US Corporate Tax 2026 and Transferring Profits to Israel: C-Corp vs LLC, State Tax, Dividends under the Treaty and Reporting in Israel

Israelis starting activity in the US almost always ask the same two questions: how much tax will be paid there, and how much will be left when the money reaches Israel. The answer depends on three decisions: the type of entity (a US company, an LLC or a branch of an Israeli company), the state in which you operate, and who holds the entity in Israel, an individual or a company. This guide explains the tax layers in each structure, the relevant articles of the tax treaty and the reporting obligations in both countries. We covered setting up an LLC and its implications in Israel in our LLC guide for Israeli investors, and identification numbers and a bank account in our ITIN, EIN and bank account guide. Here the focus is on business activity and transferring profits.

1How much corporate tax does a US company pay in 2026?

A US company taxed as a corporation (C-Corporation) pays federal corporate tax at a flat rate of 21% on taxable income. This rate is correct for 2026 according to the PwC tax summary, updated in September 2026. On top of that there is state corporate tax, and sometimes also local taxes, according to where the company actually operates.

According to PwC, state corporate tax rates generally range from 1% to 10%, and some states do not levy corporate tax at all. State tax is imposed on the part of income apportioned to the state under an apportionment formula, and not necessarily according to the place of incorporation.

2What is the tax difference between Delaware, Florida and New York?

According to the Delaware and Florida tax authorities, as of November 2026, state corporate tax is 8.7% in Delaware and 5.5% in Florida, and New York applies a base rate of 6.5%, but the tax follows where the business operates, not where it is incorporated. The main difference is between the place of incorporation and the place of activity. A company incorporated in Delaware but operating in Florida will usually pay state income tax in Florida, and in Delaware it will pay the annual incorporation fees. So the decision to “incorporate in Delaware” does not in itself save state tax. A broader comparison between states, from a real estate investor's perspective, is in our guide to choosing a state for investment in the US.

3C-Corp or LLC: what is the tax difference for an Israeli owner?

The difference is in the number of tax layers. A C-Corp has two layers in the US: corporate tax on profit, and withholding when the profit is distributed as a dividend. An LLC that has not elected to be taxed as a corporation is transparent for federal tax: there is no tax at entity level, and the income is attributed to the owners and taxed in their hands. An Israeli-owned LLC also has a classification mismatch between the countries, which may cause double tax if the right route is not chosen in Israel; see our LLC guide for Israeli investors.

4How much tax is withheld in the US on a dividend to an Israeli resident?

Under article 12 of the Israel-US tax treaty, as of November 2026, the US withholds 25% on a dividend to an Israeli-resident individual, and 12.5% to an Israeli company holding 10% or more that meets the conditions of the article. Under US domestic law, a US-source dividend to a non-resident is subject to 30% withholding on the gross amount. Article 12 of the Israel-US tax treaty limits the rate:

• 25% of the gross dividend: the general rate, for example for an individual resident in Israel.
• 12.5% where the recipient is a company, provided that (1) it held at least 10% of the voting shares of the paying company during the part of the tax year preceding the payment and during the whole of the prior tax year, and (2) not more than 25% of the paying company's gross income in the prior year was interest or dividends (subject to exceptions in the article).
• To benefit from the treaty rate, the recipient gives the paying company Form W-8BEN (for an individual) or W-8BEN-E (for an entity), declaring its Israeli residence.

5What is the branch profits tax, and when does it apply to an Israeli company?

The branch profits tax is a 30% tax under section 884 of the US tax code, which the treaty limits to 12.5% for an Israeli-resident company, as of November 2026, and it applies when an Israeli company operates in the US without a subsidiary. When an Israeli company operates in the US directly, through a branch or through a transparent LLC, its US business profit is subject to federal corporate tax. To equalise the position with a subsidiary distributing a dividend, section 884 of the US Internal Revenue Code imposes a 30% branch profits tax on the “dividend equivalent amount”, that is, on profit the branch did not reinvest in the US.

Article 14-A of the treaty, added by protocol, limits the branch profits tax on a company resident in Israel to 12.5%, and the tax on excess interest deducted in the US to 5%. A foreign company engaged in a trade or business in the US files a foreign corporation tax return (Form 1120-F).

6What happens in Israel when the dividend arrives?

According to PwC, as of November 2026, an Israeli-resident individual pays 25% on a dividend from a US company, or 30% as a substantial shareholder, and an Israeli company generally pays 23%, with a credit for the tax withheld in the US. An Israeli resident is taxed on worldwide income, and therefore also on a dividend from a US company. According to PwC's tax summary for Israel (updated in June 2026):

• Individual: a dividend is generally taxed at 25%, or 30% for a substantial shareholder (10% or more). Above annual income of ILS 721,560 (2026), a 3% Israeli surtax applies, and on capital income above the same ceiling a further 2% surtax.
• Israeli company: a dividend from a foreign company is generally taxed in its hands at 23%. In certain circumstances it may elect to be taxed at the corporate tax rate and receive a credit also for the corporate tax paid by the foreign company (indirect credit).
• Credit: the tax withheld in the US is credited up to the amount of Israeli tax on the same income. Under article 26(3) of the treaty, Israel gives a credit for income taxes paid to the US.
• State tax: on the US side the treaty applies only to federal income taxes (article 1). Whether, and to what extent, state tax is recognised as a credit in Israel should be checked with the accountant.

