Quick Answer: When selling an Israeli company, you choose between a share sale (transferring ownership of the shares) and an asset sale (transferring the underlying business assets). Share sales are generally simpler for foreign sellers and carry a 25% capital gains tax rate under Section 91 of the Income Tax Ordinance. Asset sales trigger VAT and depreciation recapture but give the buyer a stepped-up tax basis and cleaner liability position. Both structures require board and shareholder approval under the Companies Law 1999 and may require Israel Competition Authority clearance before closing.

Foreign entrepreneurs and investors who built or acquired an Israeli company will eventually face the exit question: how do you actually sell it? Unlike real estate, where the mechanics are familiar, a corporate exit touches Israeli tax law, company law requirements, labor rules, and regulatory approvals that catch many sellers off guard. Which structure you pick — share sale or asset sale — determines your after-tax return, the buyer's liability exposure, and what happens to employees. Getting this right before the term sheet is signed matters far more than trying to restructure once the LOI is executed.

This guide is written from the seller's perspective. If you are the buyer, see our companion guide on Acquiring an Israeli Company.

1. Two Exit Structures: Share Sale vs. Asset Sale

Every sale of an Israeli business takes one of two legal forms. The choice has profound tax, liability, and operational consequences for both sides.

Share Sale (*Mechirat Menioth*)

In a share sale, the buyer purchases the shares directly from the shareholders. The company does not change: it keeps operating with the same contracts, employees, licenses, and liabilities. Only the ownership changes. From the Israeli company's perspective, nothing happened at the entity level; the share register simply shows new shareholders.

  • Sellers pay capital gains tax on the gain from the sale of shares (see Section 2 below)
  • No VAT on the share transfer (shares are exempt financial instruments)
  • The buyer inherits all historical liabilities — known and unknown
  • Contracts, permits, and licenses automatically continue without assignment
  • Employment relationships are undisturbed — employees keep seniority

Asset Sale (*Mechirat Neches*)

In an asset sale, the company sells its business assets to the buyer. Those assets might include equipment, IP, customer contracts, inventory, and goodwill — but the selling entity remains in existence and the seller continues to own the now-empty shell. The seller must then distribute the proceeds and wind down the shell company if it is no longer needed.

  • The seller company pays corporate tax (23%) on gains from each asset sold
  • Depreciation recapture on assets that were written down below their original cost
  • VAT at 17% may apply to individual assets unless the deal qualifies as a "business transfer" under Section 22 of the VAT Law 5736-1975
  • The buyer gets a stepped-up tax basis in each acquired asset
  • Contracts must be individually assigned with counterparty consent
  • Employees must be offered employment by the buyer; those who refuse may claim severance

Foreign sellers generally push for a share sale: simpler, cleaner, and usually more tax-efficient. Buyers often push back for an asset sale because it limits exposure to the target's history. Where you end up depends on how hard each side negotiates and how much one party needs the deal more than the other.

2. Capital Gains Tax on a Share Sale

Capital gains tax (*mas revach hon*) under the Income Tax Ordinance 5721-1961 is usually the biggest number on the seller's ledger. The rate and calculation differ depending on whether the seller is an individual or a corporation.

Individual Sellers

Under Section 91(b) of the Income Tax Ordinance, an individual who sells shares in a private Israeli company pays:

  • 25% on the real capital gain (after inflation indexing under Sections 93–94)
  • 30% for "substantial shareholders" — anyone who held 10% or more of the shares at any point in the 12 months before the sale, or whose total taxable income in the year of sale exceeds approximately NIS 721,560 (the 2026 surtax threshold, indexed annually)

The gain is calculated as the sale price minus the original cost (*murchav haknia*) adjusted for inflation using the CPI index from the date of acquisition to the date of sale. Shares acquired before January 1, 2003 are subject to blended rate calculations under Section 91(e).

In Practice: Under Section 93 of the Income Tax Ordinance, the real gain is separated from the inflationary gain. Only the real gain is taxed. The inflationary component — the gain attributable purely to the rise in the CPI between acquisition and sale — is exempt. For sellers who acquired shares many years ago in a high-inflation period, this exemption can be significant. The seller's Israeli accountant must file a capital gains report (diuch revach hon) with the Israel Tax Authority (ITA) within 30 days of the transaction. The ITA Withholding Tax Department (Unit 922) will issue a tax withholding exemption certificate if the seller's accountant files the report in advance of closing; without it, the buyer is required by Regulation 236 to withhold 25% of the gross proceeds and transfer it directly to the ITA on the seller's behalf.

Corporate Sellers

An Israeli company selling its subsidiary's shares is taxed at the standard corporate rate of 23% on the capital gain. However, foreign corporate sellers may benefit from the participation exemption (*pturim mechubbalut*): under Section 100A(b) and related provisions, certain intragroup sales can be restructured tax-efficiently. More commonly, foreign corporate sellers look to their home country's tax treaty with Israel — Israel has tax treaties with over 60 countries, many of which allocate taxing rights on capital gains from share sales exclusively to the seller's country of residence.

