Calculate net proceeds from an Israeli ESOP under the Section 102 capital track. The entire gain (sale price minus grant price) is taxed at a flat 25 percent. No Bituach Leumi applies on the capital track gain.
Enter your ESOP grant details to compute net after-tax proceeds under the Section 102 capital track. The full gain from grant price to sale price is taxed at 25 percent with no social insurance.
Net after-tax proceeds
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Gross proceeds (sale price x shares)
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Cost basis (grant price x shares)
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Total gain
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Tax at 25 percent
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Your breakdown
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How Section 102 capital track ESOP taxation works in Israel
The Israeli ESOP capital track is straightforward in its mechanics: the total gain from the grant price to the sale price is taxed at exactly 25 percent, with the trustee withholding and remitting the tax at the point of sale. Unlike US equity compensation where the tax event splits between vest (ordinary income) and sale (capital gain), the Israeli capital track consolidates everything into one event: the sale. This simplicity, combined with the flat 25 percent rate and absence of social insurance on the gain, makes Israeli Section 102 capital track one of the world most favourable employee equity tax regimes for employees who hold shares to a liquidity event.
The role of the trustee in Israeli ESOP plans
The trustee (ne-eman) is a licensed Israeli financial entity that holds shares on behalf of all employees under the company ESOP plan. The trustee is responsible for maintaining records of all grants, tracking the 24-month holding periods, executing sales at employee request, withholding and remitting the 25 percent tax to the Israeli Tax Authority, and distributing net proceeds to employees. Employees receive a Form 106 from the trustee showing the gross proceeds, tax withheld, and net payment. The trustee fee is typically borne by the company, not the employee. Israeli trust companies approved for Section 102 plans include ESOP Management and Incentive Networks among others.
Common scenarios and planning points for Israeli ESOP holders
Israeli employees at startups approaching an IPO or acquisition should be aware that the liquidity event will trigger the trustee to withhold tax from their proceeds. The net amount received can be substantially below the gross valuation, particularly for large equity packages. Employees should plan for the tax withholding and avoid committing the gross proceeds before they have received the net amount. For employees who are also covered by the 10-year foreign income exemption (if they are new immigrants), the Section 102 gain from Israeli company shares is not foreign-source income and is not covered by the exemption. It is taxed under Section 102 rules regardless of the oleh status.
Frequently asked questions
What tax rate applies to ESOP gains in Israel under Section 102 capital track?
Under the Section 102 capital gains track, the total gain from the original grant price to the sale price is taxed at a flat 25 percent. No Bituach Leumi (National Insurance) or Mas Briut (health tax) applies. The gain is measured from grant date (not vesting date) to sale date, and the trustee must have held the shares for at least 24 months. This flat 25 percent rate is one of the most competitive equity compensation tax treatments among OECD countries, which contributes to Israel strong startup ecosystem.
How long must an Israeli ESOP trustee hold shares to qualify for the 25 percent rate?
The trustee must hold the shares for a minimum of 24 months from the date of grant to qualify for the capital gains track. If shares are released from the trustee before this 24-month period, the income track applies and the gain is taxed as employment income at marginal rates plus social insurance. The 24-month clock starts from the grant date, not the vesting date. This means even for options that vest on a 4-year schedule, as long as the trustee holds the shares for 24 months from grant, the capital track applies to all vested shares sold after that period.
Is there any Bituach Leumi (National Insurance) on Israeli ESOP gains?
No. Under Section 102 capital track, Bituach Leumi and Mas Briut do not apply to the equity gain. This is in contrast to ordinary salary, which is subject to both income tax and social insurance contributions. The absence of social insurance on capital track gains is a significant tax advantage. For an employee in the 35 percent income tax bracket with an additional 7 to 12 percent social insurance charge on salary, saving the social insurance component on a large equity gain can amount to hundreds of thousands of ILS in savings compared to the income track.
When is the ESOP tax actually paid under the Section 102 capital track?
Under the capital track, Israeli ESOP tax is paid at the time of sale and release of shares from the trustee. The trustee is responsible for withholding the 25 percent tax from the proceeds before distributing the net amount to the employee. The employee does not pay tax at vesting or exercise, only at sale. This differs from the US ISO and NSO treatment and from some other jurisdictions. The deferral of the tax event to the point of sale means employees do not face tax liability before they have received cash from their shares.