An Israeli closely held company is exempt from the 2% tax on trapped profits in any year in which it pays a dividend of at least 6% of the profits it had accumulated by the end of the previous year. The 1 October post set out the rule. The payment deadline has changed since the rule came out, and anyone who learned it from the first version of the circular is working to a date that no longer applies.
Originally, 30 April
Income Tax Circular 7/2025 was published on 19 October 2025. Its original text let companies report their choice to distribute until 30 April of the following year, with linkage and interest from 30 April.
What the circular update set
On 8 February 2026 the Authority published Update No. 1 to the circular, and the dates changed. Under section 5.5 of the updated text, the company can report the distribution up to the earlier of two dates: the filing of the return for the tested year, or the end of the following year. The distribution is treated as made on the last day of the tested year. Tax on the dividend falls due as for a December dividend, meaning by 16 January, and linkage and interest accrue from that day until actual payment.
The circular gives an example. A company that filed its 2025 return on 31 August 2026 could report, up to that day, a distribution attributed to 2025. The tax counts as owed from 16 January 2026.
The 2026 dividend and when linkage starts
For 2026 the threshold is 6% of the profits accumulated at the end of 2025. Under the updated circular that dividend can be paid in 2027, up to the date the company files its 2026 return and no later than 31 December 2027. The cost is linkage and interest on the dividend tax from 16 January 2027 until the day it is paid.
Two dates are worth keeping apart here. The last day to distribute is the filing date, and the end of 2027 at the latest. Linkage starts on 16 January 2027, so a company that pays by then owes no linkage or interest at all.
Section 62A payouts do not count
A dividend a company pays under the "dividend alternative" of section 62A, instead of attributing the income to its owners, does not count toward the 6% under section 81. The Authority's Execution Instruction 9/2026 says so explicitly. A company that needs both in the same year needs two separate distributions, which is worth adding to the year-end checklist.