נמרוד ירון ושות׳

Comprehensive Reform of Taxation in Israel’s High-Tech Sector – Changes to Corporate and Employee Taxation

Adam Zur — Thu, 04 Dec 2025 15:02:17 +0000

The Tax Authority’s Effort to Reduce Tax Uncertainty in Israel’s High-Tech Industry

On Sunday, November 2, 2025, the Ministry of Finance announced a comprehensive reform of taxation for the high-tech sector at a press conference. The reform was initiated jointly by the Ministry of Finance, the Israel Tax Authority (ITA), and the Israel Innovation Authority. Its main goal is to provide certainty for individuals and companies operating in the industry.

The reform addresses three areas: venture capital funds, high-tech companies and industry employees. This article focuses on the expected changes for companies and employees. To read about the changes related to venture capital fund taxation, click here.

The high-tech industry is Israel’s main growth engine. The authorities and the Ministry of Finance aim to preserve and enhance Israel’s attractiveness for these companies. The reform includes legislative changes and clarifications, as well as new ITA procedures. Some have already been published, while others are expected soon.

Changes in Corporate Taxation for High-Tech Companies

The changes in corporate taxation relate to two main areas. Mergers and acquisitions, and the operation of R&D centers in Israel.

Mergers and Acquisitions

Many acquisitions are carried out by merging the acquired company into the acquiring company’s corporate structure. Under Amendment 279 to the Tax Ordinance, published in early 2025, several relaxations were introduced to the conditions for executing tax-exempt mergers. The required size ratio between the acquiring and acquired companies was changed from 1:9 to 1:19, allowing the acquisition of smaller companies.

In addition, the portion of the transaction that shareholders can receive in cash increased from 40% to 49%. Shareholders may also sell the acquiring company’s shares immediately, without a waiting period of several years.

The ITA Commissioner stated that since the change took place, many companies have submitted merger applications under the new framework.

R&D Centers

Many companies operate in Israel through R&D centers. An R&D center is a company primarily engaged in providing research and development services to its foreign parent company (or another foreign group company). The payment received by the R&D center is based on a cost-plus method, meaning the payment equals its expenses plus a fixed profit margin. For example, if a 5% margin is set and relevant expenses are 100, the R&D center will receive 105 and retain a profit of 5.

In recent years, it has been argued that R&D centers generate a much greater share of the group’s profits than currently recognized. As a result, tax assessors have been reviewing whether the pricing method properly reflects their contribution. If the assessor determines that it does not, an assessment may be issued.

Such assessments increase the amount attributed to the Israeli R&D center. Either by setting higher profit margins or by shifting to a profit-split method, dividing the parent company’s profits between it and the R&D center. These changes increase the R&D center’s profits and its tax liability in Israel.

These discussions have created uncertainty among multinational companies operating in Israel. These companies operated under the assumption that they knew their expected tax liability. Tax assessments can now significantly alter that expectation. This uncertainty has raised concerns about continuing to operate in Israel, a situation the government seeks to avoid.

To address this, the ITA published a circular in February 2025, followed by the final version published on November 2^nd. The main points of the circular (subject to its conditions) are:

If a tax assessor wishes to issue an assessment to a company meeting the circular’s conditions, approval will be required from the Professional Division, the Deputy Commissioner for Planning and Economics, the ITA’s Professional Advisor, and the ITA Commissioner. The specific approvals depend on the case.
IP Exit from Israel- foreign companies acquiring Israeli firms often wish to transfer their intellectual property (IP) out of Israel. This raises valuation disputes. Under the circular, the ITA determines that, subject to compliance with its terms, the IP value will be up to 85% of the transaction value (less costs and additional payments). This eliminates claims of inflated valuations such as 120%. The company must apply to the Professional Division for approval and certainty. The division will confirm that, by the end of the seventh tax year following the transaction closing, the profit attribution method for R&D activity will remain cost-plus.
Private Tax Ruling- a company may request a ruling confirming that its R&D service pricing is at arm’s length. An Israeli company providing R&D services to a non-Israeli related party may apply to the Professional Division for approval.
Advance Pricing Agreements (APA)- if the foreign party is resident in a country with which Israel has a double taxation treaty, the Israeli company may request a bilateral or multilateral APA regarding its transfer pricing policy.

In his speech, the ITA Commissioner elaborated on the circular and clarified several issues. He explained that since rulings often take a long time, a time limit was introduced to encourage taxpayers to use this route. The ITA must respond within 180 days; if no response is provided by then, the company’s position will be automatically accepted.

The Commissioner also addressed additional topics:

Marketing Intangible under the Law for the Encouragement of Capital Investment– a tax assessor wishing to address marketing intangible issues under this law must obtain approval from the Professional Division Manager.
Pillar 2- in July 2024, the Ministry of Finance announced that starting in 2026, Israel will implement a global minimum corporate tax rate of 15%. The ITA is currently preparing clarifications on how this will affect industry companies.
The QSBS Issue under President Trump’s Tax Reform- the ITA will publish its position on this matter in the coming weeks.

Taxation of Israeli High-Tech Employees Returning to Israel

It is common in the high-tech industry for employees to relocate abroad for several years. In most cases, these employees hold stock options that may begin vesting while they are outside Israel. Currently, when they exercise the options after returning to Israel, they are taxed on the full amount, without considering the period spent abroad.

Accordingly, they are taxed at their marginal rate upon exercise (since these are not options under the capital gains track of Section 102 of the ITA). This situation has led many Israelis to delay their return until after exercising their options. To encourage Israelis to return sooner, the reform introduces significant changes. It offers two options to ease the tax burden:

Request to split the profit period between Israel and abroad, so that the portion vested abroad is not taxed in Israel.
Change the options track from employment income to capital gains, significantly reducing the tax liability.

Note: This does not apply to new immigrants or veteran returning residents, but only to Israelis who spent a few years abroad.

The tax reform introduces extensive changes to the taxation of the high-tech sector and demonstrates Israel’s commitment to the industry’s growth. It also reflects the government’s desire to attract and encourage investment in Israel and Israeli companies.

Nimrod Yaron & Co.- Israeli and International Taxation advises funds, high-tech companies, investors, and employees in the high-tech sector on tax planning tailored to their specific circumstances. To contact a representative from our firm, click here.

FAQ

When will the reform take effect?

Comprehensive Reform of Taxation in Israel’s High-Tech Sector – Changes to the Taxation of Venture Capital Funds

Adam Zur — Thu, 04 Dec 2025 14:33:51 +0000

The Tax Authority’s Attempt to Combat Tax Uncertainty in Israel’s High-Tech

On November 2, 2025, the Ministry of Finance, together with the Tax Authority and the Innovation Authority, announced a comprehensive reform of taxation. The reform aims to provide certainty and preserve and improve Israel’s competitiveness for the high-tech industry. The reform addresses three dimensions, venture capital funds, high-tech companies, and industry employees. This article focuses on the expected changes in venture capital fund taxation. To read about the expected changes for companies and industry employees, click here.

The high-tech industry is a central growth engine in Israel. Venture capital funds are the main investors in the industry. The funds enable young, high-risk companies to raise capital and continue expanding their operations. Therefore, to maintain industry growth, it is important to encourage and facilitate venture capital fund activity in Israel.

Venture capital funds entered Israel in the 1990s. Despite their presence in Israel, they had no certainty regarding their taxation. Thus, fund investors, including foreign investors seeking this certainty, had to approach the Tax Authority. The approach is through rulings- an expensive and lengthy process.