Inflation Indexing and the Tax Treaty Network

If Israel's tax treaty with the seller's country assigns exclusive taxing rights to the seller's home state, the seller files no Israeli capital gains return and the ITA cannot tax the gain. The buyer's attorney must obtain a ruling or a withholding exemption from the ITA before closing to ensure no withholding is applied. Planning this three to four months before signing gives enough time to get a ruling without delaying the deal.

In Practice: Israel's tax treaty with the United States (Article 13 of the US-Israel Treaty) reserves capital gains taxing rights to the state of residence of the seller unless more than 50% of the company's value derives from Israeli real property — the "real property rich company" test under Section 13(2). US-resident sellers of Israeli tech companies, service companies, or IP-holding entities commonly obtain a full capital gains exemption in Israel, paying only US federal capital gains tax. The ITA Withholding Department processes treaty-based exemption requests filed on Form 2513 typically within 30–45 days. File before signing; once the funds change hands without the certificate, recovering withheld tax requires a refund application that takes 12–18 months.

3. Tax Consequences of an Asset Sale

When the company sells its assets rather than the shareholders selling their shares, the company bears the tax at the 23% corporate rate, and those taxes reduce whatever is available to distribute to shareholders afterward.

Depreciation Recapture

Israeli tax law requires recapture of depreciation deductions when depreciable assets are sold above their tax book value. Under Section 8 of the Depreciation Regulations, the difference between the sale price of an asset and its depreciated tax basis is taxed as ordinary income at 23%, not at capital gains rates. For a company that has operated for several years and fully depreciated its equipment, this recapture can represent a large unexpected tax bill at exit.

Goodwill

Goodwill sold in an asset sale is taxed as a capital gain under Section 91 of the Income Tax Ordinance, but at the corporate rate of 23%, not the individual rates that apply to share gains. The seller's accountant must separately value each asset category because the tax treatment differs between them.

VAT on Asset Sales

Under Section 22 of the VAT Law 5736-1975, the sale of a business as a going concern qualifies as a "zero-rated" supply — meaning the seller charges 0% VAT, the buyer pays nothing, and no cash changes hands on account of VAT. To qualify, the sale must transfer substantially all of the business's assets as a functioning unit, not just selected assets. If the transaction does not qualify, each asset is taxed at the standard 17% VAT rate. Because buyers are registered businesses and can recover input VAT, the economic impact on the buyer is limited — but it creates a cash-flow burden and requires VAT registration on the seller's side if the seller is not already registered.

In Practice: The Israel Tax Authority (ITA) VAT Division does not automatically accept that a transaction qualifies as a "going concern" transfer under Section 22. In practice, sellers obtain a pre-transaction ruling from the ITA before closing. The ruling request must detail what is being transferred, confirm that the buyer will continue operating the same business, and demonstrate that all material assets — including IP, contracts, and human resources — are included. The ITA typically responds within 21 working days. Missing this step can expose the seller to a 17% VAT assessment on the entire consideration, plus late-payment interest under Section 95 of the VAT Law, after the transaction closes.

4. Companies Law Requirements: Board and Shareholder Approval

Before either type of sale can close, the Israeli company must comply with internal approval requirements under the Companies Law 5759-1999.

Board Approval

The board of directors must approve the transaction in principle. For a share sale, this is usually a simple majority board resolution. For an asset sale that constitutes a "substantial transaction" under Section 1 of the Companies Law (a transaction that is not in the ordinary course of business and whose value exceeds 20% of the company's assets or turnover), the board must provide an explicit resolution. Directors with personal interests in the transaction must disclose under Section 255 and abstain from the vote.

Shareholder Approval

An asset sale that constitutes a "fundamental transaction" — one that changes the company's principal business or involves selling substantially all of its assets — requires approval by a special majority of shareholders under Sections 341–342 of the Companies Law. A share sale, by contrast, is a private arrangement between the selling shareholders and the buyer; the company itself does not vote on it, though the shareholder register must be updated with the Companies Registrar (*Rasham HaHevrot*).

In Practice: The Companies Registrar (Rasham HaHevrot) requires a Form 50 "Change of Shareholder" filing within 14 days of the share transfer under Section 151 of the Companies Law. The filing includes the transfer instrument, an updated shareholder register, and updated director details if any board changes accompany the sale. Non-filing does not invalidate the transfer but exposes the company and its officers to a NIS 500 per-day penalty under Section 362(d). In deals where a new buyer wants to take immediate control, the Forms 50 and any required director change filings (Form 42) should be prepared in advance and filed on the day of closing.

5. Competition Authority Clearance

Under Section 17 of the Economic Competition Law 5748-1988 (formerly the Restrictive Trade Practices Law), parties to a merger or acquisition must notify the Israel Competition Authority (ICA) and receive clearance before completing the transaction — if they cross the notification thresholds.

