Israel's 2% trapped-profits surtax far exceeds Zucman's $100M wealth tax

Israel imposes a 2% surtax on closely held company profits from 2025, with a NIS 750,000 (~$250,000) threshold — far below the $100 million bar in Gabriel Zucman's wealth tax proposal.

"In practice, taxation is cat and mouse. New rules result in new tax planning techniques," said Leon Harris, a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

The surtax applies to prior-year "Chargeable Accumulated Profits" of closely held Israeli companies. It is waived if 6% of accumulated profits are distributed as a taxed dividend or invested in certain business assets. Separately, current-year profits from labor-intensive activity exceeding 25% of revenues may be attributed to shareholders and taxed at rates up to 50%, unless prior-year accumulated profits stayed below NIS 750,000.

The legislation reaches far beyond billionaires — it captures small business owners with modest retained earnings. Zucman's original proposal, detailed in his book "We Need To Tax Billionaires" and a 2024 G20-commissioned report, targets individuals worth $100 million or more with an annual 2% wealth tax, estimated to raise $300-380 billion globally per year.

Zucman's research found that billionaires in France and other European countries pay roughly 25% of their income in total taxes — including income tax at an average rate of only 2% — while the overall tax-to-national-income ratio in those countries runs about 51%. In the US, the ratio averages 30% because citizens largely fund health care and pensions privately. Billionaires typically route income through personal holding companies, drawing minimal salaries while reinvesting the rest, Harris noted in his review of Zucman's work.

Zucman's proposal includes automatic international exchange of banking information to help tax authorities build complete wealth tax returns. To counter emigration-based tax planning, he suggested countries tax citizens wherever they reside, or apply a tax that decreases over time — a person who lived in France for 50 years would pay a linear fraction of 50/51 one year after migrating, 50/52 two years after, and so forth.

For unicorn start-ups with no profits or spare cash, Zucman suggested selling shares to third parties, paying the tax in shares, or issuing shares to employees. He also proposed a mechanism similar to the OECD's 15% corporate "top-up tax," where one country collects the tax if another does not. About half of global billionaire wealth sits in publicly listed company shares, which are straightforward to value; for private businesses, tax authorities could apply valuation multiples from comparable listed firms in the same industry.

What the Israeli rules mean for business owners

The Israeli surtax's low threshold creates a different compliance reality than Zucman's global proposal. Business owners with closely held companies must now evaluate whether to distribute 6% of accumulated profits as taxed dividends, invest in qualifying business assets, or restructure to avoid the surtax and the up-to-50% attribution tax on labor-intensive profits. Harris noted that it remains unclear whether family members would each receive a separate $100 million threshold under Zucman's framework, and there is no mention of how to avoid double wealth taxation for olim (immigrants to Israel).

The Israeli approach demonstrates how wealth tax concepts can be adapted — and in this case, applied far more aggressively than originally proposed. As tax authorities worldwide study Zucman's G20 report, business owners in other jurisdictions should monitor whether similar surtaxes emerge with thresholds that capture more than just the ultra-wealthy. Tax rates and thresholds cited here reflect the source material as of the publication date; readers should verify against the latest official announcements from the Israel Tax Authority.

This article is for informational purposes only and does not constitute investment advice.