In brief
A company incorporated in Israel remains an Israeli resident under section 1 of the Income Tax Ordinance even after its owner moves abroad, but the new country may treat it as resident or claim it has a permanent establishment there if it is managed from there. At the same time, a foreign company that its owners manage from Israel may be considered an Israeli resident. A dividend from an Israeli company to a non-resident shareholder is subject to 25% withholding, or 30% for a substantial shareholder, subject to the treaty, and salary for work performed abroad is not income from Israel. Anyone closing a business files closure requests with the authorities, and an inactive company can be wound up in an expedited procedure.
Key takeaways
- 1A company incorporated in Israel is an Israeli resident under the incorporation test, regardless of where its owners live (section 1(b)(1) of the Ordinance).
- 2A foreign company “whose business is controlled and managed in Israel” is an Israeli resident, with an exception for new immigrants and veteran returning residents in their first ten years.
- 3Section 100A applies to every “person”, and the Ordinance defines a person as including a company: a company that ceases to be an Israeli resident is also deemed to have sold its assets the day before.
- 4Dividend from an Israeli company to a non-resident: 25% as a rule, or 30% for a substantial shareholder (10% or more), before any reduction under a treaty.
- 5Salary for work performed abroad is not income derived in Israel (section 4A(a)(4)), but the new country may tax it and treat the company as having a permanent establishment.
- 6A company must maintain a registered office in Israel (section 123 of the Companies Law), and a business owner who stops trading files a request to close the VAT file (Form 18).
Many Israelis move abroad while they have an active Ltd company, a business registered as a licensed dealer (osek murshe) for VAT, or shares in a family company. The move changes the owners' residency, but not necessarily the company's, and sometimes creates a new problem in the destination country. This guide answers the questions that come up before leaving: where the company is resident, how to take money out of it, what happens to the employees in Israel, and when it is better to close it.
We have written about the personal side of ending residency, the presumptions and the individual's exit tax in a separate guide on ending Israeli tax residency on relocation. On an Israeli investor holding a foreign company, see Tax for an Israeli investor in a foreign project company.
Does the Israeli company remain an Israeli resident after the owners move abroad?
Yes, under Israeli law. Section 1 of the Income Tax Ordinance provides that a body of persons is an Israeli resident if it meets one of two tests: it was incorporated in Israel, or its business is controlled and managed in Israel. An Ltd company registered with the Registrar of Companies meets the first test, so it remains an Israeli resident even if all its shareholders and directors live abroad.
The problem may come from the other side. If the owners manage the company from the new country, the law there may treat it as a resident company or as a company with a permanent establishment. In a case of dual residency, the tax treaty between Israel and that country, if there is one, decides. According to PwC, Israel has adopted the amendments of the Multilateral Instrument (MLI), which generally apply when the other country has also ratified them and neither has made a reservation, so the tie-breaker rule for companies has to be checked separately in each treaty.
When does a foreign company you set up become an Israeli company?
When its business is controlled and managed in Israel. This is the second test of section 1, and it also applies to a company duly incorporated abroad. According to PwC, neither the law nor the courts have defined the term, and each case is examined on its facts. Anyone who sets up a company in the new country before the move and manages it from Tel Aviv in the first months is exposed to a claim that the company is Israeli during that period.
The Ordinance provides an exception: a company that is controlled and managed in Israel by an individual who became an Israeli resident for the first time or a veteran returning resident, where ten years have not yet passed since then, is not considered an Israeli resident merely because of that. The exception is relevant to those returning to Israel, not to those leaving it.
The control and management test looks at where the important business decisions are made. The owner of a foreign company who spends a considerable part of the year in Israel and decides from there on contracts, financing and investments may move the place of management to Israel without meaning to. Documented board meetings in the company's country and a local manager with real powers are part of the planning.
When does exit tax apply to a company or a business?
Section 100A applies to “an asset of a person who is an Israeli resident and has ceased to be an Israeli resident”, and the Ordinance defines “person” as including a company and a body of persons. A company that ceases to be an Israeli resident is therefore deemed to have sold its assets on the day before, and payment of the tax can be deferred until the actual sale, as with an individual. Since a company incorporated in Israel remains resident under the incorporation test, the question arises mainly for a foreign company that was managed from Israel and whose management moves abroad.
| The situation | Residency under Israeli law | What to check |
|---|---|---|
| Israeli Ltd company, the owners moved abroad | Remains an Israeli resident (incorporation test) | Whether the new country treats it as resident or as a permanent establishment, and what the treaty provides |
| Foreign company managed from Israel, with management moving abroad with the owners | May cease to be an Israeli resident | Exit tax under section 100A on the company's assets, and the exact date of the move |
| Foreign company set up before the move and managed from Israel until the flight | May be considered an Israeli resident during that period | Documenting where decisions are made from day one |
| Licensed dealer (sole proprietor's business) | The business belongs to the individual, so the individual's rules apply to it | Personal exit tax on the business assets, and continued tax in Israel on activity that remains here |
| Shares in an Israeli company held by someone who moved | The shares are the individual's asset | The individual's exit tax on the shares, with the option of deferral until sale |
How do you take money out of the Israeli company after the move?
