How to Structure Equity Incentive Plans in Israel

Our clients often reach out to us for advice concerning the grant of equity awards to Israelis employed by an Israeli affiliated company.
In Israel, there is a unique tax regime, which allows for a significant tax benefit regarding equity compensation granted to employees, officers and directors of a company. Such grants are colloquially referred to as “102 Awards”, as they are based on Section 102 of the Israeli Tax Ordinance.
This article sets out the basic eligibility requirements for 102 Awards (the Capital Gains Track) and the underlying tax benefit, and it assumes that Israelis are employed by an Israeli affiliated company. Please note that there are additional requirements and considerations not specified in this article, some of which may be relevant to your circumstances. Therefore, for specific cases, we recommend that you contact us for further clarification.
102 Awards in Israel typically come in the form of Stock Options, Restricted Stock and Restricted Stock Units. In addition, under certain terms an ESPP plan may qualify for the 102 Capital Gains Track.

What are the basic requirements?

In order to be eligible for 102 Awards, companies must:

  • Have an Israeli Equity Incentive Plan (usually in the form of an appendix to the company’s existing Equity Incentive Plan) that was filed with the Israeli Tax Authority (the “ITA”) at least 30 days prior to any 102 Awards grant.
  • Report to the ITA of the election to add the Israeli affiliated company as an “employer company” whose participants shall be eligible for awards under the plan.
  • Appoint a trustee for the 102 Awards (further detail provided below).
  • Meet certain reporting obligations – mainly submitting copies to the trustee of each corporate resolution approving the 102 Awards grant and each 102 Award Agreement, by the timetables set forth by ITA regulations.

In order to be eligible for 102 Awards, participants must:

  • Be either employees, officers or directors of the Israeli affiliated company.
  • Not be considered “controlling shareholders”. A controlling shareholder is, broadly speaking, someone who owns 10% of a company’s shares or voting power, who has rights to 10% of a company’s profits or who has the right to appoint a director of the company. 

What are the benefits?

102 Awards provide participants with two benefits:

  1. Profit is taxed as capital gains (currently at a flat rate of 25%), instead of ordinary income (progressive tax).
  2. Deferred taxation – generally, the tax is due upon the transfer or sale of the underlying share (i.e., 102 Awards are not taxed upon grant, vesting or exercise thereof).

Trustee Administration

As part of the requirements of 102 Awards, the awards (and underlying shares) must be held in trust for a period of two years as of their grant date. For this purpose, the company is required to enter into a trust agreement with a trustee. The trustee is responsible, among other things, for ensuring that all taxes due are properly calculated, withheld and paid into the ITA.


This article contains a general overview of the subject matter discussed herein and should not be regarded as legal advice or be relied upon. We encourage you to seek specific professional advice in applying the applicable law to any specific situation. For more information, please feel free to contact us.

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