For the first time, as part of the reform of taxation and to encourage investment in Israel, the taxation of venture capital funds is being regulated. This is through new legislation and regulations expected to be published by the end of 2025. The changes address the taxation of the General Partner (GP) and the Limited Partner (LP).

Changes in General Partner (GP) Taxation in Venture Capital Funds

The General Partner in a venture capital fund is essentially the partner managing the fund. The new reform distinguishes between an Israeli resident General Partner and a foreign resident General Partner.

Until now, the taxation of carried interest for an Israeli resident General Partner depended on the identity and composition of investors. The tax ranged from 25% to 50%. The more exempt/foreign investors, the lower the taxation. This created a preference for foreign capital over local capital.

To correct this, under the reform, carried interest taxation will not depend on investor identity. It will stand at 27%. Additionally, carried interest will be classified as income from personal exertion. This means the surtax rate applied will be the lower rate, which stands at 3% for 2025. Furthermore, VAT on carried interest has been canceled.

It is very common for investors to require skin in the game from the General Partner. This means they also invest alongside them, typically in single-digit percentages. Without a ruling, this investment was taxed at full marginal tax. The presented change is to treat profits from this skin in the game (if invested up to 10%) as capital gains taxed at 10%.

A foreign resident GP was taxed at 15% on carried interest. This tax has been reduced to 10%. VAT on carried interest for the foreign resident GP will also be canceled. Skin in the game will also be considered capital gains for them. According to Section 97(b3), will be exempt from tax in Israel.

Changes in Limited Partner (LP) Taxation in Venture Capital Funds

Limited Partners in a venture capital fund are passive investors. The reform distinguishes between an Israeli resident Limited Partner and a foreign Limited Partner.

Passive investments by an Israeli resident Limited Partner, without a ruling, were taxed as business income. Under the reform, if the investment is in an Israeli resident technology company, regardless of the investment method (through a fund, directly, etc.), the profit will be taxed as capital gains.

A foreign resident LP sometimes faced claims of permanent establishment and classification of activity as active. Under the reform, like an Israeli LP, the profit will be viewed as capital gains. It will be exempt from tax in Israel.

Comparison of Tax Rates Before and After the Reform

Partner Type	Current Status	Change Under Reform	Notes
Israeli GP	Carried interest tax- 25% – 50% (depending on investor identity) + VAT Skin in the game- marginal tax	Carried interest- 27% + VAT cancellation Skin in the game- capital gains tax	The reform establishes a fixed tax rate regardless of investor origin
Foreign GP	Carried interest- 15% + VAT	Carried interest- 10% + VAT cancellation Skin in the game- exempt from tax in Israel
Israeli LP	Taxation as business income	Capital gains tax- 10%	Relevant only to investments in Israeli technology companies
Foreign LP	Discussions about permanent establishment/reclassification of activity as active	Defining profit as capital gains- exempt from tax in Israel	Relevant only to investments in Israeli technology companies

*The numbers presented in this table refer to situations where no ruling was obtained.

For further reading on current venture capital fund taxation, click here.

The tax reform presents extensive changes in high-tech industry taxation. It demonstrates the State of Israel’s commitment to high-tech industry growth. It also shows the desire to attract and encourage investments in Israel and Israeli companies. Its significant advantage is the certainty it provides. Under the reform, there will be no need to apply for a lengthy and expensive ruling. Instead, they will know directly what the relevant taxation is.

Nimrod Yaron & Co. – Israeli and International Taxation, accompanies companies, funds, investors, and employees in the high-tech industry. We provide comprehensive solutions to their relevant tax issues. To contact a representative from our firm, click here.

FAQ

When will the reform take effect?

Transfer Pricing Reporting and Documentation Obligations in Israel – A Complete Guide

Adam Zur — Thu, 04 Dec 2025 14:20:23 +0000

Documentation and reporting are fundamental pillars of transfer pricing compliance. Without proper documentation, a company may struggle to demonstrate adherence to the arm’s length principle. Clear reporting and documentation obligations exist in Israel and numerous countries worldwide. A thorough understanding of these obligations is essential for compliance. This article provides a comprehensive overview of transfer pricing reporting and documentation obligations in Israel.

The Three-Tiered Approach to Documentation

In most countries, transfer pricing documentation follows the three-tiered approach introduced by the OECD. This framework was established under the BEPS (Base Erosion and Profit Shifting) project. It prescribes documentation obligations that scale with the multinational group’s consolidated revenues.

The three tiers are:

Local File, also referred to as a transfer pricing study or market conditions analysis.
Master File.
Country-by-Country Report (CbCR).

What is a Local File (Transfer Pricing Study)?

The first tier of documentation is the Local File. It is the most relevant to most companies. In Israel, this is commonly known as a transfer pricing study or market conditions analysis. This document focuses on cross-border transactions between the Israeli entity and its related foreign parties.

Its purpose is to provide detailed information on these transactions. The focus is on their pricing methodology. While the document includes certain information about the broader group structure, its primary emphasis remains on the specific transactions of the local entity.

In Israel, the required content of a transfer pricing study is based on OECD guidelines. It is detailed in the Israeli Income Tax Regulations for Determining Arm’s Length Conditions.

Globally, various threshold values exist for the obligation to prepare a Local File. Not every company conducting international transactions is required to prepare one. However, in Israel, the obligation to prepare a transfer pricing study applies to every international transaction between related parties. This applies even if the transaction value is relatively low.

In most countries, there is no obligation to submit the study automatically with the annual tax return. Submission is required only following a specific request from the tax authority. In such cases, the document must be provided within a predefined timeframe. This typically ranges between 30 and 90 days. In Israel, the study must be submitted to the Israeli Tax Authority within 30 days of receiving a request.

Master File

The Master File focuses on the activities of the multinational group as a whole. Its purpose is to provide a comprehensive overview of the group’s business operations. This includes a description of the group’s transfer pricing policies, principal profit drivers and intangible assets portfolio. It also includes additional relevant information.

The obligation to prepare a Master File generally applies to relatively large corporate groups. Small and medium-sized enterprises are typically exempt. In Israel, the Master File obligation was introduced under Amendment 261 to the Israeli Income Tax Ordinance. Effective from the 2022 tax year, an Israeli company that is part of a multinational group is required to prepare this documentation. This applies if the group’s revenues reached 150 million NIS or more in the preceding year.

Similar to the Local File, most countries do not require automatic submission of the Master File. Submission is required only upon request from the tax authority. This is also the case in Israel.

Country-by-Country Report (CbCR)

CbCR represents the highest level of documentation. It is relevant to very large multinational groups. Its purpose is to provide tax authorities with comprehensive information on the distribution of revenues, profits, taxes paid and economic activities. This information covers all group entities across all countries. Unlike the Local File and Master File, the CbCR must be filed annually.

Most OECD member countries adopted the CbCR filing obligation in 2016. In Israel, the obligation was introduced under Amendment 261 to the Israeli Income Tax Ordinance. It applies effectively from the 2022 tax year.

Groups with consolidated revenues of 750 million EUR or more (or an equivalent amount in the local currency) are generally required to file the report. Filing occurs in the countries of the group’s ultimate parent entity. In Israel, if the ultimate parent entity is an Israeli tax resident and group revenues exceed 3.4 billion NIS, a filing obligation in Israel applies.

