Calculate withholding tax on dividends in Israel 2025. 25% for regular shareholders, 30% for substantial shareholders (holding 10% or more). Source: ITA misim.gov.il.
Israel dividend withholding tax 2025: 25% for regular shareholders, 30% for substantial shareholders holding 10% or more.
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How Israeli dividend withholding tax works
When an Israeli company distributes a dividend to an individual shareholder, it deducts withholding tax at source before the net amount is transferred. For 2025, the rate is 25% for regular shareholders and 30% for substantial shareholders. The company files the withheld amount with the Israeli Tax Authority (ITA) within 30 days. For most Israeli resident shareholders, this withholding is a final tax: the shareholder keeps the net dividend and does not include the dividend in their annual income tax return. The gross-up calculation is straightforward. A 50,000 ILS dividend with 25% withholding results in 12,500 ILS withheld and 37,500 ILS received net.
Substantial shareholder threshold: the 10% rule
The 30% rate applies once a shareholder meets the substantial shareholder definition, which requires holding at least 10% of any one of the following rights: profits (dividends), liquidation proceeds, voting rights at a general meeting, or the right to appoint a director. The test is applied on the actual payment date, but also looks back 12 months. If the holder fell below 10% shortly before the record date but held above 10% at any prior point in that window, the 30% rate still applies to that dividend distribution. Indirect holdings through subsidiaries, nominees, and family members may be attributed together, so shareholders near the 10% threshold should verify their position before a dividend is declared.
Treaty-reduced rates for non-resident shareholders
Israel’s domestic withholding rates can be overridden by a bilateral tax treaty. Israel has treaties with over 60 countries, including the United States (treaty rate typically 12.5% or 25% depending on the shareholding), the United Kingdom (15% or 5%), Germany (10% or 25%), and France (15% or 5%). A non-resident shareholder entitled to a reduced treaty rate must submit the appropriate certificate or declaration to the paying company before the dividend is distributed. If the full domestic rate is withheld anyway, a refund application can be filed with the ITA. Treaty benefits do not apply automatically and require documentation of tax residency in the treaty country.
Combined corporate and dividend tax burden
Israeli corporate profits face two layers of tax before reaching an individual shareholder. First, the company pays corporate tax (Mas Hachnasot Chevarot) at 23% on net taxable profit. The remaining after-tax profit is then subject to dividend withholding at 25% or 30% when distributed. On a pre-tax profit of 100 ILS, the company retains 77 ILS after corporate tax. If distributed to a regular shareholder, 25% withholding on 77 ILS takes 19.25 ILS, leaving 57.75 ILS. The combined effective rate is approximately 42.25%. For a substantial shareholder, 30% of 77 ILS is 23.10 ILS, leaving 53.90 ILS and a combined rate of approximately 46.1%. These figures assume no deductible expenses at the company level beyond the taxable profit figure used as input.
Frequently asked questions
What is the dividend withholding tax rate in Israel in 2025?
In Israel, dividend income received by individual shareholders is subject to withholding tax at source in 2025. The standard rate is 25% for regular shareholders, meaning individuals who hold less than 10% of the shares, voting rights, profits, or control in the distributing company. A higher rate of 30% applies to substantial shareholders, defined as anyone who holds, directly or indirectly, 10% or more of any of those rights on the dividend payment date or at any point during the preceding 12 months. These rates are flat withholding rates applied to the gross dividend amount, not progressive brackets. The company distributing the dividend is responsible for deducting the tax at source and remitting it to the Israeli Tax Authority (ITA, misim.gov.il) within 30 days. The withheld tax is generally treated as a final tax on the dividend income, meaning the shareholder does not need to include the gross dividend in their personal income tax return, provided they have no other basis for a refund or credit. Source: Israel Income Tax Ordinance, ITA official guidance.
Who is considered a substantial shareholder in Israel for dividend tax purposes?
Under Israeli tax law, a substantial shareholder (in Hebrew: baal shlita) is defined as any person who holds, directly or indirectly, 10% or more of one or more of the following rights in the distributing company: the right to profits (dividends), the right to liquidation proceeds, voting rights at a general meeting, or the right to appoint a director. The 10% threshold is tested on the date the dividend is actually paid and also over the preceding 12 months. If at any point in that window the person held 10% or more, the 30% withholding rate applies to the dividend, even if the holding has since fallen below 10% by the time of distribution. Indirect holdings are counted, meaning holdings through subsidiaries, related parties, and certain trusts may aggregate toward the threshold. Family members and entities under common control may also be treated as a single holder for this purpose under attribution rules. Shareholders near the 10% line should seek advice from a licensed Israeli tax advisor to determine their correct classification before a dividend is distributed.
Can Israeli dividend withholding tax be offset against income tax?
For most individual shareholders, Israeli dividend withholding tax is a final tax, meaning it fully discharges the income tax liability on that dividend income. The shareholder does not declare the gross dividend in their annual income tax return and cannot claim the withheld amount as a credit against other taxes. However, there are specific situations where an offset or refund may be available. If an individual is taxable in Israel on a different rate due to a treaty benefit, a ruling, or their particular immigrant status (for example, new immigrants under the 10-year tax exemption on foreign-source income), the effective rate may differ and an adjustment may be possible. Israel has tax treaties with many countries including the United States, the United Kingdom, and Germany, which may cap the withholding rate on cross-border dividends at a lower treaty rate, often 15% or less. Non-resident shareholders may be entitled to apply the treaty rate rather than the domestic 25% or 30%. Any claim for a reduced rate or refund must be submitted to the ITA with supporting documentation. Corporate shareholders have separate rules: dividends received by an Israeli company from another Israeli company are generally exempt from corporate tax.
How does Israeli dividend tax compare to other OECD countries?
Israel’s dividend withholding rates of 25% for regular shareholders and 30% for substantial shareholders sit in the middle range among OECD members. At the lower end, countries such as New Zealand and Australia allow dividend imputation credits that can reduce or eliminate double taxation at the shareholder level, effectively lowering the combined corporate-plus-dividend burden. Countries such as Estonia and Latvia apply no corporate income tax on retained earnings, only taxing profits at distribution, which shifts the timing but not necessarily the rate. At the higher end, countries such as France and Denmark apply effective dividend tax rates above 30% for high-income shareholders. The key distinction in Israel is that the rate is a flat final withholding, not a progressive rate layered onto personal income tax brackets, which simplifies compliance significantly. For investors evaluating Israel relative to peers, the combined burden matters more than the withholding rate alone. After Israel’s 23% corporate tax, a gross profit of 100 ILS leaves 77 ILS after corporate tax. A 25% withholding on 77 ILS takes a further 19.25 ILS, leaving 57.75 ILS in the hands of the regular shareholder. That implies a combined effective rate of roughly 42.25%, broadly comparable to peers such as Germany (roughly 48%) and the UK (roughly 33-39% depending on the individual rate band).