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12.3.1. Main Rules

Israel's controlled foreign company (CFC) rules apply when:

  • Israeli residents directly or indirectly hold at least a 50% controlling share of the foreign company
  • The foreign company's income is primarily passive income
  • The passive income is subject to an effective tax rate of 15% or less
  • The foreign company’s shares are not publicly traded, or less than 30% of its shares or other rights have been issued to the public or listed for trade

When the conditions are met, any undistributed passive profits of the CFC will be attributed to the controlling Israeli resident as a deemed dividend in proportion to their share and subject to tax. However, the undistributed passive profits will only be attributed to residents whose share is equal to 10% more of the CFC. If an actual dividend is subsequently distributed, the deemed dividend will be deducted for tax purposes.