The Ministry of Finance and the business sector reached an agreement on the taxation of undistributed dividends

The Ministry of Finance and the presidium of the business sector reached an agreement on the taxation procedure for the undistributed profits of “wallet firms,” one of the key paragraphs of the 2025 state budget, which should bring 10 billion shekels to the state treasury.

While an employee’s salary is taxed at up to 50%, in some cases employees can set themselves up as a limited company and pay income tax at 23%, and only after paying themselves dividends (replacing their salary) pay extra tax on dividends.

As a rule, this applies to entrepreneurs in the service sector, especially representatives of liberal professions such as lawyers, auditors, consultants, etc.

Every year, the state budget loses billions of shekels in taxes on undistributed dividends.

After intense negotiations, the parties came to the following agreement:

Wallet companies will be taxed at 2% on undistributed dividends, but may receive tax relief in a tax year in which they distribute at least 6% of undistributed dividends.

Large law and accounting firms, which are legally partnerships, will be required to distribute 55% of profits, and will be able to retain 45% as retained profits, subject only to corporation tax at 23%.

According to the Ministry of Finance, these agreements will allow collecting more than 9 billion shekels out of the planned 10 billion.