Clients updates / Employee Tax Benefits

On September 17, an amendment to the Income Tax Rules (Relief in Issuance of Shares to Employees) was officially published, approximately 20 years from the last amendment. The amendment will enter into force on January 1, 2025 and will mainly affect the processes of approving equity incentive plans and of reporting to the Israeli Tax Authority.

The use of token-based compensation has grown in recent years. It is important to understand the tax aspects of such compensation, especially when a company is gearing up for a major deal.

The Haifa District Court recently held, in a precedential decision, that an employee who received shares in a company held by a trustee in accordance with section 102 of the Income Tax Ordinance has no shareholder rights.

A precedential judgment was handed down on option plans for employees in respect of section 102 of the Income Tax Ordinance. The court ruled that when a tax assessor is notified of the allocation of options in accordance with section 102 and fails to respond within 90 days, the plan is approved and the assessor cannot later claim that this is not so, except in very exceptional cases.

A new circular by the Israel Tax Authority determines the terms for granting options to employees when the vesting of such options is contingent upon performance milestones or the occurrence of an IPO or exit event.