Selling your product? How the small exit is taxed
It happens more and more: an Israeli builder gets an offer on their micro SaaS, on Acquire.com, through a direct approach, or from a friend who wants in. The amounts are not the kind that make the financial press, but they are significant, tens to hundreds of thousands of dollars. And exactly at that moment the big tax question appears: is this a capital gain at 25%, or business income at a marginal rate that can cross 50%? The difference is tens of thousands of shekels, and it is decided in the details. Here is what you must know before you sign.
The key question: capital gain or business income?
When an individual (a dealer) sells an asset that served them, and your product, with its code, brand, domain and client base, is an asset, the gain is as a rule taxed as a capital gain: 25% on the real gain (for an individual, plus the surtax where income is high). That is the good scenario.
But there is a second scenario: if building and selling products is your business itself, you build in order to sell, again and again, like a property developer building apartments, the sale may be treated as ordinary business income, taxed at the full marginal rate (up to 47% to 50%) and even subject to National Insurance. The distinction rests on the familiar business tests: the frequency of sales, the intention at the time of building, the commercial character.
In builders' practice: someone who built a product, operated it for years as a source of income, and is now selling it, is usually in capital gain territory. Someone who releases three products a year and sells them one after another can expect questions. And someone in between? That is exactly why the analysis is done before the sale, while planning is still possible, and not in the annual return afterwards.
The consideration is not one number, and how it breaks down decides
A real sale is made up of several components, and each has its own tax treatment. The allocation between them in the agreement is not a formality. It is your tax:
| Component of the deal | Nature of the treatment (for an individual) |
|---|---|
| The asset itself: code, IP, brand, domain, client base | As a rule a capital gain (25% on the real gain) |
| A period of support or work by you at the buyer after the sale | Employment or service income, full marginal rate |
| A non-competition undertaking | A familiar issue in the case law; the treatment depends on the circumstances, so plan in advance |
| Earn-out (consideration contingent on future performance) | Complex; the timing of recognition and the character of the component require individual treatment |
Experienced buyers arrive with allocation preferences of their own, which serve their tax. If you sign their allocation without analysis, you are probably paying the difference. This is the clause it pays most to sit over with an accountant before signing.
And what about VAT on the sale?
A sale of business assets by a dealer is a transaction for VAT purposes. When the buyer is a foreign resident, as in most Acquire deals, the provisions on the zero rate for the sale of an intangible asset to a foreign resident come into play, subject to the familiar conditions and caveats. When the buyer is Israeli, the transaction is subject to ordinary VAT and the invoice has to be built correctly (for a business buyer this is usually neutral, since they offset it). Either way, the VAT question is closed before signing and goes into the agreement. A "the price includes or is plus lawful VAT" clause that nobody drafted is worth 18% of the deal.
The checklist before signing - seven items
- An advance classification analysis: capital gain or business? On the basis of the product's real history with you.
- Your cost of the asset, documented: the taxable gain is the consideration less the cost, capitalized development expenses, acquisitions, improvements. Orderly books along the way mean lower tax on the day of sale.
- Allocation of the consideration drafted in the agreement: asset, support, non-competition, earn-out, in numbers.
- An explicit VAT clause, fitted to the buyer's identity.
- The payment mechanism: escrow, instalments, currency. Spreading payments also has tax timing implications.
- An advance on account of the tax set aside: on a capital gain, tax is paid within a set period from the sale (reporting and payment within 30 days). You do not wait for the annual return.
- A conversation with us before, not after. Seriously: this is the deal in which an hour of advice is worth the most money in your business's life.
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 - Part E: capital gains (Sections 88 to 91) (Hebrew)
- Israel Tax Authority - reporting and paying an advance on a capital gain (30 days) (Hebrew)
- Value Added Tax Law - Section 30(a) (an intangible asset to a foreign resident) (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.
Selling your product - the questions everyone asks
I sold a product I built myself for $80,000. How much tax will I actually pay?
No responsible number can be given without the details, but the framework can: in the capital gain scenario the tax is 25% on the real gain (the consideration in shekels less documented cost), plus the surtax if your total income is high; in the business scenario it is the full marginal rate. On the same deal the difference can be tens of thousands of shekels, which is why the advance analysis is not a luxury.
I built the product in my spare time, with no business file at all. Can I still sell?
You can, and there is tax then too: a sale of an asset by an individual is a capital gain event even without a business file, with a duty to report and pay within 30 days of the sale. If the product had ongoing income that was not reported, this is the time to regularize everything together, before the deal: serious buyers do due diligence anyway, and a seller with clean books is worth more.
The buyer wants me to stay six months for "support". Why does that matter for tax?
Because payment for your work after the sale is income from personal exertion, the full marginal rate, and not part of the capital gain. Buyers like to load consideration onto the support component (for them it is a current expense); you prefer the opposite. The real balance is determined by substance, how much work you will genuinely provide, but within the reasonable range the drafting has direct monetary value.
I received the consideration in dollars into a Wise account. What now?
Three things: the transaction is recorded in shekels at the rate on the date of sale, and the tax follows from that; the capital gain must be reported and an advance paid within 30 days; and the money itself is a balance of yours in every respect, which will also appear in a future capital declaration. Do not leave the reporting to the annual return "because the money is abroad". The clock runs from the sale.
Is there a legitimate way to pay less tax on the exit?
There are ways to plan properly: a considered allocation of the consideration, full documentation of the asset's cost, timing (for example relative to other income and the surtax), and sometimes, when a significant exit is foreseen in advance, an appropriate holding structure before the growth. What there is not: magic after the agreement is closed. The earlier you reach us in the negotiation, the more there is to do.