Documentation Obligations – Summary Table

Type of Documentation	Revenue Threshold for Preparation	Submission Deadline	Notes
Transfer Pricing Study (Local File)	Every international transaction between related parties	Within 30 days of the Assessing Officer request	Focuses on specific transactions of the local entity
Master File	Group revenues exceeding NIS 150 million	Within 30 days of the Assessing Officer request	Comprehensive overview of the group and its policies
CbCR	Group revenues exceeding NIS 3.4 billion	Within 12 months from the end of the tax year	Details distribution of revenues, taxes, and activities by jurisdiction

Additional Documentation Obligations

Beyond the three-tiered documentation framework, companies are required to maintain supplementary supporting documentation. This is necessary to substantiate compliance with the arm’s length principle. Such documentation includes intercompany agreements, invoices, and any other documents relevant to transaction pricing. Maintaining these documents is crucial to substantiate compliance before the Israeli Tax Authority when required.

Reporting in Annual Tax Returns

In addition to documentation obligations, companies are typically required to provide information about intercompany transactions. This information is included in their annual tax returns submitted to tax authorities.

In Israel, the following forms must be attached to the annual tax return, as applicable:

Form 1385 – Declaration of International Transactions. Companies and individuals with transactions involving related foreign parties must file this form. The form includes information about the transaction and its pricing.
Form 1485 – Declaration Regarding Loans in International Transactions. Companies that elected to issue capital notes to related companies pursuant to Section 85A(6) must file this form.
Form 1585 – Declaration of Affiliation with a Multinational Group. Companies that are part of a multinational group (as defined in Section 85A) are required to declare this status. They must also provide details about the group.
Form 1686 – Country-by-Country Report (CbCR) pursuant to Section 85C(3) of the Israeli Income Tax Ordinance. This form is filed by Israeli ultimate parent entities of multinational groups. It applies to groups with revenues of 3.4 billion NIS or more.

Practical Example – ABC Group

ABC Group is a multinational group operating in 20 countries worldwide. Its consolidated revenues amount to 5 billion NIS. Israeli company abc heads the group and serves as the ultimate parent entity. British company XYZ and American company INC provide distribution services to it.

What documents and forms will ABC Group need to prepare and file in Israel?

First, abc Company must prepare a transfer pricing study. This study addresses the distribution services provided to it by XYZ and INC.

Additionally, because its revenues exceed 150 million NIS, it must also prepare a Master File.

Finally, since the group’s revenues exceed 3.4 billion NIS and the ultimate parent entity is an Israeli tax resident, the company must prepare and file a Country-by-Country Report.

Regarding the forms abc Company must attach to its annual tax return:

Form 1385 – for transactions with XYZ and INC.
Form 1585 – To report its classification as a multinational group.
Form 1686 – to file the Country-by-Country Report.

Companies engaged in cross-border-related-party transactions must ensure full compliance with the arm’s length principle. They must price transactions at market conditions. Proper documentation and reporting as required by law are essential. Non-compliance with these obligations may result in administrative penalties. It may also create a heightened burden of proof before the tax authorities and substantial tax exposure.

Nimrod Yaron & Co. – Israeli and International Taxation specializes in transfer pricing. The firm provides comprehensive professional support for all transfer pricing matters. To contact a representative from our firm, click here.

FAQ

Is it necessary to submit a transfer pricing study with the annual tax return in Israel?

Intergenerational Transfer and Estate Administration

Adam Zur — Thu, 04 Dec 2025 13:38:00 +0000

Intergenerational transfer is among the most significant and strategic decisions a family or wealth holder can make. It is a legal, economic, and emotional process. Its purpose is to ensure that family wealth is transferred in an orderly, fair, and lawful manner to the next generation. This process preserves family unity, reduces tax exposure, and ensures business and economic continuity.

Many assume that intergenerational transfer occurs only after a person’s death. In practice, however, it is a process that can and should begin during the asset owner’s lifetime. Through early planning, it is possible to make gifts, establish trusts, arrange ownership in family companies, and set up future management mechanisms. This ensures the continuation of business and family activity.

When the process is not managed properly, it may result in disputes and delays in estate distribution. It may even cause substantial damage to asset value. Professional estate administration serves as a legal mechanism that actively supports and streamlines the transfer of assets. It protects the interests of all parties involved. It also ensures the testator’s wishes are duly fulfilled.

Estate administration is designed to provide a practical solution to problems that may arise after a person’s death. It fosters certainty, transparency, and trust among all stakeholders. Additionally, it allows for the precise fulfillment of the testator’s wishes. It maintains proper relations among heirs and protects assets from errors, claims, or creditors.

What is an Estate and What Does Its Administration Include?

An estate includes all assets, rights, and obligations remaining after a person’s death. These are intended for distribution among heirs or beneficiaries according to a will. Proper estate administration is an integral part of intergenerational transfer. It ensures that assets are managed and distributed according to the testator’s wishes. It also ensures fair treatment of all heirs.

When a will exists, estate distribution is carried out according to the will’s instructions. If there is no will, distribution is performed according to the provisions of the Inheritance Law. This law determines the order of heirs and each person’s share.

Estate Administration – How It Works in Practice

Estate administration is a legal process designed to arrange the distribution of the deceased’s assets and settle debts. It ensures each heir receives their share according to the will or law. To accomplish this, an application must be filed with the Inheritance Registrar or the Family Court in Israel. The application seeks to appoint an estate administrator, locate the deceased’s assets, settle debts and arrange the transfer of assets to heirs. An application for appointment of an estate administrator can be filed before or after receiving a Succession Order or Probate Order.

It is also possible to appoint an estate administrator in advance through a will. In such a case, the testator specifies in the will who will be responsible for administering the estate after death. Such an appointment gives the testator control over the identity of the person who will manage their property. It prevents disputes among heirs after death. It also ensures that estate administration is carried out according to their precise wishes. The court tends to honor the testator’s wishes and appoint the person designated in the will. This is done unless there is a legal or practical impediment.

The Estate Administrator and their Duties

The estate administrator’s role includes collecting all estate assets and paying the deceased’s debts. It also includes distributing the remaining assets among heirs. The estate administrator operates under supervision designed to ensure transparency, accountability, and proper management of the deceased’s assets. This preserves the heirs’ trust and the integrity of the entire process. In certain cases, the estate administrator and heirs may reach an agreement on the method of estate distribution. This may differ from what is specified in the will or Succession Order. Such agreements are valid provided they are made in good faith and with court approval.

When Is It Recommended to Appoint an Estate Administrator?

Appointing an estate administrator is particularly recommended when a professional and neutral party is needed to manage assets. This ensures their fair distribution. This is especially true in cases where the estate includes substantial property, foreign assets, or family companies. It is also critical when there are conflicts among heirs. In such situations, self-management by heirs may lead to delays and lack of transparency. It may even result in a decrease in asset value. A professional estate administrator enables efficient process management and maintains balance among parties. This prevents deterioration into prolonged legal disputes.

Estate Administrator’s Fee and Supervision of Their Work

According to law, the estate administrator’s fee shall not exceed 3% of the estate’s value. The court considers several factors when determining the fee. These include the total asset value, type of assets, and the nature and scope of actions performed by the estate administrator.

In cases where special effort was required or exceptional actions were performed, the court may increase the fee. However, it shall not exceed 4% of the estate’s value.

