Salary or dividend? How to draw money from the company
The company is making money, and now comes the question worth tens of thousands of shekels a year: how do you get the money home? The internet is full of answers along the lines of "a dividend is only 30%" and "salary is a waste", and neither is accurate. In this guide we do the full 2026 calculation, salary against dividend against leaving the profit in the company, including the surprise that in the lower brackets salary actually wins, and why the real answer is almost always a mix.
The three channels: salary, dividend, or leaving it in the company
A limited company has a till of its own, and the money in it is not yours yet. It becomes yours only when it leaves through one of three channels. Each channel has its own tax, its own rules and its own side effects:
- Salary. You are an employee of your own company, with a real payslip. The salary is a recognized expense that reduces the profit subject to corporate tax; at your level it is taxed at the marginal rate under the brackets (10% up to 47%, and 50% with the surtax) plus National Insurance contributions. In return you get social rights, favourable pension contributions and a regular cash flow.
- A dividend. A distribution of profits to shareholders, and only out of profit that has already paid corporate tax (23% in 2026). A material shareholder pays 30% on the dividend (plus a 3% surtax once annual taxable income passes 721,560 ILS), but with no National Insurance contributions, and at a timing you choose.
- Leaving it in the company. The channel everyone forgets: simply not drawing. The profit is taxed at 23% only, and the remaining 77% keeps working, on development, marketing, a safety cushion. This is the big structural advantage of a company, with one asterisk we will come to in chapter 4.
The most important point of all: there is no single "right answer", there is a mix. Almost every owner of a small profitable company will gain from a combination of a calculated salary, a timed dividend and planned accumulation. The question is not "which is better" but "how much of each, this year". Still weighing whether to incorporate at all? Start with when to move to a company.
The maths: 100 ILS of profit, three routes home
Take 100 ILS of pre-tax profit in the company and see how much reaches the pocket on each route. The dividend route is fixed: the company pays 23% corporate tax, 77 ILS remain, on which 30% dividend tax (23.1 ILS) leaves 53.9 ILS in hand, that is roughly 46.1% combined (and with the surtax, close to 48%). The salary route, by contrast, depends on where your "next shekel" sits in the brackets:
| Where the next shekel sits (annual income) | Salary: marginal rate | Dividend: combined | Who wins on that shekel |
|---|---|---|---|
| Up to 84,120 ILS | 10% | ~46.1% | Salary, by an enormous margin |
| 84,120 to 120,720 ILS | 14% | ~46.1% | Salary |
| 120,720 to 228,000 ILS | 20% | ~46.1% | Salary |
| 228,000 to 301,200 ILS | 31% | ~46.1% | Salary, still |
| 301,200 to 560,280 ILS | 35% | ~46.1% | It gets close, depending on National Insurance |
| Above 560,280 ILS | 47% (with the surtax, 50%) | ~46.1% (with the surtax, ~48%) | Dividend |
Two asterisks that turn the table into reality. On salary, National Insurance contributions are also paid, yours and the company's as employer, which raise the total cost, but part is a recognized expense and part buys real entitlements. And on the other side, your credit points (at least 2.25 for every Israeli resident, usually more for parents) reduce the tax on salary in practice, to the point where a salary that only fills the lower brackets sometimes pays almost no income tax at all. A dividend cannot use any of them.
The surprising conclusion: on the first shekels, a salary that fills the 10% to 20% brackets beats a dividend by a wide margin, mainly thanks to the credit points and the low brackets. A dividend only starts to justify itself once the salary is already high. So you almost always start with a base salary, and only above it do you talk about a dividend.
Why salary is much more than "more tax"
Anyone comparing tax percentages alone misses what a salary buys:
- A pension and a training fund through the company. Employer contributions to a pension and a training fund are a recognized expense for the company and a real benefit for you, but a controlling shareholder has special recognition ceilings (Section 32(9) of the Ordinance), different from an ordinary employee on some components. The exact amount is planned, not guessed.
- National Insurance entitlements. A salary builds an insurance record: maternity benefits, disability, reserve duty and more. And to say it honestly, a controlling shareholder in a closely held company is not insured for unemployment benefits (nor for employee rights on an employer's liquidation), so that particular safety net is built differently. A dividend, by contrast, creates no entitlement at all.
- A cash flow the bank understands. Regular payslips are the language the banking system speaks, for a mortgage, credit lines, loans. Two years of "I draw a dividend when I feel like it" look like risk to a bank, even when the company is excellent.
A dividend in practice: retained earnings, resolutions and timing
A dividend is not a bank transfer with a good vibe. It has rules, and they all work in your favour when you respect them:
- Only out of retained earnings. You distribute only from accumulated after-tax profits, and subject to the distribution tests in the Companies Law, chief among them the ability to repay debts. A company at a loss, or one whose profit exists only on paper, does not distribute.
- An orderly resolution. A distribution requires a documented board resolution. In a one person company that feels ceremonial, but that minute is exactly what distinguishes a dividend from a casual drawing (see chapter 5).
- Withholding at source. The company withholds the dividend tax at source and reports it to the Tax Authority; you receive the net, and the reporting is the company's responsibility. One more reason a distribution goes through us rather than through a spontaneous bank transfer.
