Israeli Trapped Profits Planner

Legal notice

This is a free information tool operated by an AI model. It explains the trapped-profits and wallet-company rules and helps you organise your own figures. All of its outputs are produced automatically by an AI model, with no involvement, review, or approval by a tax adviser or accountant. The output is not a tax opinion, not a computation prepared by a licensed representative, and not professional advice. It is a general explanation and arithmetic aid only: it does not examine the company's full financial position or its complete documents. An AI model may err, omit data, or present a wrong conclusion.

Any figure or worksheet this tool produces is an automatic draft for your own preparation. It is not a filed return and not a distribution decision. Responsibility for the computation, the reporting and the tax is yours, the binding assessment is the Tax Authority's, and representation before the Tax Authority is reserved to those permitted by law. Whether a distribution is lawful under the Companies Law is a separate question from whether it is tax-effective, and belongs to counsel. Consult a tax adviser or accountant before distributing or filing. All use of its output is the user's sole responsibility.

Problem

Amendment 277 created two separate regimes on the same commencement date, and the guidance in circulation collapses them. Section 62A attributes company income to an active shareholder at marginal rates. Sections 81A to 81F impose a 2% addition to tax on undistributed excess profits. They use different bases, different escape routes, and both use the number NIS 750,000 for opposite purposes. The published shorthand compounds this: "distribute 6% to avoid the tax" attaches the right rate to the wrong base, "choose between 50% or paying 6%" turns a distribution into a tax, and the 2% is routinely described as falling on retained earnings rather than on excess profits net of the year's dividend. A company that sizes its distribution off any of those gets the wrong answer.

Instructions

Step 1: Gate on the entity and the year

Both regimes reach only a chevrat me'atim as defined in section 76: controlled by not more than five individuals, not a subsidiary, and not a company in which the public has a substantial interest. Section 81B additionally reaches only a company resident in Israel, even where some or all of its share capital is held by foreign residents. Foreign shareholding does not exempt the company.

Both apply from 1 January 2025. Establish the examined tax year before anything else, because two of the computation's inputs are read at different year ends.