Most businesses in Israel operate as closely held companies, companies controlled by no more than five shareholders. While owners of such companies benefit from Israel’s reduced corporate tax rate of 23%, the Israel Tax Authority views this structure as a form of artificial tax planning, one that circumvents the full tax liability the company should owe the state.
As early as 2016, the Israeli government introduced Amendment 245 to the Income Tax Ordinance, allowing certain income of a wallet company to be classified as employment income - and taxed at significantly higher rates. In 2025, a new amendment was enacted: Amendment 277 to the Income Tax Ordinance. So what exactly is a wallet company? What does the new law include? And how much will you need to pay in taxes? Find all the answers below:
What Is a Wallet Company?
A wallet company is a term used to describe a private limited company (Ltd.) established by a single individual or up to five controlling shareholders (a closely held company), for the purpose of receiving the owner's personal income through the company instead of as an individual, thus avoiding marginal tax rates of up to 47% and the additional surtax in cases of income exceeding the threshold.
In other words, this refers to a situation where the individual is the one actually performing the work, but chooses to receive their income through a company they fully own - effectively benefiting from a reduced corporate tax rate of 23%.
The company typically does not engage in business activity involving employees, branches, or products. Instead, it serves as a “wallet” in which the shareholder stores their income, often without actually withdrawing the funds or paying the applicable tax liability.
What does the new law (Amendment 277 to the Ordinance) actually say?
- 25% of the annual turnover – A company will be eligible to pay corporate tax only on 25% of its annual turnover. For example: a certain closely held company with a turnover of ₪1,000,000 will be required to pay corporate tax only on ₪250,000 (i.e., 25% of its revenue). If the company earned a profit of ₪300,000, the shareholder will pay marginal tax on the additional profit.
If there is more than one shareholder, the additional tax liability is divided between them.
Please note - the profit is taxable income.
- Annual Turnover Cap - Amendment 277 to the Income Tax Ordinance applies only to companies with an annual turnover of up to ₪30 million per shareholder.
For example, if a company has a turnover of ₪25 million, the new law applies. If the turnover is ₪40 million, the new law does not apply. - Single Income Source Restriction - As of 2025, the conditions have tightened. A regular wallet company (a private closely held company) whose income from a single source exceeds 70% is classified as a wallet company.
In other words, if the company has one major client that accounts for over 70% of its income, it will be considered a wallet company. The Israel Tax Authority reviews this based on 22 months out of the last 36 months, meaning all income will be taxed at the shareholder’s marginal rate, with no corporate tax.- If the company employs at least 4 workers (excluding the shareholder and close relatives), the law does not apply.
- Exemptions - Certain company types are excluded from the definition and are not considered closely held companies, such as:
- Technology companies - preferred enterprises, companies operating under the Encouragement of Capital Investments Law
- Passive foreign controlled companies (e.g., rental income from real estate)
- Active foreign professional corporations with management and control in Israel
Trapped Profits - Profits accumulated up to the end of 2024
The new law, Amendment 277 to the Income Tax Ordinance, addresses the present and future of your business, while the issue of trapped profits refers to earnings accumulated but not distributed by the end of 2024.
Our firm, Shtainmetz Aminoach & Co. CPAs, specializes in wallet company taxation as well as in the taxation of trapped profits.
Temporary Provision until November 2025
Solutions are available under the law, such as increasing expenses, reducing excess profits, and other tailored options. As part of the temporary provision, until November 2025, it is possible to transfer assets against previously trapped profits.
This is a one-time benefit, a service that was never available before and likely won’t be again.
הפתרון של שטיינמץ עמינח ושות' למיסוי חברות ארנק
Don’t wait!
The temporary provision from the Israel Tax Authority states that, in light of the heavy tax burdens imposed on the business sector in Israel, the government is allowing assets to be transferred from the company to its shareholders - based on the reduced book value.
For example, if a company purchased a share for ₪100, and in 2025 the share is now worth ₪150 - if the shareholder withdraws it as a dividend, they benefit from the relief. In effect, they now hold a share worth ₪150, while having paid only ₪100 for it.