Notification Thresholds (2026)

  • The combined Israeli turnover of the parties exceeds NIS 360 million; and
  • At least one of the parties has Israeli turnover above NIS 10 million

Both conditions must be met. A small company being acquired by a large buyer typically triggers the combined threshold even though the target's own turnover may be modest. A share purchase, an asset purchase, and a statutory merger are all treated as "mergers" for ICA purposes under Section 1 of the Economic Competition Law.

ICA Clearance Timeline

  • 30 calendar days: The ICA's standard review period begins when it receives a complete notification
  • 90 additional days: The ICA can extend the review by up to 90 days for complex transactions or those raising competitive concerns
  • Parties cannot close the transaction until they receive ICA clearance or the review period expires without an objection
In Practice: The ICA merger notification form requires financial data for the three preceding fiscal years, a description of the parties' markets in Israel, and an analysis of horizontal and vertical overlaps. Submitting an incomplete notification restarts the 30-day clock. In transactions where closing speed is important, sellers should instruct their accountants to prepare ICA-ready financial summaries early — ideally during due diligence — so the notification can be filed the moment the purchase agreement is signed. For deals clearly below the thresholds, it is advisable to obtain a brief written confirmation from Israeli counsel that no notification is required; this protects both parties if an ICA enforcement officer later questions the deal's structure.

6. Employee Rights When You Sell the Business

How the employees of the Israeli company are treated at exit depends heavily on which deal structure you choose.

Share Sale: No Disruption

In a share sale, the employer — the Israeli company — does not change. The same legal entity continues as the employer, and employees retain all accumulated rights: seniority, accrued vacation, pension entitlements, and severance rights calculated from their original start date. The change of ownership is invisible to the employees from a legal standpoint, though buyers typically include representations in the purchase agreement about the accuracy of employee liability schedules.

Asset Sale: Business Transfer Rules

An asset sale constituting a business transfer triggers the protections under Sections 30–30B of the Severance Pay Law 5723-1963. These rules are Israel's equivalent of the EU Transfer of Undertakings (TUPE) regime:

  • The buyer automatically assumes the employer's obligations to all transferred employees
  • Employees cannot be dismissed merely because of the business transfer
  • Employee seniority and all accumulated rights transfer to the buyer
  • An employee who objects to the transfer and refuses to work for the buyer is entitled to full severance pay as if dismissed — even though no dismissal occurred

The seller must notify each affected employee of the planned transfer before it occurs. Failure to give adequate notice can expose the seller to severance liability even after the assets have transferred to the buyer.

In Practice: In asset-sale transactions, buyers routinely request a clean employee schedule from the seller's HR team that lists each employee's start date, salary, accrued vacation balance, pension fund contributions, and whether any employee is on protected leave (pregnancy, military reserve duty, or within 60 days of birth). Under Section 9 of the Severance Pay Law and the Employment Contract (Notice Period) Law 5761-2001, dismissing an employee during or immediately after a business transfer triggers statutory severance at one month's salary per year of seniority (or up to the pension fund balance, whichever is less). Buyers who fail to verify these numbers before signing have been held by the National Labor Court to be jointly liable with the seller for pre-transfer severance obligations — even when the asset purchase agreement purported to exclude pre-closing employment liabilities.

7. Timeline and Practical Checklist

A standard Israeli company sale from LOI to closing runs three to five months. The pacing depends mostly on how quickly the ITA processes the withholding certificate and whether the ICA needs to review the deal. Key milestones:

  1. Months 1–2: Pre-sale preparation
    • Engage Israeli attorney and accountant for deal structuring advice
    • Choose deal structure (share sale vs. asset sale) and agree LOI with buyer
    • Prepare data room: financial statements, employment schedules, IP registrations, contract list, regulatory approvals
    • File withholding exemption request with ITA if structure qualifies for treaty or participation exemption
    • Obtain pre-transaction VAT ruling from ITA if an asset sale
  2. Month 2–3: Due diligence and negotiation
    • Respond to buyer's due diligence questions
    • Negotiate purchase agreement: reps and warranties, indemnification caps, escrow, earnout
    • If ICA notification required: prepare and file notification
  3. Month 3–5: Regulatory clearance and closing
    • Obtain ICA clearance (30 to 120 days from filing)
    • Obtain ITA withholding certificate
    • Board and shareholder resolutions signed
    • Closing: payment, share transfer instrument signed, Companies Registrar Form 50 filed within 14 days
  4. Post-closing (within 30 days)
    • File capital gains report with ITA
    • File final corporate tax return if the selling company is being wound down
    • Update pension fund and employment records
In Practice: Foreign sellers often underestimate the ITA withholding certificate process. Regulation 236 of the Income Tax Ordinance requires the buyer to withhold 25% of the total consideration and pay it directly to the Israel Tax Authority unless the seller provides a valid exemption certificate before closing. Getting this certificate requires your Israeli accountant to file Form 2513 (for treaty cases) or a capital gains report in advance. The ITA Processing Center (Unit 952) typically reviews these within 21–45 working days, but delays occur. If you do not have the certificate on closing day, the buyer will withhold — and recovering withheld funds from the ITA as a refund can take 12–18 months. Plan accordingly: initiate the process at least three months before your target closing date.