On the eve of the current crisis, the high-tech industry in Israel is enjoying an unprecedented boom that is also reflected in a record number of new riches in 2021 and unprecedented revenues for the state – according to a special review published by the Tax Authority on the state’s tax revenues.
Last year 562 Israelis paid over a million shekels for income from capital gains taxable at a rate of 25%-30%. Simply put, 562 Israelis brought in an amount of at least NIS 3.5 million before tax from capital gains. According to CPA Itai Bracha, this completely reflects what happened in high-tech this year. In 2021, capital raisings surpassed the previous ten years combined. “In the end, you see that there are many employees who received options, their company raised according to an astronomical amount and they became millionaires” .
Bracha explains that the total amount paid by those 562 Israelis is over five billion shekels, so some have earned tens of millions. On average, this is an amount that is about NIS 25 million in average profit before tax.
Almost twice as much as previous furnaces
How unusual was 2021? The answer is very much. For comparison, in 2020 the number of Israelis who paid a similar amount to the Tax Authority for capital gains was 260 and in 2019 their number was 224. The Tax Authority explains that 2021 was an exceptional year, and in their estimation this year we will return to a much lower level, as we have known in previous years.
“The huge increase in income is due to multiple investments in high amounts, mainly in high-tech companies, starting from the second half of 2020 and throughout 2021. As a result, the shareholders in the acquired companies and the employees recorded significant income from capital gains due to the exercise of the holdings and options they had,” the tax authority’s review states. They added that “in the first quarter of 2022, it is still possible to see high revenues from individual capital gains as a result of transactions in 2021, but in the second quarter, the volume of revenues and also the number of transactions decreased significantly.”
And it’s not just high-tech. The Tax Authority states that “the months January 2021 to June 2022 were characterized by particularly high tax revenues. The increase in revenues was significant beyond what was expected and beyond the GDP growth rate.” In the annual summary, they state that in 2021 tax revenues totaled NIS 376.9 billion, an increase of 22% compared to 2020, the year of the Corona crisis, and 21% compared to 2019, the pre-crisis period.