The shareholder will sell the share in the future, and the state grants them a benefit, since the share was purchased personally in their name.
If they don’t take this step and the share remains under the company’s ownership (which they control), they will be subject to 23% corporate tax plus 35% dividend tax, plus the surtax, resulting in a total tax liability of over 50%.
In the future, tax will be calculated on a linear basis, according to the period the share was held by the company versus the period it was held personally by the shareholder.
Instead of the high tax payment mentioned (over 50% tax liability), you can pay just 25% capital gains tax, plus surtax if your income exceeds the threshold.
Shtainmetz Aminoach’s Expertise in Wallet Company Taxation
At Shtainmetz Aminoach & Co., we advise and support thousands of clients, carefully reviewing each case to determine the most effective tax strategy.
As expert CPAs, we are fully committed to achieving the optimal tax outcome for our clients, always in full compliance with the law and the Income Tax Ordinance.
The benefit applies on multiple levels - first, the controlling shareholder saves the 5% tax due in 2025 (6% in 2026) on trapped profits, and second, gains future tax savings on those profits.
After the benefit expires in November 2025, asset transfers will be considered a sale, subject to both capital gains tax (on real estate) and purchase tax for the shareholder.
Some CPA firms are relatively small, working with only a limited number of clients, primarily licensed dealers and companies.
At our firm, we provide a comprehensive end-to-end solution, CPA and legal expertise combined, guiding you from start to finish. We specialize in submitting applications to the Tax Authority, handling rulings, securing exemptions for companies, and managing all areas of taxation.
At Shtainmetz Aminoach, we're already preparing your 2025 reports today, unlike smaller firms that will tell you, “We’ll deal with the 2025 report in 2026.”
Don’t wait!
Contact us today by filling out the form or calling 077-7700000 to take advantage of this benefit and achieve the optimal tax outcome.
We’ll be happy to assist you!
Frequently Asked Questions - Wallet Company Taxation
A wallet company is a private limited company (Ltd.) established by a single individual or up to five controlling shareholders (a closely held company) for the purpose of receiving personal income through the company.
Instead of receiving the income directly and paying a marginal tax rate of up to 47%, the income is routed through the company and initially taxed at the reduced corporate tax rate of 23%.
In most cases, the company does not engage in substantial business activity.
Amendment 277 tightens the regulations on closely held companies suspected of being wallet companies.
Among other things, it limits the portion of income that can be taxed at the corporate rate to just 25% of the company’s turnover, applies the rules to companies with annual turnover of up to ₪30 million, and imposes marginal tax rates on income derived from a single client that accounts for more than 70% of the company’s revenue.
Amendment 277 applies to companies with an annual turnover of up to ₪30 million per shareholder.
Companies with a turnover exceeding this amount are not subject to the new law.
Trapped profits are earnings that were accumulated within a company but not distributed to shareholders by the end of 2024.
For wallet companies, these profits are particularly relevant, the new law includes temporary relief measures (valid until November 2025) that allow assets to be transferred from the company to shareholders against these trapped profits, often with significant tax advantage.
The temporary provision is valid only until November 2025.
Instead of paying over 50% in taxes (corporate tax, dividend tax, and surtax), the company owner can transfer the asset to themselves based on its original cost, and later pay only capital gains tax (25% + surtax, if applicable) when the asset is sold.
This provides a significant advantage for withdrawing trapped profits.
Yes, both financial assets and real estate assets can be transferred from the company to its owner under this benefit.
Under certain conditions, the transfer may also be exempt from capital gains tax and purchase tax, a significant advantage available only until the end of November 25.
Technology companies, preferred enterprises, companies operating under the Encouragement of Capital Investments Law, or companies with active foreign operations may be exempt from the law.
Each case is evaluated individually based on the nature of the company’s activity and control structure.
Our firm offers creative and legitimate solutions within the framework of the law: early tax planning, mapping of trapped profits, preparing 2025 reports in advance, and full professional support in submitting applications to the Tax Authority - including ruling and special exemptions.
We help you achieve the optimal legal tax outcome.
