Israel Corporate Profits and Dividend Tax Calculator 2025
Calculate Israeli corporate tax (23%) and dividend withholding (25%) on company profits. Net dividend received after both layers of tax. 2025 ITA rates.
Enter annual company profit to compute the two-layer Israeli tax: 23% corporate tax, then 25% dividend withholding on the net amount if distributing to shareholders.
Net dividend received
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Gross profit
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Corporate tax (23 percent)
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Net after corporate tax
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Dividend withholding tax
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The two-layer tax on Israeli company profits
Israeli company profits are taxed twice before reaching a shareholder as cash. The company first pays 23% corporate tax (Mas Hachnasot Chevarot). Then, if profits are distributed as dividends, a further 25% withholding applies for regular shareholders or 30% for substantial shareholders holding 10% or more. The combined effective rate for a regular shareholder is approximately 42.25%: on 100 ILS of pre-tax profit, 23 ILS is paid as corporate tax, leaving 77 ILS. Dividend withholding at 25% on 77 ILS takes 19.25 ILS, leaving 57.75 ILS in the shareholder’s hands. For a substantial shareholder, the combined rate is approximately 46.1%, leaving 53.9 ILS.
Retaining profits vs distributing dividends in an Israeli company
If the shareholder does not need the cash personally, retaining profits inside the company defers the second layer of tax. The retained 77 ILS can be reinvested in the business, lent to other group entities, or invested in financial assets inside the company. The dividend tax only crystallizes on distribution. This deferral benefit is a major reason many Israeli business owners choose to incorporate and accumulate profits rather than distributing annually. However, the ITA monitors disproportionate retained earnings and may apply deemed dividend provisions under Section 77 of the Income Tax Ordinance if accumulated profits are not commercially justified relative to the company’s operational needs.
How the Preferred Technological Enterprise regime reduces the combined rate
Israeli technology companies that qualify for Preferred Technological Enterprise (PTE) status under the Law for the Encouragement of Capital Investments pay a reduced first-layer corporate tax of 12% (outside Development Area A) or 7.5% (inside Development Area A) on qualifying IP-derived income. This reduces the combined two-layer effective rate substantially. On 100 ILS of qualifying profit taxed at 12%, the company retains 88 ILS after the first layer. If distributed to a regular shareholder at 25% dividend withholding, 22 ILS is withheld, leaving 66 ILS. The combined effective rate of 34% compares favourably to the standard 42.25%. PTE status requires formal approval from the Investment Centre and ongoing compliance with IP development requirements in Israel.
Frequently asked questions
How does the two-layer tax on Israeli company profits work?
Israeli corporate profits face two distinct layers of taxation before reaching an individual shareholder as cash. The first layer is corporate tax at 23%, paid by the company on its net taxable profit. This reduces the available distributable profit. The second layer applies when the remaining after-tax profit is distributed as dividends to individual shareholders: a withholding tax of 25% is deducted at source by the company and remitted to the ITA before the dividend is paid to the shareholder. For a regular shareholder (holding less than 10%), the withholding rate is 25%. For a substantial shareholder (holding 10% or more at any point in the 12 months before distribution), the rate is 30%. The combined effective rate for a regular shareholder on a pre-tax company profit of 100 ILS is 1 minus (0.77 multiplied by 0.75), which equals approximately 42.25%, meaning 57.75 ILS reaches the shareholder as net dividend.
Can Israeli company profits be retained to avoid the second layer of tax?
Yes, profits can be retained inside an Israeli company indefinitely without triggering dividend withholding tax. The second layer at 25% or 30% applies only when profits are actually distributed as dividends. Retained profits can be reinvested in the business, used to fund growth, or accumulated as cash or financial investments within the company structure. However, the ITA has anti-avoidance provisions that can force deemed dividend treatment if retained earnings are disproportionately large relative to the company’s business needs, under the Undistributed Profits Imputation rules. Additionally, if the company eventually distributes accumulated retained earnings, the entire distribution is subject to the dividend withholding at that time. Strategic timing of dividend distributions, particularly in years when the shareholder has other tax deductions available, can be an effective planning tool in consultation with a licensed Israeli tax adviser.
How does the Israeli dividend tax interact with a treaty country shareholder?
Israel has an extensive network of double tax treaties with more than 50 countries. For foreign shareholders, the dividend withholding rate is often reduced under a treaty. For example, under the Israel-USA treaty, US residents typically face a 12.5% withholding rate on dividends from Israeli companies, compared to the domestic rate of 25%. Under the Israel-UK treaty, the rate may be reduced to 15%. Under the Israel-Netherlands treaty, which is used by many international holding structures, the rate can be as low as 5% for qualified corporate shareholders. Treaty benefits require the foreign shareholder to provide documentation of their tax residency and treaty eligibility. Israeli companies must apply the correct treaty rate at the time of dividend payment; overpayment of withholding can be reclaimed but involves administrative delay.
What is the Preferred Technological Enterprise and how does it reduce the combined effective rate?
A company with Preferred Technological Enterprise (PTE) status under the Law for the Encouragement of Capital Investments pays a reduced corporate tax rate of 12% (or 7.5% in Development Area A) on qualifying IP-derived income. This substantially reduces the first layer of tax. If a PTE company earns 100 ILS of qualifying profit, the corporate tax at 12% is 12 ILS, leaving 88 ILS after the first layer. If this is then distributed as a dividend to a regular shareholder at 25%, the withholding is 22 ILS on 88 ILS, leaving 66 ILS net. The combined effective rate is 34%, compared to 42.25% for a non-PTE company, a saving of 8.25 percentage points. For a Special Preferred Technological Enterprise (revenues above 10 billion ILS) at 6%, the first layer is only 6%, and the combined rate drops to approximately 29.5%. PTE status requires IIA and Investment Centre approval and ongoing compliance.