Before executing asset transfers – whether by gift, inheritance, or any other means – it is essential to obtain comprehensive legal guidance. Proper planning preserves the family’s wishes and the interests of all parties. It also ensures lawful and sustainable intergenerational continuity for the long term. There is no one-size-fits-all solution. Each family and each asset requires individual examination and personalized planning. This ensures proper, efficient, and lawful transfer of family wealth.

Intergenerational wealth transfer is not limited to writing a will or making a gift. It is a broad and complex process where every decision can materially affect the outcome. Today, various legal and economic tools are available for intergenerational transfer. These include trusts, family agreements, enduring powers of attorney, wealth management mechanisms, prenuptial agreements, family mediation, and international tax solutions. A wise combination of these tools can ensure control is maintained and tax exposure is reduced. It also enables the orderly transfer of family wealth to future generations.

Nimrod Yaron & Co. specializes in personal and professional guidance for intergenerational wealth transfers and estate administration. The firm’s team provides comprehensive and personalized legal counsel. This incorporates advanced legal tools such as trusts, family agreements, enduring powers of attorney, wealth management mechanisms, and international tax solutions.

For an initial consultation – contact us.

FAQ

When is it advisable to start planning intergenerational transfer?

Tax Aspects of Inheritance in Spain

Adam Zur — Thu, 04 Dec 2025 12:31:52 +0000

If you own assets in Spain (Barcelona, Madrid, etc.) or are expected to inherit assets in this country, it’s important to understand the legal and tax implications involved in the inheritance process. Each region in Spain has different laws regarding how inheritance tax is charged. This often creates confusion for taxpayers, especially when assets are transferred between different provinces or when dealing with property owners in multiple jurisdictions.

Early understanding of local law, and advance planning of wills, residency, and lifetime gifts can significantly reduce tax exposure when transferring assets between generations.

Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.

What is the difference between Estate Tax and Inheritance Tax?

Estate tax – imposed on the deceased’s assets before they are transferred to heirs.
Inheritance tax – applies to all assets received by the heir.

Inheritance Tax in Spain – What You Need to Know?

Spain has no estate tax, but there is an inheritance tax on assets transferred to heirs.

Spanish residents are taxed on all assets and rights they receive worldwide – whether located inside or outside Spain. In contrast, heirs who are not Spanish residents are taxed only on assets located in Spain or realizable there.

Tax rates are progressive, ranging from 7.65%-34%. In Spain, several benefits and exemptions exist. These depend on specific circumstances such as family relationships, disability, life insurance, family business, and permanent residence.

Tax liability is determined based on the net value of assets transferred to the heir – meaning the asset’s value minus liabilities. Tax liability is calculated per the competent region’s legislation on the net asset value received. If the region has not set specific rates, national rates apply. However, the Basque Country and Navarre have separate tax systems where national rates do not apply.

Each region in Spain may also enact tax reductions, which can significantly reduce tax liability. For example, Madrid grants a 99% tax refund for inheritances and gifts received by certain family members.

Gift Tax

Gift tax is an important part of intergenerational asset transfer planning. Often, when property owners learn the inheritance tax amount, they consider transferring assets as gifts during their lifetime. They believe this is preferable to future inheritance. However, gifts may be taxed at rates identical to inheritance tax or even higher.

In Spain, gift tax applies similarly to inheritance tax. Like inheritance tax, gift tax is calculated per specific circumstances such as family relationships and permanent residence.

Therefore, advance planning of inheritance tax and gift tax is essential when transferring assets between generations. Proper planning maximizes existing exemptions and significantly reduces tax liability. It ensures assets transfer to the next generation in an orderly and efficient manner.

Inheritance Taxation in Israel Compared to Spain

In Israel, unlike Spain, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full inheritance value. For example, capital gains tax applies upon asset sale.

The Israel-Spain tax treaty includes provisions preventing double taxation. However, accurate reporting and filing planning is essential to avoid double payment.

To read the Israel-Spain tax treaty in Hebrew on the Ministry of Finance website, click here.

Drafting a Will in Spain – The Key to Tax Savings and Dispute Prevention

Inheritance doesn’t always pass smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permit to realize assets.

Drafting an orderly will is not just a matter of personal wishes; it’s an integral part of estate taxation. A detailed will can ensure assets pass smoothly and efficiently to heirs. The will should include the deceased’s wishes but must align with legal requirements. This ensures its validity is not compromised.

At the will drafting stage, in many cases you can choose which law will apply to it. This choice can have a substantial impact on inheritance planning and its future realization.

Without advance planning (inheritance without a will), the applicable law will be that of the deceased’s last and principal residence.

If you own assets in Spain, our recommendation is to draft a will to ensure the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes. It ensures the process proceeds in an orderly manner even after the deceased’s death.

Have You Received an Inheritance in Spain? 8 Steps for Proper Realization of an Inheritance from Spain

1. Factual and Legal Background Investigation

Taxation of Stock Options for Non-Residents Who Became Israeli Residents – Israel Tax Authority Position for 2025

Adam Zur — Tue, 25 Nov 2025 13:22:47 +0000

Income Tax Circular 9/2025- Taxation of Employee Stock Options for Non-Residents Who Became Israeli Residents

In November 2025, the Israel Tax Authority Published the Income Tax Circular 9/2025. It addresses taxation of options for non-residents who became Israeli residents. Stock options are very common compensation for employees in Israel and abroad. Taxation of Israeli options is regulated in the Income Tax Ordinance (the Ordinance) However, taxation of foreign options that vested when an individual became an Israeli resident was not regulated.

This issue created uncertainty among many taxpayers. The Tax Authority published the circular to clarify its position. The circular addresses issues such as income classification and application of Section 102.

Taxation of Stock Options in Israel

Taxation of equity compensation for employees is anchored in Sections 102 and 3(9) of the Ordinance.

Section 102 regulates share allocation by an employment company. The section provides several alternatives for defining an employment company. These include an Israeli resident company and a non-resident company with a permanent establishment or development center in Israel approved by the Director of the Israeli Tax Authority. The section allows the company to report options through the capital track. In this track, income from exercising options is classified as capital gain and taxed at capital gains tax rates.

Options granted by companies not meeting the employment company conditions are taxed under Section 3(9). Under this section, income from exercising these options is classified as employment income and taxed at marginal rates. Income recognition timing is determined by work location during the vesting period. The income is divided among countries where the employee worked during this period, proportional to workdays in each country.

For further reading on employee stock option taxation, click here.

Key Differences Between Section 102 and Section 3(9) of the Ordinance

Subject	Section 102 Capital Track Through Trustee	Section 3(9)
Option Grantor	Employment company	A company that is not an employment company
Tax Event Date	Option exercise date	Earlier conversion of right to shares or sale of option
Income Classification	Capital gain	Employment income
Tax	Capital gain tax	Marginal tax

*Information in this table is updated for 2025.

Restricted Stock Units (RSUs)

Another equity compensation employees sometimes receive is Restricted Stock Units (RSUs). Under this compensation, the company commits to provide the employee a certain number of shares based on predefined conditions. At vesting, shares are issued, usually without active action by the employee. The tax event date for RSUs is the issuance date.

Treatment of RSUs under Section 102 and Section 3(9) is identical to options. An individual who received RSUs where the restriction period and share issuance began as a non-resident will pay tax in Israel upon actual sale. This income is classified as capital gain under Part E of the Ordinance.

