TL;DR: Section 102 capital-gains track through a trustee is the best outcome available to an Israeli employee: roughly 25% and taxed only on sale. Section 3(i) is the fallback: up to about 50%, taxed at vesting or exercise, with National Insurance. The regime is decided by the company, at grant, and cannot be changed afterwards.
The Comparison Table
| Feature | 102 Capital Gains Track | 102 Ordinary Track | Section 3(i) |
|---|---|---|---|
| Employee rate | 25% on the appreciation | Marginal, to 47% + 3% | Marginal, to 47% + 3% |
| Tax event | Sale by the trustee | Sale by the trustee | Vesting (RSU) or exercise (option) |
| Trustee required | Yes | Yes | No |
| Holding period | 24 months from grant | 12 months from grant | None |
| Bituach Leumi on the gain | No | Yes | Yes |
| Company tax deduction | No | Yes | Yes |
| Who can be granted | Employees and officeholders, under 10% | Employees and officeholders, under 10% | Anyone, including contractors and 10%+ holders |
| Dry income risk | Low — tax follows the cash | Low | High — tax can precede liquidity |
Worked Comparison at Three Exit Values
Assume 10,000 zero-strike RSUs granted when the shares were worth nothing meaningful, a fully vested employee at the top marginal rate, and NIS figures at the relevant tax dates. National Insurance is excluded on the assumption that salary already exceeds the ceiling.
| Share value at exit | Gross value (NIS) | 102 capital track tax | Section 3(i) tax | Difference |
|---|---|---|---|---|
| NIS 20 | 200,000 | 50,000 | 100,000 | 50,000 |
| NIS 100 | 1,000,000 | 250,000 | 500,000 | 250,000 |
| NIS 400 | 4,000,000 | 1,000,000 | 2,000,000 | 1,000,000 |
The gap is not a rounding difference. It is consistently about a quarter of the gross value of your equity.
Timing Changes the Risk, Not Just the Rate
Under Section 102 the trustee sells, withholds, and remits — the tax is paid out of the proceeds and the cash is always there. Under Section 3(i) the liability lands at vesting or exercise, potentially years before any market exists for the shares. An employee at a private company can owe six figures on paper wealth that later becomes worthless. That asymmetry matters more than the headline rate for anyone at an early-stage company. Our guide to exercise timing covers how to manage it.
How to Identify Your Own Regime in Five Minutes
- Open your grant notice and look for the words "Section 102", "capital gains track", and the name of a trustee such as ESOP Management, IBI, or Altshuler Shaham.
- Confirm the plan was filed with the ITA and that at least 30 days passed between the filing and your grant date.
- Check whether you are an employee or officeholder of the granting company or a related company, rather than a contractor.
- Check that you hold under 10% of the company, directly and indirectly, including family attribution.
- Check whether the shares were actually deposited with the trustee — plans exist on paper where deposits never happened.
If any step fails, price your equity on the Section 3(i) assumption until proven otherwise, and read the Section 3(i) guide.
The Company's Side of the Trade
The capital-gains track denies the employer a corporate tax deduction for the equity expense. At Israel's 23% corporate rate, on a NIS 1,000,000 benefit that is a NIS 230,000 shield foregone — while saving the employee about NIS 250,000. For loss-making startups carrying forward losses anyway, giving up the deduction costs close to nothing in present-value terms, which is why the capital track is the market standard. Profitable Israeli subsidiaries of foreign groups sometimes prefer the ordinary track for exactly the opposite reason.
Special Cases Worth Flagging
- Founders and 10% holders. Excluded from Section 102 entirely. Founders' shares are taxed as ordinary capital assets at 25%, or 30% for a substantial shareholder — see founder secondary sales.
- Contractors and advisors. Always Section 3(i), regardless of the plan.
- Relocating employees. The regime survives relocation but the sourcing split does not follow it — see relocation with Section 102 equity.
- Acquisitions. Whether the acquirer files a 102 ruling at closing decides the treatment for the entire employee base. Details in the exit tax guide.
What to Do With This
If you are an employee, verify your regime before you negotiate your next grant, and treat "is this Section 102 capital-gains track with a trustee?" as a standard offer question. If you are a founder or HR lead, filing a plan is a low-cost, high-value benefit to your team. Either way, model the after-tax number rather than the headline grant value.
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