There are three main ways, and each has a different result in Israel and in the new country. The key distinction is where the work is performed and who pays.
| Type of payment | Tax in Israel for an owner who is a non-resident | Notes |
|---|---|---|
| Salary for work performed abroad | Under section 4A(a)(4), employment income is derived where the work is performed, so it is not income from Israel | The new country taxes the salary. For the company not to withhold tax in Israel, approval from the assessing officer is usually required |
| Salary for working days in Israel | Income derived in Israel | On long visits to Israel the salary must be split according to working days |
| Dividend | 25% as a rule, or 30% for a substantial shareholder (10% or more), withheld at source | A tax treaty may reduce the rate; the new country taxes the dividend under its own law |
Before leaving, it is worth checking with an accountant whether to distribute the profits accumulated in the company before cessation, after it, or not at all. The considerations include the dividend tax in Israel, the tax in the new country, the treaty rate and the special tax regimes for new residents in the destination country, which in some countries exempt or ease the tax on foreign dividends for a limited period.
What is a permanent establishment in the new country, and why is it dangerous for the Israeli company?
A permanent establishment is a business presence in a country that allows it to tax the profits of a foreign company attributable to that presence. When the company owner lives in the new country, works from there, signs contracts there on behalf of the Israeli company or manages clients from there, the tax authorities there may claim that the Israeli company has a permanent establishment with them, and demand returns and corporate tax on part of the profit.
- Check the treaty. The definition of a permanent establishment and of a “dependent agent” is set in the treaty, and in a country without a treaty, such as Cyprus, by local law only.
- Consider a local entity. A subsidiary or a private company in the new country that provides services to the Israeli company under an agreement, at market price, separates the activities. See A comparison of 8 countries for opening a company abroad.
- Define signing authority. Who signs contracts on behalf of the Israeli company, and where.
- Document. An employment or services contract, timesheets and the place where the work is performed.
Each country on the site also has a guide for an Israeli company operating there, for example An Israeli company doing business in Portugal, in Greece and in Cyprus.
What happens to the employees who stay in Israel?
The company remains their employer, and its obligations as an employer do not change because the owner has moved: withholding tax at source, National Insurance contributions, pension contributions, payslips and ongoing reporting. What changes is the ability to carry them out remotely.
- Registered office. Under section 123 of the Companies Law, the company must maintain a registered office in Israel to which notices can be sent, and notify the Registrar of any change within 14 days.
- Authorised signatory and bank. Appoint a manager or authorised signatory in Israel, or a proper power of attorney, so that the bank and the authorities can deal with someone here.
- Bookkeeping and payroll. An accountant and a payroll office that continue to report to the Israel Tax Authority and to National Insurance.
- Annual reports. The company continues to file an annual return with the Israel Tax Authority, and reports to the Registrar of Companies.
Close the company or keep it?
There is no single answer. An active company with clients and employees in Israel usually stays. A company that was a vehicle for the owner's personal work, all of whose activity is moving abroad, sometimes becomes a burden: reporting in two countries, the risk of a permanent establishment and running costs.
| The option | When it fits | What it involves |
|---|---|---|
| Keep it active | There are clients, employees or assets in Israel | Remote management, an authorised signatory in Israel, a permanent establishment check in the new country |
| Keep it dormant | There is no activity but there is an asset, goodwill or a reason to keep the company | Ongoing reporting and fees even though there is no income |
| Voluntary liquidation | The company is solvent and you want to end it | A general meeting resolution, a solvency affidavit, appointment of a liquidator, notice to creditors and to the Registrar (Part Eight A of the Companies Law) |
| Voluntary liquidation in an expedited procedure | The company meets the conditions of an “inactive company” under the law | A shortened procedure under Chapter Four of Part Eight A of the Companies Law |
| Transferring the activity to a foreign company | The entire activity is moving abroad | Checking the tax on transferring assets and goodwill, and the new holding structure |
When a company is wound up and distributes the balance to its shareholders, there is a tax consequence in Israel and in the new country. The timing of the liquidation relative to the owner's date of cessation can change the result, so it is decided before leaving, not after.
