The taxation of employees’ option plans in Israel is generally divided into two regimes. One set of rules applies to plans in which a trustee holds the options. This regime accords beneficial tax treatment to the employees, including the characterization of profits as capital gains and the deferral of the tax event until the shares are sold rather than when the options are granted or exercised. The other regime applies to options not held by a trustee. In this regime, the employees do not enjoy similar benefits as in the first mentioned one.
For more details see:
The taxation of employees’ option plans in Israel
Non-trustee option plans in Israel- Tax issues
Restricted Stock Units
The grant of Restricted Stock Units (RSU) is not clearly regulated by the Israeli Income Tax Ordinance [New Version] 1961 (the “Ordinance“), as other forms of employees stock options regulated under section 102.
The Israeli Tax Authority issued a decision (Decision 139/06), in which the Israeli Tax Authority permitted RSU to be considered as options regulated under section 102 in the “capital gains route”.
That is to say that the gains derived from the RSU shall be subject to capital gains tax (25%), provided that the trustee held the RSU for at least 24 months. The ruling is contingent upon compliance with the other conditions stipulated in the Ordinance and in that ruling.
Please note that this summary does not discuss all the details of the pertinent laws, rules and regulations that may apply in this matter, and it serves to give you an overview of the legal situation.