Key Points of Circular 9/2025- Taxation of Income from Exercising Foreign Options

The circular addresses taxation of exercising foreign options by Israeli residents. These are options granted to an individual as a non-resident by an employer that is not an employment company. This exercise is classified as employment income of an Israeli resident taxable in Israel. The circular distinguishes between a returning resident, a veteran returning resident, and a new immigrant.

Returning Resident

A returning resident is someone who stayed outside Israel for between 6 and 10 years. A returning resident can spread the income under Section 3(9)(2) over up to six years. Their income is taxed as if given in equal annual installments during the spreading period. Income spread over a period when the individual was a non-resident is considered income generated outside Israel by a foreign resident and is exempt from Israeli tax. The remaining income is taxable in Israel. Credit can be obtained for foreign tax paid.

Veteran Returning Resident / New Immigrant

The circular distinguishes between situations where vesting ended as a non-resident versus as an Israeli resident. If vesting ended as a non-resident, all income from exercising options is considered foreign income and is exempt from Israeli tax. If vesting ended after becoming an Israeli resident, the income is divided according to workdays in Israel. Part of the gain is taxed in Israel. The rate equals workdays in Israel from return until vesting completion, divided by the total vesting period. The remaining gain is considered income generated abroad and is exempt from Israeli tax.

Application of Section 102 of the Ordinance

Instead of the tax track detailed above, the company can request the Tax Authority to change the tax track to the Section 102 capital track through a trustee. Income from exercising options after the track change is taxed under Section 102. If options were deposited with the trustee within 30 days, the application date is considered the option allocation date. Options not vested at allocation are taxed under Section 102. Cancellation of vested Section 3(9) options and allocation of Section 102 options constitutes a tax event for the company and employees. These options are taxed under Section 102.

Example of Applying the Circular – Returning Resident

An individual left Israel on January 1, 2017, and returned on January 1, 2024. This person is considered a returning resident, having been outside Israel for seven years. The individual received options from a foreign employer (not meeting the employment company definition) on January 1, 2021, which vested on January 1, 2023. The individual exercised the options on December 31, 2024, after returning to Israel. Income from this exercise was one million ₪, on which they paid foreign tax of 200,000₪

The company is not an employment company, so Section 3(9) applies. The option exercise date is the tax event date. The section allows spreading income from the grant date to the exercise date, proportional to workdays in each country. Three quarters of the period the individual was abroad. Therefore, three quarters of the income (750,000₪) is considered income generated outside Israel and is exempt from Israeli tax. The remaining income (250,000₪) is considered income generated in Israel by an Israeli resident and is taxed accordingly.

Foreign tax credit applies only for the period when options are considered Israeli income. Therefore, only one quarter of the tax paid is credited.

In Summary, Circular 9/2025 provides guidance on the taxation of foreign options exercised by Israeli residents. It details income classification, foreign tax credit, and more. The Tax Authority thus provides certainty on this matter for many taxpayers. Publication of this circular joins a recent trend of tax changes for new immigrants and returning residents.

Given all the changes implemented and expected, it is recommended to consult with a tax expert to maximize tax benefits and prevent double taxation. Nimrod Yaron & Co. – Israeli and International Taxation specializes in comprehensive tax advice for individuals making Aliyah or returning to Israel, including stock option matters. To contact a representative from our firm, click here.

FAQ

What is the taxation on the sale of options by an Israeli resident that were exercised as a non-resident?

New Tax Benefit for New Immigrants: Tax Exemption for Two Years

Adam Zur — Tue, 25 Nov 2025 12:16:06 +0000

The 2026 tax benefit for new immigrants offers an unprecedented 0% tax exemption on income from Israel. Here’s everything you need to know about the new reform.

On November 6, 2025, Finance Minister Bezalel Smotrich and Minister of Aliyah and Integration Ofir Sofer presented a reform in the taxation of new immigrants. An official bill has not yet been published, but the reform is expected to be approved as part of the state budget for 2026. The purpose of this initiative is to encourage immigration to Israel through significant tax benefits for new immigrants and returning residents.

The reform is expected to grant full and partial tax exemptions in the first years of residence in Israel. The goal is to strengthen the economy, ease the integration of new immigrants, and attract high-quality human capital to Israel.

Background to the Initiative

The launch of the new program at this time is driven by several underlying factors. In the past two years, there has been a significant increase in antisemitic incidents worldwide, especially following the “Am-Kelavi” war. This has caused many Jews to consider making Aliyah to Israel.

Additionally, Western countries such as the UK have recently made changes to their tax policies, making Israel more attractive for Jews with capital.

Furthermore, there is a need to strengthen the Israeli economy and attract high quality human capital (professionals, entrepreneurs, high-tech workers, etc.) who will contribute to economic growth and development of the economy.

What is the New Benefit and Who is Eligible?

Under the new program, tax benefits are expected to be granted to new immigrants and returning residents who immigrate to Israel during 2026. They will enjoy an unprecedented tax benefit on employment income as employees or self-employed individuals, generated in Israel.

Tax Rates Under the New Benefit:

Year	Tax Rate	Notes
2026	0%	Full exemption
2027	0%	Full exemption
2028	Up to 10%	Reduced exemption
2029	Up to 20%	Reduced exemption
2030	Up to 30%	Reduced exemption

*Applies to income up to 1 million ₪ per year (as of 2025).

The Difference Between a New Immigrant and a Returning Resident

New immigrant – someone who immigrated to Israel for the first time under the Law of Return, 1950, and is a resident of Israel for the first time after immigration.” According to the definition, a new immigrant is someone who was not a resident of Israel before.

Returning resident – an individual who was a resident of Israel, ceased to be a resident of Israel, and returned to become a resident of Israel.” In other words, a returning resident is someone who was a resident of Israel in the past, left Israel for an extended period, and then decided to return.

There is a distinction between a regular returning resident and a veteran returning resident regarding existing tax benefits. A regular returning resident is someone who stayed outside Israel for 5 to 10 years. A veteran returning resident is someone who stayed outside Israel for more than 10 years. Tax benefits for a veteran returning resident are more significant than those for a regular returning resident and are similar to those of a new immigrant.

Income Ceiling

The benefit will apply to incomes of up to 1 million ₪ per year. Income above this threshold will be taxed according to the credit points for new immigrants and veteran returning residents.

For Example:

A new immigrant earns 400,000₪ per year as an employee in Israel. Under the new benefits, they will not pay any tax in the first two years (2026-2027). This represents savings of tens of thousands of shekels compared to the current situation.

Additional Benefits Beyond Tax Exemption on Israeli Income

It is important to emphasize that the new benefit is added to existing benefits that new immigrants and returning residents are currently entitled to and does not replace them.

Benefits That will Continue to Exist (as of 2025)

Tax exemption on income from outside Israel for 10 years from the date of becoming an Israeli resident (subject to the type of income and resident status).
Increased tax credit points for new immigrants.
Purchase tax exemption on a first apartment (subject to conditions).
Tax exemption on assets and property brought from outside Israel.

A new immigrant can enjoy both exemptions simultaneously. The firs, exemption on foreign income for 10 years. The second, gradual exemption on Israeli income, up to 5 years. This is a dual tax advantage that constitutes a very strong economic incentive.

For additional information on the full range of benefits available to new immigrants (as of 2023) click here.

Criticism of the Program – Important Points to Know

Some critics argue that the benefit primarily favors wealthy immigrants and those with high incomes, and less to other populations or veteran citizens. However, from a professional and legal perspective, the benefit represents a significant economic opportunity that should be properly examined and utilized subject to each potential immigrant’s personal situation.