You have a business as a licensed or exempt dealer: what do you do with the files?
A business owner who stops trading in Israel files a request to close the VAT file, on Form 18, with the regional VAT office where they are registered. According to the Israel Tax Authority's service page, the request states the date on which activity ceased and lists equipment, assets and inventory that remain unsold. An exempt dealer (osek patur) can also request closure in their annual declaration. In parallel, you close the income tax file and notify National Insurance that you have ceased to be self-employed.
Anyone who continues to provide services to Israeli clients from the new country should check two things before closing: how the new country views the activity (business registration, local VAT and social insurance), and whether any activity remains in Israel that requires continued registration here.
What is the order of steps before the move?
- Mapping: a list of the companies, holdings, businesses, contracts, employees and assets in Israel and abroad.
- A decision on each company: keep it active, keep it dormant, liquidate it or transfer the activity.
- Checking the company's residency: who will manage it after the move and from where, and what the treaty with the destination country provides.
- Checking for a permanent establishment: whether your work from the new country may create a taxable presence there for the Israeli company.
- Planning payments: salary, dividends or service fees, and when to distribute accumulated profits.
- Exit tax: the value of the shares and assets on the date of cessation, and a decision on paying or deferring.
- Operations in Israel: a registered office, an authorised signatory, an accountant and a payroll office.
- Agreements: a services agreement between the Israeli company and a company or sole proprietor in the new country, and updating the shareholders' agreement where there are partners.
- Closures: if you decide to close, start the liquidation procedure or the closing of the files before the owner leaves.
This guide is general information correct as of November 2026; every structure should be checked with an accountant in Israel and a tax adviser in the destination country before the move.
More on relocation: Ending Israeli tax residency · The legal checklist for families
Frequently asked questions
If I move abroad, does my Israeli company become a foreign company?
Not under Israeli law. A company incorporated in Israel is an Israeli resident under section 1 of the Ordinance, regardless of where its owners live. The new country may nevertheless treat it as resident or as a company with a permanent establishment if it is managed from there, and then the treaty decides.
Can you manage an Israeli company from abroad?
Yes. The law does not require shareholders to live in Israel, but the company must maintain a registered office in Israel under section 123 of the Companies Law. In practice you also need an authorised signatory, an accountant and a payroll office operating in Israel.
How much tax is withheld in Israel from a dividend to a shareholder who has moved abroad?
25% as a rule, or 30% for a substantial shareholder holding 10% or more. A tax treaty between Israel and the new country may reduce the rate, usually on presentation of a residency certificate. The new country taxes the dividend under its own law and gives a credit under the treaty or local law.
If the Israeli company pays me a salary while I live abroad, will I pay tax in Israel?
For work performed abroad, as a rule no, because under section 4A of the Ordinance employment income is derived where the work is performed. Working days in Israel remain income from Israel. The new country taxes the salary, and it is advisable to obtain approval from the assessing officer so that the company does not withhold tax in Israel.
What is a permanent establishment, and why does it concern an Israeli company?
A permanent establishment is a business presence in a country that allows it to tax the profits attributable to that presence. A company owner who works and signs contracts on behalf of the Israeli company from the new country may create a permanent establishment for the company there, with a reporting duty and local tax.
Does exit tax apply to my company?
Section 100A also applies to a company that ceases to be an Israeli resident. A company incorporated in Israel usually does not cease to be resident under Israeli law, so the question arises mainly for a foreign company that was managed from Israel. Your shares in the company, on the other hand, are subject to your personal exit tax.
How do you close a licensed dealer business before moving abroad?
You file a request to close the business for VAT on Form 18 with the regional office, stating the date activity ceased and listing the equipment, assets and inventory that remain. In parallel, you close the income tax file and notify National Insurance that you have ceased to be self-employed.
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- Income Tax Ordinance [New Version], consolidated text: sections 1, 4A, 100A, 125B, 170
- Companies Law, 5759-1999, consolidated text: section 123 and Part Eight A (voluntary liquidation)
- Israel Tax Authority: Request to close a business for VAT (Form 18)
- PwC Worldwide Tax Summaries: Israel, Corporate, Corporate residence (checked 29 June 2026)
- PwC Worldwide Tax Summaries: Israel, Corporate, Withholding taxes (checked 29 June 2026)
- PwC Worldwide Tax Summaries: Israel, Corporate, Income determination
- PwC Worldwide Tax Summaries: Israel, Individual, Residence