- Smart timing. A dividend is a tax event whose timing you control: distributing in a year when other income is low, spreading over several years to stay clear of the surtax, or bringing a distribution forward ahead of an expected legislative change. All legitimate tools when done properly.
The accumulation asterisk: in recent years legislative moves have been advanced aimed at undistributed profits accumulating in closely held companies with no business use. Without going into details that change from budget to budget, the direction is clear: endless accumulation "because 23% is nice" is no longer a strategy in itself. You accumulate with a plan, an investment, growth or a phased distribution, not as a default.
Three traps that turn planning into a problem
- Owner drawings with no definition, Section 3(i1). Drawing money "on account" with no payslip and no distribution resolution? Drawings that pass the order of 100,000 ILS and are not regularized in time may be treated as a dividend or as salary, retroactively, on terms you did not choose.
- A wallet company, Section 62A. When most of the company's income comes from a single client in a pattern that looks like an employment relationship, the income may be taxed directly at your level as an individual, and all the planning in the previous chapter evaporates. If that sounds familiar, read when to incorporate before going further.
- A salary for a spouse. Entirely legitimate, when there is real work and a reasonable salary relative to it. A generous payslip for "administrative management" of an hour a week is exactly what an assessing officer looks for in an audit. Real work, real documentation, a sensible salary, and there is no problem at all.
How the mix is built, in practice
This is how it looks when it is done properly, once a year, preferably before December, and together with us:
- A smart base salary. You set a monthly salary that fills the credit points and the low to middle brackets, the range where salary beats every alternative.
- Social contributions at the right maximum. Pension and training fund contributions through the company, up to the ceilings relevant to a controlling shareholder. A recognized expense for the company, a saving for you.
- A dividend on a plan. Once the base is settled, you decide how much of the retained earnings to distribute this year, how much stays for growth, and exactly when.
Three profiles for illustration (annual profit before owner's salary):
| Annual profit | Typical direction of thinking | What to keep an eye on |
|---|---|---|
| ~300k ILS | A salary filling the low to middle brackets plus full social contributions; a small dividend, if any | Whether the company justifies itself at all against being an osek |
| ~600k ILS | A comfortable base salary, maximized contributions, a planned annual dividend from retained earnings | The balance between distribution and accumulation, and a safe distance from the surtax |
| ~1.2m ILS | Salary up to the region of the high brackets, full contributions, a phased multi-year distribution | The surtax, undistributed profits and multi-year planning |
The profiles are illustrative only. The real mix follows from your numbers, your family, your mortgage and the company's plans. Want us to build yours? Tell us about the company on WhatsApp and we will come back with a mix.
A licensed Israeli CPA (license no. 500125101) accompanying businesses and self-employed clients across Israel - including founders, builders and owners of digital products. Bookkeeping, filings to the authorities, annual reports and personal financial guidance. About Adir →
Official sources
- Income Tax Ordinance - Sections 121 to 121B (brackets and surtax), 125B (tax on a dividend), 3(i1) (owner drawings) and 62A (wallet company) (Hebrew)
- Kol Zchut - corporate tax and dividend taxation (Hebrew)
- Kol Zchut - income tax brackets (Hebrew)
- Israel Tax Authority - gov.il (Hebrew)
- National Insurance Institute - contributions and members' entitlements (Hebrew)
The information in this guide is general only, current as of August 2026, and does not constitute tax advice or a substitute for professional advice fitted to your business's circumstances. It is a condensed adaptation of our fuller Hebrew guide. For personal advice - talk to us.
Salary or dividend - the questions that keep coming up
How much tax is paid in total on a dividend?
The combined calculation: the company paid 23% corporate tax, and on the balance a material shareholder pays 30%, together about 46.1% of every shekel of profit, and close to 48% with the surtax. For comparison, a high salary is taxed up to 47% (and 50% with the surtax) plus National Insurance. The real differences are far smaller than the advertising promises, which is why the planning matters more than the headline.
Do I have to draw a salary every month?
There is no legal obligation. But in most cases a regular salary is the right planning: it fills credit points and low brackets afresh every year (they do not carry over to the next year), it maintains a continuous record of National Insurance entitlements, it builds an income history the bank understands, and it keeps you away from the owner-drawings stories of Section 3(i1).
Can I skip a salary entirely and live on dividends alone?
Technically, sometimes. Economically, almost always a shame: without a salary you give up the credit points and the low brackets (which a dividend cannot use), favourable social contributions through the company, and a regular cash flow. In most scenarios we have calculated, "dividends only" comes out as both more tax and fewer entitlements. It sounds sophisticated; in practice it is mainly expensive.
Which is better before a mortgage, salary or dividend?
Banks like payslips: a regular salary over at least 6 to 12 months before the application is income the banking system knows how to read. Dividends are seen as less stable income; some banks weight them partially, others require a history of years. If a mortgage is on the horizon, the mix is planned in advance, and that is a consideration that has nothing to do with tax at all.
The company did well this year. Distribute or accumulate?
It depends what the plan for the money is. If it is destined for growth, development, marketing, a first employee, then accumulating at 23% is exactly the advantage you set up a company for. If there is no real business purpose, a phased distribution plan is usually better than endless accumulation, not least in light of the legislative moves around undistributed profits in closely held companies. That decision is made once a year, with the numbers on the table.