- Israel is considering a capital-gains-tax exemption to keep high-tech founders and investors from relocating or incorporating startups abroad.
- The proposal would offer full relief after five years, with fifty percent after three years and seventy-five percent after four.
- Eligible gains could reach forty-five million shekels or ten times the original investment; the proposal is not law.
Israel’s Finance Ministry is weighing a capital-gains-tax exemption for high-tech founders, investors and possibly employees, modeled on the U.S. Qualified Small Business Stock rules. The measure remains a proposal, not enacted law.
The ministry is considering the incentive as a way to discourage entrepreneurs from relocating to the United States or incorporating startups there. The goal is to retain technology founders and investors in Israel.
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Israeli tax residents generally remain liable for Israeli capital-gains tax even when they establish or incorporate a company in the United States. The reported tax burden is 25%–30%, so U.S. treatment alone may not remove an Israeli tax bill.
The U.S. framework offers a comparison. Qualifying shareholders who hold stock for five years may receive a full federal capital-gains exemption of up to $15 million or 10 times their initial investment, whichever is higher.
The U.S. benefit expanded in July 2025 to include partial relief for shorter holding periods. It provides 50% after three years and 75% after four years, with full relief after five years.
The Israeli proposal would scale relief with the holding period
The Israeli framework under discussion also ties the exemption to how long shareholders hold their shares. Its proposed schedule is:
| Holding period | Proposed exemption |
|---|---|
| Three years | 50% |
| Four years | 75% |
| Five years | 100% |
The eligible gain would reach approximately NIS 45 million or 10 times the original investment, whichever is higher. The figures remain part of a proposal under consideration.
Eligibility may turn on whether a person owns shares rather than options. The framework is expected to focus on actual equity ownership, which could leave unexercised employee options outside its scope. Employees are among the groups that could be covered, but the proposal’s share-based approach would shape who qualifies.
The ministry is also discussing a company-asset threshold modeled on the U.S. QSBS limit of $75 million. That possible ceiling is separate from the proposed limit on eligible gains.
The Israeli incentive is meant to support local ownership and investment in technology companies, while reducing the tax advantage of moving to the United States. The proposal also seeks to discourage founders from incorporating startups abroad.
Other draft incentives still depend on legislation
The tax discussions include separate draft incentives for investment funds and foreign investors. Those measures also remain contingent on enabling legislation.
The Finance Ministry has not enacted the proposed founder exemption. Its possible holding periods, gain cap and company-asset threshold remain under consideration.
