Israeli companies accumulating undistributed profits are subject to updated regulations under the Trapped Profits (*Revahim Kluim*) reform.

What Are "Trapped Profits"?

Trapped profits are corporate profits retained within private companies to defer shareholder dividend taxes.

Section 77 of Income Tax Ordinance: Tax Authority Enforcement

Section 77 grants the Tax Authority authority to deem undistributed corporate profits as distributed dividends if profits are retained without legitimate business investment justification, triggering dividend tax enforcement.

Focus on "Wallet Companies" (Section 62a)

Under Section 62a, profits of "wallet companies" derived strictly from personal service provision are taxed directly at individual marginal rates (up to 47%).

How to Manage? Action Strategies for 2026:

Companies can utilize reduced dividend tax tracks (ranging from 23% to 33%), corporate restructuring, or structured reinvestment programs to unlock retained earnings safely.

At Bernstein & Co., we structure corporate dividend distributions and capital retention plans.

Reduced corporate dividend tax rate of 30% under Section 77 tax relief.