When to move to a limited company - the real calculation, in numbers
"Open a company, pay only 23% tax" goes around every founders group, and it is true in roughly the same way that "you buy cheap on eBay" is true. Yes, corporate tax is lower than the marginal rate. No, that does not mean a company pays off for you. In this guide we do the full calculation, including the dividend everyone forgets, the operating costs nobody mentions, and the four situations where a company really is the right step. Without an agenda: sometimes our answer to a client is "not yet".
The numbers on the table: osek versus company
Let us compare the two routes on profit that is drawn home in full, because that is the comparison relevant to most builders:
- An osek (an individual): the profit is taxed at the marginal rate under the brackets (up to 47%, and 50% with the surtax) plus National Insurance contributions. That is it. The money is yours.
- A company: the profit is first taxed at corporate tax (23% in 2026). To reach your pocket it then has to leave the company, either as salary (taxed at your level as usual, at the marginal rate plus National Insurance) or as a dividend (30% for a material shareholder, plus the surtax when income is high). Corporate tax and then a dividend comes to roughly 46% to 48% combined, very close to the high marginal rate of an individual.
So where is the famous saving? In one word: accumulation. The real advantage of a company exists when the profits stay in the business, for growth, for development, for hiring. Then they are taxed at 23% only, and the remaining 77% works for you inside the company. A builder who draws home every shekel will gain almost nothing from the structure; a builder who lives on a modest salary and invests the rest in the company will gain a great deal from it.
The four triggers that justify a company
- High profit plus accumulation. A rough rule of thumb only: when annual profit settles above the order of 400,000 to 500,000 ILS and you do not need all of it to live on, incorporating starts to justify itself. Below that, the costs usually eat the saving.
- A partner. Two founders on one product? A company with a founders agreement is the clean way to divide ownership, set vesting and part ways properly if you have to.
- Raising investment. Investors invest in companies: at a valuation, in shares, through a SAFE. If a round is on the road map within sight, incorporating is a question of when, not whether.
- Real legal exposure. A product that touches other people's money, sensitive data or regulated fields: the liability separation of a company is worth its cost even without tax considerations. (And no, it is not magic immunity, but it is a real layer of protection.)
The costs nobody mentions on Twitter
A company is a legal entity with duties of its own, and that costs money and time, every single year:
| Cost | Order of magnitude |
|---|---|
| Company registration fee (one time) | About 2,900 ILS |
| Annual fee to the Companies Registrar | About 1,200 to 1,600 ILS, depending on when it is paid |
| Audit and audited annual statements (a CPA, mandatory for a company) | Thousands to tens of thousands of shekels, by scope |
| Double-entry bookkeeping, owner payroll, filings | Materially higher than for an osek |
| Your time on corporate governance | Not zero |
The bottom line is that a small company costs, in a typical year, thousands to tens of thousands of shekels more than an osek. That is the price of the structure, and it pays off only when something on the list above justifies it.
And the middle option: staying an osek, wisely
Before jumping to a company, make sure you have exhausted the tools available to an individual: full recognized expenses, deposits into a pension and into a training fund for the self-employed (significant tax benefits that most builders do not exhaust), zero-rate VAT if you export, and calibrated tax advances. Not infrequently, after exhausting all of these, the company's "saving" shrinks to nothing and the simplicity of an osek wins.
And when the answer is yes, you make the move in an orderly way: timing (usually the start of a tax year), transferring the activity and the assets into the company correctly (that has tax implications of its own), employment and salary agreements for the owners, and opening the new files. This is a process we accompany end to end. Tell us where you are and we will tell you honestly whether the time has come.
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
- Kol Zchut - corporate tax and dividend taxation (Hebrew)
- Companies Registrar - registration fees and the annual fee (Hebrew)
- Income Tax Ordinance - Sections 62A (wallet company) and 121 to 121B (brackets and surtax) (Hebrew)
- Kol Zchut - a training fund for the self-employed, the alternative to exhaust first (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.
Moving to a limited company - the questions everyone asks
I have heard about the "wallet company". Does that not kill the whole idea?
The wallet company rules (Section 62A of the Ordinance) are meant to prevent a situation where an employee in substance hides behind a company: when the income comes mainly from a single client in a pattern of employment relations, it can be taxed directly at the level of the individual. For a builder selling a product to a crowd of clients this is usually not relevant, but for someone whose income comes mainly from one large retainer, it very much is. One more reason the move to a company starts with examining your specific picture.
Can I "try" a company and go back to being an osek if it does not suit me?
Technically you can close a company and go back to operating as an osek, but it is not an Undo button: liquidating a company is a procedure that takes time and costs money, and there are tax implications to taking the activity and the assets out of it. So our recommendation runs the other way: incorporate only when the triggers are real and stable, not "just in case". An osek that grows can incorporate whenever it is right; a company set up too early pays overhead every year.
How much salary is the "right" amount to draw from the company?
There is no magic number, there is a balance: too low a salary leaves profit in the company (23%) but reduces social rights and favourable pension deposits; a high salary brings you back to the full marginal rate. The right mix between salary, dividend and accumulation is exactly the work of annual tax planning for a company owner, and it changes with life: a mortgage, children, fundraising plans.
I am raising soon on a SAFE from an American investor. Do I need an Israeli company or a Delaware one?
First of all, a company, yes: a SAFE is an instrument for investing in a company, not in an osek. Israeli or American depends on the investors and the plan. Usually an Israeli startup begins with an Israeli company and does a flip to Delaware only if and when large American investors require it. Do not build an American structure "in advance" because of a post. Read our Delaware guide, and then we will talk about your case.
Will the company save me National Insurance too?
Partly, and it depends on the structure: a dividend is not subject to National Insurance contributions, whereas the income of a self-employed person is, and that is a real part of the calculation. On the other hand, contributions (including an employer share) are paid on the salary you draw from the company, and minimizing salary also reduces rights. In short: there is a real optimization here, but it is a delicate one, and it is done with numbers rather than slogans.