Client Update | New ITA Circular | Performance-based Vesting of Employee Equity Awards

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Client Update | New ITA Circular | Performance-based Vesting of Employee Equity Awards

13 December 2018


Further to our earlier client update and following recent publications in the Israeli news alleging a wide interpretation of the circular published by the ITA, we would like to clarify that the circular applies to equity awards which vest only upon a IPO or “exit” event or are only exercisable upon a IPO or “exit” event.

The circular specifically states that it does not apply to awards which accelerate upon an exit event. The circular does also not apply to awards and shares which are sold, cashed out or redeemed upon an exit event or IPO.

The circular has very limited application and should not be read as widely as suggested in the recent publications.

For any further assistance please do not hesitate to contact Shachar Porat.


On December 5, 2018, the Israeli Tax Authority (the “ITA”) published a Circular, which sets forth its position regarding the taxation of equity-based compensation, which is subject to performance based vesting (the “Awards”). Awards that do not comply will be disqualified from beneficial tax treatment unless the company takes action, as further detailed below.

The purpose of the circular is to determine the performance conditions, under which the allocation of Awards will be deemed to meet the provisions of Section 102 of the Income Tax Ordinance (New Version), 5721-1961 (“Section 102”) and in specific the beneficial tax routes, as well as determine the grant date for the purpose of Section 102.

This client update provides a summary of the Circular.

Click here for the full update.


Key Contact:
Shachar Porat | Partner
Head of Employee Equity Compensation Practice
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