Important Tax Aspects

New immigrants must accurately report assets, bank accounts, and investments abroad. Failure to report may lead to heavy penalties. Additionally, it is important to understand the tax implications of changing residency, both in Israel and in the country of origin. In some cases, double taxation or complex reporting obligations may occur. There is a possibility to combine the new benefit with additional benefits such as subsidized loans.

Preparing for Immigration: Practical Steps

Verify that you meet the definition of “New Immigrant” or “Returning Resident” according to the Law of Return and Income Tax Ordinance. It is recommended to consult a professional entity.
Consult an international taxation expert to understand the full implications and plan the transition optimally.
Ensure you properly close tax obligations in the country from which you are immigrating and understand the double taxation prevention agreements.
Open a file with the Ministry of Aliyah and Integration.
Plan ahead for issues such as opening a bank account in Israel, purchasing an apartment, transferring funds, establishing a business, etc.

The new tax reform for immigrants and returning residents represents a significant and unprecedented economic opportunity. Full tax exemption for two years, combined with existing benefits, creates a very strong economic incentive for those considering immigration to Israel.

Nimrod Yaron & Co. specializes in Israeli and international taxation. The firm accompanies new immigrants and returning residents at all stages of the process, from early tax planning, through arranging residency status, to ongoing support in taxation matters, property acquisition, and establishing businesses in Israel. To contact a representative from our firm, click here.

FAQ

When exactly will the new program take effect?

Tax Aspects of Estate and Inheritance in The United States

Adam Zur — Thu, 13 Nov 2025 13:38:35 +0000

If you own assets in the United States or expect to inherit assets in this country, it is essential to understand the legal and tax implications involved in the inheritance process.

The United States is one of the world’s most powerful economic powers, and American taxation is a crucial aspect of the American economy and the businesses operating within it. Federal and local taxation in the United States is complex and significantly impacts individuals and companies operating within the Country.

In recent years, many Israelis have encountered tax questions related to properties in New York, Los Angeles, Miami, New Jersey, Chicago, Boston, and more. Not a small part of this stems from the fact that Israelis inherit assets in the US. This means that they may at some point be required to pay U.S. estate and inheritance taxes.

Understanding U.S. law and international tax treaties is critical for businesses operating in the U.S. market and capitalizing on the economic potential of their operations there. Additionally, an early understanding of U.S. law and early planning for wills, residency, and lifetime gifts can significantly reduce exposure to tax payments when transferring assets between generations.

Furthermore, inheritance tax planning may prevent legal disputes, delays in the inheritance realization process, and unexpected demands from various authorities.

What Is the Difference Between Inheritance Tax and Estate Tax?

Estate tax – imposed on the testator’s assets before they are transferred to his heirs.
Inheritance tax – applies to all assets received by the heir.

Estate Tax in The U.S.

In the U.S., a federal estate tax applies to the estate of a deceased person before it is transferred to their heirs, depending on the value of the estate and the testator’s citizenship. Investors who hold assets in the U.S., even if they are not U.S. citizens or residents, are subject to an estate tax.

A U.S. citizen or resident is required to report all their assets worldwide (including assets in Israel) to calculate the value of the estate. A foreign citizen without U.S. citizenship is required to report all their assets in the U.S.. This tax applies to various assets, including U.S. real estate, securities of U.S.-incorporated companies, cash held in the United States, and more.

Estate tax is a progressive tax, meaning it increases as wealth increases. The amount of estate tax varies between American citizens and non-American citizens. Estates of American citizens are exempt from paying tax up to an amount of $13.99 million as of 2025. In contrast, estates of foreign citizens are exempt up to an amount of only $60,000, and the tax rate is up to 40% on the value of the property (not on the profit generated but on the value of the entire property). For example, owners of investment portfolios worth more than $60,000 in American assets, who are not American citizens, are subject to the estate tax.

What does this mean? If you are an Israeli resident with assets in the U.S., you may pay estate tax on these assets, even if you are not a U.S. citizen. Therefore, it is vital to prepare accordingly.

For more information on the subject, read the article “American Estate Tax.”

Federal Gift Tax

Gift tax is a crucial aspect of planning for intergenerational asset transfers. Often, when property owners are exposed to the amount of inheritance tax, the option of transferring assets as gifts during the testator’s lifetime arises, as they believe this is preferable to inheriting in the future. However, it should be considered that gifts may be taxable at the same or even higher inheritance tax rates.

A U.S. citizen is subject to federal gift tax on all gifts worldwide (both U.S. and foreign assets). There is an annual exemption ($19,000 per person as of 2025) and a lifetime exemption ($13.99 million in 2025 as part of the estate tax). A report form must be filed for gifts above the annual exemption, beyond the exemption from taxes according to the estate tax.

A foreign citizen without U.S. citizenship is liable for gift tax only on tangible assets located in the U.S. (e.g., shares of a U.S. company are exempt from gift tax). Unlike U.S. citizens, there is only an annual exemption of $19,000 per person in 2025. Beyond the exemption from taxes, there is an estate tax.

Therefore, early inheritance and gift tax planning are essential when transferring assets between generations. Proper planning allows you to maximize existing exemptions, significantly reduce tax liability, and ensure that assets are transferred to the next generation in an orderly and efficient manner.

Estate And Inheritance Tax in the Various U.S. States

In addition to the federal estate tax, some states impose additional estate taxes, while others also collect inheritance taxes.

For example, as of January 1, 2025, in New York State, the estate tax exemption is $7,160,000. If the estate is worth more than that, a tax will be levied. In New York, when the value of the estate exceeds even slightly 105% of the exemption amount (i.e., about $7.5 million), the tax is calculated on the entire estate, not just the portion that exceeds the exemption. Once you cross the exemption, a hefty tax of up to 16% is imposed on the entire estate.

In New York, there is no gift tax per person; however, if a person gives a gift (for example, property or a large sum of money) within three years before their death, the value of that gift will be included in the estate for estate tax purposes.

Inheritance Taxation in Israel vs. The United States

In Israel, unlike the U.S., there is no estate tax or inheritance tax. However, in some instances, a tax may be imposed on the full value of the inheritance received, for example, capital gains tax upon the sale of the property.

Tax Treaty Between Israel and The United States

The United States taxes the income of its citizens living abroad, even if they never visit its territory. Therefore, a tax treaty between Israel and the United States is crucial for American citizens residing in Israel or Israelis living in the United States.

A double taxation treaty is a bilateral agreement in which two countries determine the taxation rules that will apply to income and assets related to both countries. In addition, the treaties include principles for the exchange of information on tax matters between the countries.

Among other things, the treaty between Israel and the U.S. states that the country in which the taxpayer’s income was generated will receive primary taxing rights. In addition, the treaty states that the taxpayer’s country of origin will retain residual taxing rights over their income, even if it was not generated in its territory. That is, it will be able to tax the income but will be obligated to act to prevent double taxation, doing so through tax refunds, credits, or tax deductions.

To read the Israel-U.S. tax treaty in English on the Ministry of Finance website, click here.

Making A Will in The U.S. – The Key to Tax Savings and Avoiding Disputes

Inheritances do not always pass smoothly to their heirs. Sometimes it is necessary to take complex procedural steps to issue an inheritance order or obtain a permit to realize the assets.

