Legal Update: Tax - August 2016

By Anat Shavit | Aug 2016 | Legal Update

We write to inform you that the Israeli Tax Authority (the “ITA”) has recently published a draft circular (“Draft Circular”) on the tax treatment of holdback payments and reverse vesting mechanism in the context of merger and acquisition transactions.

According to the Draft Circular, subject to certain conditions as will detail below, the sale of shares to which holdback payments and reverse vesting mechanisms apply would be subject to a capital gains tax rate of 25% (30% in case of controlling shareholders). This is in contrast to the ITA’s previous position which attributed consideration for continued employment of founders and key employees as employment income taxable at a marginal rate (up to 50%).

Please find a summary of the conditions set out in the Draft Circular in this downloadable PDF document.