OrdinanceTax Law
Income Tax Ordinance [New Version]
פקודת מס הכנסה [נוסח חדש]
Published: 1961-04-25Last amended 2026-06-08✓ Amendment status checked against the Knesset legislation record on 2026-09-04
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Section C: Partnerships and House Companies
Partnerships§
63.
(a)If it is proved to the satisfaction of the assessing officer that two or more persons are engaged together in a particular business or particular profession —
(1)the share to which each partner is entitled in the tax year from the income of the partnership — which shall be ascertained in accordance with the provisions of this Ordinance — shall be deemed the income of that partner, and shall be included in the return of income that the partner is required to submit under the provisions of this Ordinance;
(2)the head of the partners, that is, the partner among the partners who are residents of Israel whose name is listed first in the partnership agreement — or, if that head of partners is not active, the active head of partners — shall prepare and submit, upon the demand of the assessing officer, a return of the income of the partnership for each year, as it shall be ascertained in accordance with the provisions of this Ordinance, and shall specify therein the names and addresses of the other partners in the firm and the share to which each partner is entitled in the income of that year; if none of the partners is a resident of Israel, the return shall be prepared and submitted by an attorney, agent, manager or factor of the firm who resides in Israel;
(3)the provisions of this Ordinance regarding failure to submit a return or particulars required in a notice from the assessing officer shall apply to a return as aforesaid.
(b)If it is not proved to the satisfaction of the assessing officer that a particular business or particular profession is carried on by two or more persons together, the earnings or profits of that business or profession shall be deemed to have accrued to one of those entitled to receive a share thereof, as the assessing officer shall select, and the assessment shall be made accordingly; if an assessment was made as aforesaid, the partnership shall not be regarded as a body of persons for the purposes of section 162.
(c)Nothing in this section prevents an appeal, in accordance with sections 153–158, against a decision of the assessing officer in exercising the discretion vested in the assessing officer under this section.
(d)The Minister of Finance may prescribe by Order types of partnerships that shall be regarded for the purposes of this Ordinance as a company; if so prescribed, the partnership shall be regarded for the purposes of this Ordinance as if it were a company, and any amount distributed by the partnership to the partners shall be regarded as a dividend; for this purpose, "partnership" — a partnership whose units were issued pursuant to a prospectus and are listed for trading on a stock exchange as defined in the Securities Law or on another stock exchange prescribed by the Minister of Finance for this purpose.
(e)
(1)The Director may instruct, in respect of certain limited partnerships that the Director has prescribed, which have business income under section 2(1), that the taxable income of a limited partner who has met the conditions prescribed by the Director shall be deemed, in whole or in part, to be capital gain under Part 5, for a period not exceeding 183 days, all subject to such conditions and adjustments as the Director has instructed; for this purpose, "limited partnership" and "limited partner" — as their meaning in the Partnerships Ordinance [New Version], 5735-1975;
(2)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may, by Regulations, extend the period of validity of an instruction given by the Director under paragraph (1) for a period, subject to such conditions and adjustments as the Minister has prescribed.
House Company§
64.
(a)In this section –
"taxable income" – including appreciation as its meaning in the Land Taxation Law;
"right" – a right in a body of persons, as defined in section 103;
"house company" – as its meaning in subsection (b);
"profits of a house company" – profits deriving from the taxable income of the house company in the benefit years, plus its tax-exempt income, less losses incurred in the house company in the benefit years and reduced by the tax applicable to the shareholder in respect of the income, if paid by the company and the company did not charge him accordingly;
"benefit years" – the tax years in which the company is a house company;
"transparent corporation" – a body of persons whose profits and losses are attributed to the holders of rights therein.
