Israel prepares a tax revolution: who could save millions
Israel's Finance Ministry is studying the adoption of the American QSBS model, which could exempt entrepreneurs and investors from capital gains tax on the sale of startup shares up to $15 million. The benefit will be phased in: 50% after three years of holding shares, 75% after four, and 100% after five. The goal is to stop the outflow of entrepreneurs abroad. At the same time, a tax increase on options for high-tech employees from 25% to 30% is being discussed.
Israel's Ministry of Finance is considering a major tax reform based on the American QSBS model. It proposes fully exempting entrepreneurs, investors, and employees who have held startup shares for at least five years from capital gains tax on up to $15 million (about 46 million shekels) or up to ten times the initial investment amount. The benefit will be phased in: 50% after three years of holding, 75% after four, and 100% after five. Companies will be subject to asset size limits, based on the American threshold of $75 million. The main goal of the initiative is to stop the outflow of Israeli entrepreneurs and technology companies abroad, especially amid security instability and political uncertainty. At the same time, the Tax Authority has proposed raising the tax rate on income from stock options from 25% to 30% or limiting the maximum payout amount. Thus, startup founders and investors may gain additional advantages, while some employees will face an increased tax burden.