Drafting a well-organized will is not just a matter of personal preference; it is an integral part of estate tax planning. A will can ensure that assets are passed smoothly and efficiently to heirs. The will should include the testator’s wishes, but should also be adapted to the requirements of the law so that its validity is not impaired.

When drafting a will, it is often possible to choose the law that will apply to it. This choice can have a significant impact on the planning of the inheritance and its future implementation.

If you own assets in the U.S., we recommend creating a will to ensure a smooth transfer of assets. A will can prevent misunderstandings or lengthy legal processes and ensure that the process continues in an orderly manner even after the testator’s death.

Did You Receive an Inheritance in The U.S.? 7 Steps to Properly Realize an Inheritance from The U.S.

1. Clarification of Factual and Legal Background

What expenses should be included in the cost base for Transfer Pricing Purposes

Adam Zur — Wed, 12 Nov 2025 21:38:37 +0000

Insights from the Kontera Technologies Ltd. Ruling

Transfer Pricing and proper intercompany Pricing are a complex challenge for international companies. One of the key questions that concern them is how the cost base should be determined. Which costs should be included, and which should not? The answer to this question has a significant impact on intercompany payments and on the companies’ profits. The Kontera ruling provides an answer, at least partially, to this question.

Kontera Technologies Ltd. Ruling

The Kontera ruling is the first Israeli ruling about transfer pricing and one of the most significant in the field. The ruling is essentially a consolidation of two appeals. “Kontera Technologies Ltd.” V. Assessing Officer Tel-Aviv 3 and “Finisar Israel Ltd.” V. Assessing Officer Tel-Aviv Rehovot. The issues discussed in both appeals were very similar; therefore, the Supreme Court decided to consolidate them into one ruling.

We will focus primarily on matters relating to Kontera.

Kontera is a company whose main activity is providing R&D services to its American parent company. The payment for these services was outlined in an intercompany agreement signed in 2005. According to which, the payment would be based on Konterra’s costs for providing the services, minus social benefits expenses, and plus a markup of 7%.

In other words, pricing is calculated under the cost-plus method, which divides the payment into two components: the relevant costs (“cost”) and a fixed profit markup (“plus”). The Transfer Pricing study prepared by the company established an interquartile range of 4.5% to 15.3%. Meaning, the study supported the company’s pricing.

In 2009 and 2010, the parent company granted stock options to Kontera’s employees. Following this, an amendment was made to the intercompany agreement, which stipulated that these expenses should not be included in the cost base. Kontera chose to report the options under the Capital gains track with a trustee pursuant to Section 102 of the Israel Income Tax Ordinance (the ITO). Thus, it was able to record the costs as an accounting expense, but not as a tax-deductible expense, which prevented it from deducting the costs as salary expenses.

The Assessing Officer relied on Section 85A of the ITO, which allows him to intervene when the pricing between two related companies is not done in accordance with market prices and to modify it. His main arguments were:

The cost base was calculated incorrectly – in his view, there is no justification for omitting the social benefits expenses and stock option allocation costs from the cost base. Neutralizing these expenses significantly reduces the profit margin. Rather than remaining at 7%, the rate declined to 1.73% in 2009 and further to 0.97% in 2010, indicating a deviation from the accepted interquartile range.
The profit margin selected is inappropriate – in his view, the company should have used the median rate, 9.1%, and not 7%.

The Assessing Officer increased the profit that Kontera should have received in two ways. On the one hand, by increasing the amount to which the markup is applied, and on the other, by increasing the profit margin itself.

Kontera did not agree with these arguments and filed an appeal with the District Court. The District Court dismissed Kontera’s appeal. Therefore, Kontera appealed to the Supreme Court.

The Supreme Court Ruling

The Supreme Court divided its discussion into two levels, examining the economic substance of the expense and how unrelated parties would’ve acted in such a situation.

From an economic substance perspective, stock option allocation costs are an expense incurred in the production of income for Kontera. The options are part of the employees’ compensation package intended to incentivize them. Thus, all components of the compensation package, whether cash, options, or other equity instruments, are expenses incurred in the production of income. Therefore, there is no substantive justification for not including them in the cost base.

However, this does not necessarily mean that the Assessing Officer can intervene in the intercompany agreement between the parties. This is only possible if the company fails to prove that its pricing was done in accordance with market conditions. In our case, Kontera failed to shift the burden of proof to the Assessing Officer, and therefore he is entitled to intervene in the pricing. The transfer pricing studies submitted by the company show that the comparable companies took into account the value of the options. In other words, the company did not act in accordance with market conditions.

Additionally, regarding the profit margin, the Supreme Court refers to Regulation 2(C) of the Regulations for Determining Market Conditions. This regulation stipulates that if a transaction falls outside the range, its price shall be reported according to the median value. Since Kontera was not within the range, the transaction shall be reported and taxed according to the median value, 9.1%, meaning the Assessing Officer’s argument is accepted.

The Supreme Court did not allow the deduction of stock option allocation costs against its taxable income. This is because such a deduction is inconsistent with Section 102 of the ITO. Kontera’s argument that the section refers to a deduction upon exercise of shares and not upon allocation of options was not accepted. This is because in this case, the specific provision (namely Section 102) prevails over the general provisions of Section 17 of the ITO.

Allowing the deduction would grant Kontera a double benefit, on the one hand, a lower tax rate for the employees, and on the other, the deduction of the expenses. This is because reporting under the capital gains track, in which employees are taxed at a rate of 25%, does not allow for the deduction. Had the company chosen the employment income track, under which employees are taxed at their marginal tax rate, it would have been able to deduct the costs.

Summary of Arguments

Issue	Kontera’s Position	Assessing Officer’s Position	Court’s Decision
Inclusion of stock option allocation costs in the cost base	Exclude	Include	Include
Profit margin rate	7%	9.1%	9.1%
Burden of proof	Burden shifted to the Assessing Officer	Burden remained with Kontera	Burden stayed with Kontera

The Cost-Plus Method in Transfer Pricing

Using pricing based on the costs associated with providing services is a common practice across many industries and in numerous intercompany agreements. This pricing method determines that the payment for the services will be calculated as follows: the service provision costs plus a profit markup. For example, if a company’s expenses amount to 100 and the agreed profit margin is 5%, the payment it will receive would be 5+100=105.

When the parties are unrelated, the profit margin is determined according to industry standards and the outcome of negotiations between the parties. However, when the parties are related, the margin must be determined based on a transfer pricing study that examines how unrelated parties would have acted in the same transaction.

In examining intercompany pricing for transfer pricing purposes, several methods may be applied, one of which is the cost-plus method. Despite its name, this method is not typically used in cases such as the one described above, as it compares net profit margins. A metric that is very difficult to compare across companies. Instead, the TNMM (Transactional Net Margin Method) is generally applied, which compares profit margins between companies.

For further reading on the cost-plus method, click here.

Insights from the Kontera Technologies Ltd. Ruling

This ruling was delivered in 2018 and was considered highly significant, leading to the publication of Circular 1/2020. Although several years have passed since its issuance, it continues to influence corporate transfer pricing policies, the positions of the Israeli Tax Authority, and broader tax practices.

At a time when Transfer Pricing assessments and litigation are on the rise in Israel and worldwide, it is increasingly important to be familiar with court rulings in this field. Doing so provides a clearer understanding of the approach taken by the courts and the tax authorities.

The main conclusion from the Kontera ruling is that stock option allocation costs should be included in the cost base for determining intercompany payments for transfer pricing purposes.