(b)A house company is a closely held company as its meaning in section 76, in which all of the following conditions are met:
(1)the number of shareholders therein does not exceed 20; for this purpose –
(a)where a transparent corporation is a shareholder in the company, each holder of rights in the transparent corporation shall be regarded as a shareholder in the company;
(b)the following shall be regarded as one shareholder in the company –
(1)relatives under paragraphs (1) or (2) of the definition of "relative" in section 88;
(2)members of a collective kibbutz, or of a renewing kibbutz, as defined in section 54, of a co-operative moshav as its meaning in section 61 or of a workers' moshav as its meaning in the Co-operative Societies (Types of Societies) Regulations, 5756-1995;
(2)there is no transparent corporation among the shareholders of the company that is able to elect, in any tax year, its manner of taxation; however, for this purpose the following provisions shall apply:
(a)the company shall be regarded as a house company if there is among its shareholders an agricultural co-operative society as its meaning in section 62, provided that the society notified the Director in writing within 30 days of the date of incorporation of the house company or of the date of its acquisition of its election that, from the beginning of the tax year in which the notice was given and onward, its status shall be as that of a partnership or shall not be as that of a partnership; if an agricultural co-operative society gave notice as aforesaid and retracted its notice while it was a shareholder in the company, the company shall not be regarded as a house company;
(b)the company shall not be regarded as a house company if there is among its shareholders an agricultural co-operative society that gave notice as referred to in sub-paragraph (a), and after selling its shares in the house company requested in a return under section 131 that its status differ from that stated in that notice;
(3)all its assets, from the day on which six months have elapsed from the date of its incorporation, are one or more of the following:
(a)a building or land on which construction of a building was completed within five years of the date on which the company began holding the land; the Director may extend the period required for completion of construction as aforesaid by two years, for special reasons that shall be recorded; for this purpose, "completion of construction" – completion of construction of structures whose total area is at least 70% of the area permitted for construction under the plan applicable to them;
(b)cash used by it for the acquisition of assets as referred to in sub-paragraph (a), provided that it holds the cash for no more than 12 months from the end of the tax year in which it was invested in the company, or cash in respect of profits that, had they been distributed, the provisions of subsection (c)(1) would have applied thereto;
(c)shares in a company in which all other conditions in this subsection are met;
(d)shares in a real property association, as defined in the Land Taxation Law, that were acquired from another person, provided that the acquisition resulted in holding of more than 50% of the means of control, as defined in section 88, in the association;
(4)the company is engaged only in holding, directly or indirectly, of buildings or land as referred to in paragraph (3)(a);
(5)with respect to a company that is a foreign resident, it is a transparent corporation also in the state or states in which it is resident;
(6)the Capital Investment Encouragement Law does not apply to the company; however, Chapter VII-1 of that Law may apply to it, with respect to tax benefits that are also granted to an individual;
(7)the company requested to be regarded as a house company, in a notice signed by all the shareholders and delivered to the assessing officer within three months of the date of its incorporation.
(c)The taxable income and losses of a house company shall be deemed, from the date of its incorporation, to be the taxable income and losses of its shareholders, in accordance with their share in the rights to the profits of the house company, and the following provisions shall apply:
(1)the profits of the house company that were charged at individual tax rates under this section and were distributed, whether during the period in which the company was a house company or after it ceased to be such a company, shall be regarded as if they had not been distributed;
(2)for the purpose of advance payments by a shareholder, as referred to in section 175, his proportionate share of the taxable income of the house company shall be added to the turnover that constitutes the basis for advance payments;
(3)the tax on the income of the house company, including advance payments, may be collected both from the house company and from the shareholders, in the amount of the tax applicable to their proportionate share in the profits of the house company;
(4)losses incurred by a shareholder prior to the benefit years may not be set off against the taxable income of the house company;
(5)upon the sale of a share in a house company or in a company that was a house company, the following provisions shall apply:
(a)for the purpose of section 88, there shall be deducted from the consideration with respect to the seller of the share and from the original cost with respect to the purchaser, an amount equal to the portion of the profits charged at individual tax rates under this section that accumulated in the company and were not distributed up to the date of sale of the share, whose ratio to the total profits so charged and accumulated is as the ratio of the share of the share being sold in the rights to the profits of the house company charged at individual tax rates under this section to the total rights to its profits charged at such tax rates; for this purpose, "purchaser" – including one who acquired shares from the house company, or to whom the house company allotted shares;
(b)the provisions of section 94b of this Ordinance and section 71a of the Land Taxation Law shall not apply with respect to profits charged at individual tax rates under this section;
(c)
(1)for the purpose of computing the real capital gain or the real appreciation, there shall be added to the consideration of the seller an amount equal to the losses attributed to the seller in the benefit years; for this purpose, "losses" – an amount equal to the taxable income attributed to the seller of the share less the losses attributed to him in the benefit years, provided that it is a negative amount;
(2)where an amount equal to the losses has been added to the consideration as referred to in sub-paragraph (1), and the losses are available for set-off under section 28 or 92, as the case may be, and have not yet been set off by the seller prior to the date of sale of the share – the seller may set them off against the real capital gain or the real appreciation in respect of the sale.