More on the Israeli side, including capital gains on the sale of shares and a foreign company managed from Israel, is in our tax guide for an Israeli investor in a foreign company.

7How much is left for an Israeli owner after all taxes?

Based on the rates as of November 2026 (PwC and the tax treaty), out of a profit of 100 dollars in a US company roughly 55.30 dollars is left for an Israeli individual who is a substantial shareholder, and 60.83 dollars for an Israeli company meeting the treaty conditions, before onward distribution to its shareholders. The following table is an arithmetic illustration only, on a profit of 100 dollars in a US company distributed in full. It ignores state tax, Israeli surtax, exchange rates and tax base adjustments, and assumes the US tax is fully recognised as a credit in Israel. It does not replace an accountant's calculation.

The practical conclusion: when the owner is an individual, the US withholding “eats up” most of the Israeli tax. When the owner is an Israeli company, the US withholding is lower, but later, when the Israeli company distributes the money to its shareholders, a further dividend tax will apply in Israel.

8Could a US company be treated in Israel as a controlled foreign company?

Yes, but only where cumulative conditions are met, so an active US company paying 21% federal corporate tax will usually not be treated as one. The controlled foreign company (CFC) rules under section 75B of the Israeli Income Tax Ordinance tax undistributed profits as if they had been distributed as a dividend. According to PwC, the conditions are cumulative, including: most of the income or profits are passive (interest, dividends, rent, royalties, capital gains), the effective tax rate on the passive income does not exceed 15%, and Israeli residents hold 10% or more of one of the means of control.

An active US company paying federal corporate tax of 21% will usually not meet the tax rate condition. But a holding company or a company with passive income that is not actually taxed at that rate, for example because of carried-forward losses or depreciation, requires an annual check with the accountant in Israel. In addition, a foreign company whose business is controlled and managed from Israel may be treated as resident in Israel.

9Salary or dividend: how should an Israeli director draw money?

There is no single answer. Salary is generally taxed where the work is actually performed. Under article 17 of the treaty, the salary of an Israeli resident, including the salary of an officer of a company, is taxed in Israel, and if the work was performed in the US, the US may also tax it. Salary is a deductible expense in the US company and reduces corporate tax, whereas a dividend is paid out of profit that has already been taxed.

• Working from Israel: when the director works from Israel, the salary paid by the US company is usually Israeli-source income, and in Israel it is taxed at the marginal rates on employment income. Israeli National Insurance should also be checked.
• Presence in the US: the treaty exempts salary from US tax only under cumulative conditions, including presence of less than 183 days in the tax year, and an employer that is not a US resident. Someone working in the US for the US company itself does not benefit from this exemption.
• Work visa: physical work in the US requires an appropriate immigration status. See our legal guide to the US for general background.
• Transfer pricing: salary and management fees between related companies must be on market terms, in both countries.

10Which returns are filed in the US?

1. Company tax return: a C-Corp files an annual federal corporate tax return. A foreign company engaged in a trade or business in the US files Form 1120-F.
2. Form 5472: a US company at least 25% owned by foreigners, and also a US LLC disregarded for tax purposes with a foreign owner, report transactions with related parties. The LLC files it attached to a pro forma Form 1120, by fax or mail only. The penalty for failure to file is 25,000 dollars.
3. Withholding returns: a company distributing a dividend to a non-resident withholds and reports the withholding. A partnership with foreign partners reports the withholding under section 1446 (Forms 8804 and 8805).
4. Treaty-based position disclosure: anyone relying on a treaty to change an outcome under the US Code, for example a claim of having no permanent establishment, files Form 8833.
5. State returns: a state tax return in states where there is activity, and an annual report or franchise tax in the state of incorporation.

11Do beneficial owners (BOI) need to be reported in 2026?

A company incorporated in the US - no; an Israeli company registered to do business in a US state - possibly yes. According to FinCEN's BOI page, updated on 11 August 2026, the final rule came into force on 14 August 2026 and exempts US companies from beneficial ownership reporting under the Corporate Transparency Act (CTA). The obligation remains for entities incorporated outside the US that registered to do business in a US state, unless they have another exemption. In other words, an Israeli company registering a branch in Florida may be required to report, whereas a subsidiary incorporated in Delaware is not.

According to the same page, a foreign entity registered on or after 26 March 2025 files an initial report within 30 calendar days of its registration taking effect. The bank will continue to ask for beneficial owner details as part of know-your-customer checks, regardless of the exemption.

12What should be planned before transferring profits from the US to Israel?

1. Define who will hold the US activity: individuals, an existing Israeli company or a holding company.
2. Choose an entity: a C-Corp for business activity that plans to reinvest profits, a transparent LLC when it suits the classification in Israel, or a branch when there is a commercial reason for it.
3. Check in which states there will be activity, and where state tax liability will arise.
4. Calculate the total burden on both sides, including Israeli surtax and tax on future distribution.
5. Prepare Forms W-8BEN or W-8BEN-E to obtain the treaty rates.
6. Set a deadline calendar: company return, Form 5472, state returns and annual return in Israel.
7. Coordinate between a US accountant and an Israeli accountant before a first distribution.

The information in this guide is general information as of November 2026, and is not tax advice. Every structure requires individual review with accountants in both countries.

More on doing business in the US: Setting up a company in the US · An Israeli company operating in the US · Commercial disputes and litigation in the US · Comparison of 8 countries · All guides for companies and businesses

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