When deciding which costs should be included, the key question is whether the costs constitute an expense directly related to the provision of the services. In other words, the analysis should focus on the economic substance of the services and the expenses, examining whether these costs are connected to the provision of the services or not.

In addition, the mere existence of a transfer pricing study is not sufficient to shift the burden of proof to the Assessing Officer. If the study does not support the company’s actual activity, the burden of proof remains with the company. Therefore, it is essential to carefully examine both the study and its implementation to ensure consistency between them.

Nimrod Yaron & Co., Israeli and International Taxation – specializes in transfer pricing and provides clients with comprehensive assistance on the matter – from the planning stage of the intercompany arrangement to supporting accountants in its practical implementation.
To contact a representative from our firm, click here.

FAQ

Should the parent company's stock option allocation costs for the subsidiary's employees be included in the cost base for transfer pricing purposes?

Relocation from Israel to Belgium

Adam Zur — Thu, 06 Nov 2025 13:03:06 +0000

In recent years, Belgium has become an increasingly popular destination for Israelis considering relocation, whether for employment, investment, studies, retirement, or improved quality of life. Advantages such as a good quality of life with strong social support, great schools and healthcare, and a diverse community where many people speak English well, attract many Israelis.

However, relocating to Belgium requires thorough planning and a comprehensive understanding of the legal, financial, and tax implications associated with the move. This article outlines the key considerations to address before making the move.

The 5-Step process for relocating from Israel to Belgium

Assess employment opportunities and living costs.
Consider terminating Israeli tax residency, taking into account matters such as exit tax.
Obtain an appropriate visa or residency.
Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to Belgium.

Key Considerations When Relocating from Israel to Belgium

The relocation process consists of several essential steps.

First, a thorough review of employment opportunities in Belgium, cost of living, the local tax system, educational options for children, available healthcare services, and other important factors.

Second, consider whether you wish to terminate your Israeli tax residency and the numerous implications that come with it. It is important to plan how you will manage your finances and assets, as well as arrange for private health insurance. If you move to Belgium and live there legally, you must sign up for the country’s public health insurance system. Once you are registered as a legal resident, you choose a health insurance fund (called a mutuelle). You then pay regular contributions, and in return, the fund pays back part of your medical expenses, like doctor visits or hospital care.

In addition, you must arrange your legal status in Belgium obtaining a work permit, green card, residency, citizenship or visa.

In this regard, one of the main challenges in relocating to Belgium is obtaining the appropriate residence visa. Each visa type has different requirements, age, education, income, minimum investment, employment contract, health insurance, and more. It is essential to select the visa that best suits your circumstances and to arrange it in advance.

Tax Aspects of Relocation to Belgium

When moving to a foreign country, the question of post-move tax obligations in Israel arises. The answer usually depends on whether you have terminated your Israeli tax residency on not.

Termination of Tax Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel.

If you intend to settle in Belgium for the long term, it may be preferable to sever your residency from Israel (for both income tax and National Insurance purposes). Note that Israelis who sever their residency are required to pay an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on a the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

The center of life test – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include permanent place of residence, place of economic activity, location of economic interests, and more.
Days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to Belgium, and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset.

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold.

To view the draft bill, click here.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating the tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the exit day. Note that some assets, such as real estate, may be exempt from this tax.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

How will Terminating Tax Residency Affect Income Taxation?

If the move to Belgium is temporary, you remain an Israeli tax resident and cannot terminate your residency status. This means you are liable for Israeli tax on your worldwide income and must report all income, including income earned in Belgium, to the ITA.

If tax residency is not terminated, you may still be able to claim a tax credit in Israel for taxes paid in Belgium.

If the move to Belgium is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in Belgium.

For more information on the termination of residency, click here.

Double Taxation Treaty between Israel and Belgium

Israel and Belgium have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person is taxed twice on the same income. It defines how residency is determined in dual residency cases and sets withholding tax rates for dividends, interest, and royalties. The treaty also outlines how employment income is taxed between the two countries.

The treaty allows Belgium, in certain cases, to tax salaries earned by Israeli residents who work from the country. If an individual spends more than 183 days in the country, or has a permanent base for their operations, they will be taxed in Belgium. Israel can provide tax credits for taxes paid in Belgium.

If a person is resident under the laws of both States, determine in this order:

Permanent home.
Centre of vital interests (closest personal/economic ties).
Habitual abode.
Nationality.

To view the Double Taxation Treaty between Israel and Belgium in English, click here.

National Insurance

An Israeli resident staying abroad is required to pay reduced National Insurance (Bituach Leumi) contributions, but if tax residency is terminated, there is no obligation to pay National Insurance, and you are not entitled to health or social security benefits in Israel.

The original social security agreement between Israel and Belgium was signed in 1973. In 2022, Israel and Belgium signed an amended agreement, which went into effect from June 1, 2017.

The agreement coordinates the two countries’ social security systems and allows individuals who have contributed in both to more easily claim pensions, retirement benefits, and other entitlements.

Tax System in Belgium

Tax Residency

You are regarded as a Belgian tax resident if Belgium is your primary place of residence (domicile). If you do not maintain a formal home in Belgium, you may still be considered a resident if your main economic interests are located there. Individuals registered in the population register of a Belgian commune are generally treated as residents. For married couples and legal cohabitants, tax residency is determined by the location of the family home.

Income Tax

The income tax in Belgium is divided into the following tax brackets.

Up to EUR 16,320 – 25%
From EUR 16,320 to EUR 28,800 – 40%
From EUR 28,800 to EUR 49,840 – 45%
Over EUR 49,840 – 50%

Corporate Tax

Corporate income tax in Belgium is 25%.

Capital Gains Tax

The capital gains tax rate in Belgium depends on the type of gain. Most capital gains that individuals realize are exempt from taxation. Capital gain will be taxed at the income tax rate and up 30% if the gains are from the individual’s regular course of speculative transactions. gains realized from the individual’s professional activity are taxed at 30%-60%. Corporate capital gains are taxed at 25%.

Inheritance/Estate Tax

Belgium imposes an inheritance tax payable by the heirs. The tax rates vary by region, but the family home often gets special exemptions. A surviving spouse or legal partner usually pays no tax on the family home, and in Flanders, this also applies to partners who lived together for more than three years. Belgian property left by non-residents is taxed according to its gross value at standard inheritance tax rates.

Gifts made through a notary are taxed, while small manual or indirect gifts are not. Gift tax rates are rather low. If a gift was made within the five years before the death and wasn’t taxed, it is added back to the inheritance.

Transferring Funds from Israel to Belgium

You should review the different options for transferring funds abroad, such as bank transfers and international credit cards. Each option has its own advantages and disadvantages regarding fees, transfer times, exchange rates, amount limits, and regulations. Pay close attention to reporting requirements for authorities and banks, in accordance with anti‑money‑laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in Belgium in advance.

According to Section 170(a) of the Ordinance, when a payment from Israel to a foreign resident constitutes taxable income, withholding tax applies. Therefore, transfers of funds that do not constitute taxable income may not be subject to tax but could still require prior approval from the ITA.

For more information, see the article “Transferring Funds from Israel Abroad.”

Opening a Bank Account in Belgium

To open a bank account in Belgium, you generally need a valid ID (passport or Belgian ID card) and proof of address. Additional documents, like a rental contract or proof of employment, may also be required. The exact requirements can vary depending on the bank.

Returning to Israel

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to Belgium offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in Belgium.

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination. For an initial consultation, click here.