(d)If one or more of the conditions listed in subsection (b) ceases to be met in a house company during the tax year, the company shall cease to be a house company from the beginning of the tax year in which that condition ceased to be met; the aforesaid provision shall not apply with respect to the conditions listed in subsection (b)(3) or (4) if the house company sold a building during the tax year and by the end of the year it did not hold buildings or cash as referred to in subsection (b)(3), and one of the following was met:
(1)during the following tax year it acquired a building as referred to in subsection (b)(3)(a) or shares as referred to in subsection (b)(3)(c) or (d);
(2)during the following tax year the company was wound up.
(e)A house company may notify the assessing officer, in a notice signed by all the shareholders, no later than one month before the commencement of a given tax year, that it retracts its request to be regarded as a house company; having so notified, it shall cease to be a house company from the beginning of the tax year following the tax year in which it so notified.
(f)A company that has ceased to be a house company shall not be able to again request to be a house company.
(g)Notwithstanding the provisions of this Ordinance, with respect to assessment, objection and appeal, the following provisions shall apply:
(1)where an assessment has been determined for a house company, the assessing officer may determine or amend the assessment of a shareholder, in accordance with the assessment of the house company, within two years from the end of the tax year in which the company's assessment was determined or at the time at which he is entitled to assess the income of the shareholder, whichever is later;
(2)the house company may object to or appeal against the assessment determined for it in accordance with the provisions of section 150 or 153, as the case may be; a shareholder may object to or appeal against the attribution of the taxable income or losses of the house company and against the effect of the assessment determined for the house company on his income, but not against the assessment determined for the house company.
(h)The provisions of Part 5-B, except for the provisions of sections 104, 104a, 104b(a) to (c) and 104d to 104g, shall not apply to a house company.
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Contact Us →Section D: Family Companies
Family Companies§
64a.
(a)The taxable income, including appreciation as its meaning in the Land Taxation Law (in this section – taxable income), and the losses of a company whose members are relatives under paragraphs (1) or (2) of the definition of "relative" in section 88 (hereinafter – family company) shall be deemed, from the date of its incorporation, upon its request submitted to the assessing officer within three months after its incorporation, to be the income or loss of the member who holds the right to the largest share of the profits in the company or of the member whom the company designated in its request as one of the holders of rights to equal and largest shares of the profits therein and whose written consent was attached to the request (in this section – the taxpayer), and the following provisions shall apply:
(1)profits distributed from the income of the company in the years in which the tax for which it is liable was computed under this section (hereinafter in this section – the benefit period) as well as profits deriving from a dividend liable to tax under subsection (a3) shall be regarded as if they had not been distributed, even if distributed after the benefit period or after the company ceased to be a family company; for this purpose, "profits distributed from the income of the company" – profits distributed from the taxable income of the company in the benefit period, plus the tax-exempt income, less losses incurred in the company in the benefit period, and reduced by the tax applicable to the taxpayer in respect of the taxable income as aforesaid, if paid by the company and the company did not charge the taxpayer accordingly;
(2)(Repealed);
(3)a retirement grant or death grant paid by the company to its members in respect of the years in which it was a family company shall not be allowed to it as a deduction and shall not be deemed income in the hands of its members; payments to a provident fund paid by a company in respect of such years shall not be recognised as a deduction, and for the purpose of section 47 the salary of its members shall not be regarded as employment income;
(4)for the purpose of advance payments, the amounts constituting the basis for advance payments of the taxpayer and of the company shall be aggregated;
(5)the tax on the income of the company, including advance payments, may be collected both from the company and from the taxpayer;
(6)losses incurred by the taxpayer prior to the benefit period may not be set off against the income of the company;
(7)upon the sale of a share in a family company or in a company that was a family company, the following provisions shall apply:
