Capital Gains Route
Section 102 allows employees to receive stock options or RSUs taxed at only 25% capital gains rate (instead of up to 50% as salary). Key requirements: allocation through an approved trustee, 24-month lock-up period, and the company waives its tax deduction on the option expense.
Section 102 Routes Comparison
| Route | Tax Rate on Gain | Lock-up | Company Deduction |
|---|---|---|---|
| Capital gains (trustee) | 25% | 24 months | No |
| Employment income (trustee) | Up to 50% + NI | 12 months | Yes |
| Non-trustee | Up to 50% + NI at vesting | None | No |
Example
10,000 options granted at ₪1 exercise price. Company acquired at ₪50/share.
Capital gains route: (₪50 − ₪1) × 10,000 = ₪490,000 × 25% = ₪122,500 tax
Without Section 102: ₪490,000 × 50% = ₪245,000 + NI ~₪50,000 = ₪295,000 tax
Section 102 saves: ₪172,500
Best Practices
- Establish the plan and trustee before making any grants
- File with ITA within 30 days of board approval
- Ensure 24-month lock-up is strictly enforced
- Only employees qualify – not consultants or independent directors
- Keep detailed grant records for each employee
בסיס חוקי
- Section 102 – Income Tax Ordinance
Important Note: The information on this website is for general informational purposes only and does not constitute professional tax advice. Consult a qualified tax advisor before making financial decisions.