Returning Residents (individuals who resided outside Israel for at least 10 consecutive years) and New Immigrants (Olim Chadashim) are eligible for a 10-year holiday exempting them from Israeli tax and reporting requirements on all foreign-sourced active and passive income (including overseas employment, dividends, interest, rental income, and capital gains from assets purchased abroad). Ordinary Returning Residents (residing abroad for over 2 or 6 years) qualify for a narrower set of exemptions, primarily on passive income from assets acquired during their period abroad.

Not automatically. If the Israel Tax Authority continues to view an individual as an Israeli tax resident, worldwide reporting and tax obligations still apply. However, bilateral double taxation treaties entered into by Israel (including treaties with the US and UK) establish "Tie-Breaker Rules" to assign a single residency state, and provide foreign tax credits against Israeli tax liability to prevent double taxation, subject to timely annual Israeli tax filings.

Incorporating a local Israeli subsidiary creates a distinct legal entity that ring-fences the foreign parent company from liability, subjecting only the subsidiary to Israeli corporate tax (23%) on its Israeli-sourced income. In contrast, registering a foreign branch (registering an overseas corporation with the Israeli Registrar of Companies) maintains direct legal and fiscal ties to the parent, potentially exposing the parent company to Israeli reporting, audit requirements, and legal claims. From a tax perspective, a local subsidiary generally provides greater regulatory certainty, eligibility for Israeli tech tax incentives (such as Preferred Technological Enterprise status), and a cleaner framework for transfer pricing agreements (such as Cost-Plus models under Section 85A).

A Permanent Establishment (PE) can be triggered under Israeli domestic tax law and applicable bilateral tax treaties when a foreign company maintains a fixed place of business in Israel (such as an office, laboratory, or R&D center), or utilizes a dependent agent who habitually concludes contracts in its name within Israel. Furthermore, the Israel Tax Authority closely scrutinizes operations where effective management, key personnel presence, or substantial digital economic activity occur locally. Establishing a PE mandates Israeli tax registration, local statutory bookkeeping, and the attribution of profits to Israeli activities subject to Israeli corporate taxation.

Companies qualifying as a Preferred Technological Enterprise (PTE) under the Law for the Encouragement of Capital Investments enjoy a reduced corporate income tax rate of 12% (or 7.5% in Development Zone A), alongside reduced withholding tax on dividends (typically 20%, or 4% for eligible foreign corporate shareholders). Key conditions include: consolidated group revenues under NIS 10 billion; R&D expenditures representing at least 7% of revenues or NIS 20 million, combined with satisfying recognized innovation criteria (e.g., headcount growth, VC funding, patent registration); meeting the competitive enterprise threshold (at least 25% of sales to export markets); and calculating qualifying technological income according to the OECD Nexus approach.

Under the Capital Gains Track (Section 102(b)(2)), employees benefit from a flat 25% capital gains tax rate on share appreciation (exempt from National Insurance and health taxes), provided options are held by a certified trustee for a mandatory 24-month vesting period from grant date. Under the Ordinary Income Track, gains are taxed at progressive personal income tax rates (up to 47% plus surtax and National Insurance), while granting the company a tax-deductible expense. The vast majority of Israeli technology startups implement the trustee capital gains track.

A Delaware Flip is typically executed when Tier-1 US venture capital funds or global accelerator programs (such as Y Combinator) require the parent company holding shares and IP to be incorporated as a Delaware C-Corp. This restructuring demands meticulous Israeli tax planning to avoid immediate tax liability for Israeli founders and shareholders—frequently via a tax ruling (Pre-Ruling) under Section 104A of the Israeli Tax Ordinance—coupled with intercompany Transfer Pricing agreements (such as Cost-Plus R&D services) between the US parent and Israeli subsidiary.

Incorporating as a private limited company (Ltd) generally becomes economically viable when annual net profits exceed NIS 300,000–350,000, and where the founder does not require all business earnings for immediate personal living expenses. Within a corporate structure, undistributed retained earnings are taxed at standard corporate tax rates (23%, or 12%/7.5% under the PTE regime) rather than marginal individual tax rates reaching up to 50% (inclusive of social security and high-income surtax), allowing reinvestment of capital while establishing legal limited liability protection.

A startup may benefit from accounting and tax input before company formation, equity grants, financing or cross-border activity. Legal documents and elections should be addressed with qualified legal and tax advisers in the relevant jurisdictions.

Startups and technology companies

The firm can assist with the Israeli accounting and tax analysis, preparation of information for a tax ruling request and coordination with the company’s Israeli and US advisers. The suitability and implementation of the structure depend on the company, its shareholders, planned activity and applicable law.

Fractional CFO and financial management

Tech companies, high-growth startups, and multinational R&D hubs operating in the Herzliya Pituach tech corridor require comprehensive accounting and tax infrastructure, including: statutory reporting and CFO advisory under Israeli GAAP, US GAAP, or IFRS; transfer pricing compliance (Cost-Plus intercompany R&D agreements under Section 85A and OECD BEPS guidelines); tax incentives and IP structuring under the Preferred Technological Enterprise (PTE) regime (7.5%–12%), IIA grants, and Section 102 share option plans; and strategic local presence directly in Herzliya Pituach (Galgalei HaPlada 16) ensuring proximity to the tech ecosystem and seamless cross-border coordination.

Our office is located in Herzliya Pituach. We serve clients across Israel and internationally via video.

CPA firm in Herzliya Pituach

An introductory meeting may be held in person or by video to understand the relevant needs and discuss a possible engagement. The proposed scope, responsibilities and fees are explained before professional services begin.

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Services may be provided in Hebrew or English, including meetings, correspondence and documents within the agreed engagement scope.

We prefer fixed-scope engagements. Fees are based on activity volume, complexity and required services. The proposed scope and fee structure are explained in advance and may change if the agreed work changes.

All services

The timetable for entity registration and bank-account onboarding depends on the proposed structure, the documents, identification and KYC requirements, authority processing times and the bank’s review. The firm can assist with the relevant Israeli accounting and tax information within the agreed scope.

Foreign companies operating in Israel

New immigrants and returning residents may be eligible for Israeli tax and reporting relief, depending on their status, dates, income, assets and the law in effect for the relevant period. Eligibility and filing requirements should be reviewed based on the individual circumstances.

International tax and tax residency

Yes. The firm assists with Israeli accounting, tax and reporting matters involving digital assets. The scope depends on the type of activity, the available transaction records, the taxpayer’s circumstances and the applicable reporting requirements. Where relevant, the work may include organizing transaction information and preparing accounting and tax information for review by financial institutions, subject to each institution’s policies and final decision.

Taxation of investments, options and digital assets

Israeli financial institutions may request information about the source and history of digital-asset funds. Within the agreed scope, the firm may assist with organizing accounting and tax information for the institution’s review, subject to its policies, procedures and final decision.

Services for individuals and self-employed clients

Sales, coin-to-coin swaps, DeFi activity, staking rewards, NFT transactions and purchases made with digital assets may have Israeli tax and reporting implications, depending on the facts and applicable law. Within the agreed scope, the firm may assist with organizing transaction data, reviewing the activity and preparing information for Israeli tax reporting.

Depending on the facts and the agreed scope, the firm may assist with the accounting and Israeli tax analysis, preparation of information for a tax-ruling request and coordination with legal or other advisers. Filing a request does not guarantee that the Israel Tax Authority will issue a ruling or accept a particular position.