Israel Tax Authority Proposes Higher Dividend Payouts and Property Tax

By מנדי הניג

Translated & summarized from Mako by baba

CenterNeutral tone

Hebrew · 2 newsrooms covering

Israel's Tax Authority is proposing to increase the mandatory dividend distribution rate for closely held companies from 6% to 8% and to reinstate a 1.5% annual property tax on vacant land. These measures, aimed at boosting state revenue, would affect business owners and landowners. The proposals are part of budget considerations for 2027-2028 and still require legislative approval, facing potential opposition.

The story in 5 lines · by baba

Israel's Tax Authority proposes increasing mandatory dividend payouts from 6% to 8% for closely held companies.
A 1.5% annual property tax on vacant land is also proposed, which has been at zero since 2000.
These measures aim to increase state revenue without raising VAT or income tax.
The proposals target business owners with accumulated profits and landowners holding vacant plots.
Both measures require future government and Knesset approval and face potential opposition.

Israel Tax Authority Proposes Higher Dividend Payouts and Property Tax — Editorial illustration generated by baba News, not a photograph of the event.

Israel's Tax Authority is considering two new measures for the 2027-2028 budget cycle that could significantly impact business owners and landowners. The proposals, presented by Tax Authority Director Shai Aharonovich, aim to increase revenue without raising VAT or income tax, particularly as defense spending is expected to remain high.

The first proposal involves raising the mandatory dividend distribution rate for profits accumulated in closely held companies from 6% to 8% annually. This measure targets small companies with up to five shareholders that have accumulated over 750,000 shekels in profits, often used by professionals, executives, and family businesses to defer higher personal income tax rates. Currently, these companies can either distribute 5% or 6% of accumulated profits as dividends or pay a 2% tax on undistributed profits. The proposed increase to 8% would mean an additional 60,000 shekels in tax for a company with 10 million shekels in accumulated profits, assuming a 30% dividend tax rate.

The second proposal is to reinstate a property tax on vacant land, which has been at zero since 2000. The proposed tax would be 1.5% of the land's value annually, with exemptions for land valued below 60,000 shekels per dunam and a total cap per taxpayer. This measure is intended to incentivize construction or sale of land rather than holding it for appreciation. The Ministry of Finance estimates that private individuals hold approximately 300 billion shekels in land, and companies hold 500 billion shekels, with the top 1% owning a quarter of vacant land. This could result in significant annual taxes for large landowners, such as 30,000 shekels for a 2 million shekel plot or 15 million shekels for a real estate company holding a billion shekel inventory.

Both proposals are still in their early stages and require government and Knesset approval, likely as part of a future Arrangements Law. They face potential opposition from professional organizations, contractors, and lawmakers. The Tax Authority indicated it would review the impact of the dividend distribution changes on growth in 2027, suggesting possible adjustments.

The coverage