(a)for the purpose of section 88, from the consideration with respect to the seller of the share and from the original cost with respect to the purchaser, there shall be deducted an amount equal to the portion of the amount of the profits that accumulated in the company in the benefit years and were not distributed, whose ratio to the total undistributed profits is as the ratio of the share's portion in the rights to the profits of the family company to the total rights to its profits; for this purpose –
"profits" – profits deriving from the taxable income, in the benefit period, plus the tax-exempt income, less losses incurred in the family company in the benefit period and reduced by the tax applicable to the shareholder in respect of the income, if paid by the company and the company did not charge him accordingly, all including profits deriving from a dividend charged to tax under subsection (a3);
"purchaser" – including one who acquired shares from the family company or to whom the family company allotted shares;
(b)the provisions of section 94b shall not apply in respect of the benefit years;
(c)
(1)for the purpose of computing the real capital gain or the real appreciation, there shall be added to the consideration of the seller of the share an amount equal to the losses attributed to the taxpayer in the benefit period; this sub-paragraph shall not apply if the taxpayer to whom the losses were attributed died before the sale of the share; for this purpose, "losses" – an amount equal to the taxable income attributed to the seller of the share less the losses attributed to him from the year 2014 onward, provided that it is a negative amount;
(2)where an amount equal to the losses has been added to the consideration, as referred to in paragraph (1), and the losses are available for set-off under section 28 or 92, as the case may be, and have not yet been set off by the taxpayer prior to the date of sale of the share – the seller may set them off against the real capital gain or the real appreciation in respect of the sale;
(8)where the taxpayer is entitled to benefits under the provisions of sections 9(5), 14(a) or (c) or 97(b), or to tax reliefs or exemptions granted under this Ordinance to a foreign resident by virtue of being a foreign resident, the benefits shall be granted only in accordance with the taxpayer's proportionate share of the profits of the company.
(a1)If during the tax year a condition as referred to in subsection (a) ceases to be met in the taxpayer, the taxpayer shall be another member in whom such a condition is met and of whom the company notified within 60 days of the day on which that condition ceased to be met; if the company did not so notify, the company shall cease to be a family company entitled to the application of the provisions of subsection (a) (hereinafter – entitled family company) from the beginning of the tax year in which that condition ceased to be met in the taxpayer.
(a2)If during the tax year a condition as referred to in subsection (a) ceases to be met in the company, the company shall cease to be an entitled family company from the beginning of the tax year in which that condition ceased to be met in it.
(a3)
(1)a dividend received in the tax year in which a company ceased to be an entitled family company under the provisions of subsection (a1) or (a2) shall be liable to tax in accordance with the provisions of section 125b(3), and the provisions of section 126(b) shall not apply;
(2)notwithstanding the aforesaid in paragraph (1), a dividend received in the tax year in which a company ceased to be an entitled family company under the provisions of subsection (a1) or (a2) by reason of the death of a member therein or by reason of the acquisition of 25% of the rights therein by a person who is not a related party to it or to its members, shall be liable to tax in accordance with the provisions of section 126(b); for this purpose –
"related party" – as defined in section 103;
"acquisition" – including by way of allotment of shares.
(b)
(1)an entitled family company may notify the assessing officer, no later than one month before the commencement of a given tax year, that it retracts its request to be regarded as an entitled family company; once a family company has so notified, it shall cease to be an entitled family company from the beginning of the tax year following the tax year in which it so notified;
(2)a company that has ceased to be an entitled family company shall not be able to again request to be an entitled company.
(c)Nothing in the provisions of this section shall exclude a family company from the category of a company for the purposes of sections 9(14) and 19 and for the purposes of the Industry Encouragement (Taxes) Law, 5729-1969, except for Chapter V thereof.
(d)The provisions of Part 5-B, except for the provisions of sections 104, 104a, 104b(a) to (c) and 104d to 104g, shall not apply to a family company.
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