Wiz founders face $3.6 billion tax bill in Google deal
Israel set to collect billions in capital gains taxes from record-breaking acquisition.
How much tax revenue will the Wiz deal generate for the state of Israel? How much will the founders pay, and what tax rate will apply to employees?
The essence of the Google-Wiz deal is a sale of shares, with four groups of Wiz shareholders affected: the founders, Israeli employees, Israeli (non-founder) shareholders, and foreign shareholders.
The founders—Assaf Rappaport, Roy Reznik, Ami Luttwak, and Yinon Costica—are Israeli residents and are required to pay capital gains tax under Israeli law. According to an analysis by CPA Racheli Guz-Lavi, managing partner and senior tax partner at Amit, Pollak, Matalon, 30% tax will be deducted from each of them. This will constitute a significant portion of the tax revenue flowing into state coffers. According to estimates, each founder holds around 9.3% of the company, meaning they will each receive approximately $3 billion and are set to face a $900 million tax bill.
There are two capital gains tax rates in the case of a share sale:
- Holders of 10% or more of a company’s share capital are taxed at 30%, with an additional 5% surcharge on high income (bringing the total to 35%).
- Holders of less than 10% in the 12 months preceding the sale are taxed at 25%, plus the 5% surcharge (a total of 30%).
Israeli employees collectively own an estimated 10% of the company (approximately $3.2 billion). Most are likely covered under Section 102 of the Income Tax Ordinance, which provides tax benefits for stock options and shares granted to employees. Assuming most are on the "capital gains" track, they will pay a 25% tax rate on profits, without National Insurance contributions. However, some employees may face an additional 3%–5% surcharge on high incomes. For the founders, who are dealing with much larger sums, the full 5% surcharge will apply.
The third group consists of Israeli non-founder shareholders who invested in Wiz. This group is estimated to hold around 5% of the company. They are also subject to capital gains tax in Israel, with rates of 25% if they purchased shares as individuals or 23% if they invested through a company. Since most of these shareholders are likely high-net-worth individuals, they will likely owe an additional 5% surcharge, bringing their effective tax rate to 30%.
Foreign shareholders, who make up the fourth group, generally have no tax liability in Israel unless they have a permanent establishment in the country—an unlikely scenario. Therefore, they are expected to be exempt from Israeli taxation.
However, Guz-Lavi raises an intriguing tax consideration related to Wiz’s intellectual property (IP), which is registered abroad rather than in Israel. She notes that since Israel’s political situation has led many companies to incorporate in Delaware, USA, Wiz was founded and based abroad, despite its four Israeli founders. This raises a potential tax claim from the Israeli Tax Authority:
“The Tax Authority may argue that the company’s development and management were conducted in Israel, making the intellectual property effectively Israeli. If so, this could trigger an additional tax event—a 23% corporate tax on the sale of IP assets leaving Israel.”
She cites the case of Waze, an Israeli-registered company acquired by Google in 2013. At the time, the company paid 800 million shekels in taxes to transfer its intellectual property out of Israel as part of a $1.1 billion deal—far smaller than the current Wiz transaction.
Guz-Lavi points out that Israeli tax authorities have, in past cases, claimed that despite a company’s foreign registration, the location of its key personnel justified taxing the intellectual property as an Israeli asset. While this could be a challenge given that the U.S. is also involved, it does not mean the Tax Authority won’t attempt to assert such a claim. If successful, this would add another substantial tax event on top of the capital gains tax.
Due to Wiz’s foreign incorporation, Israel will not collect corporate tax from this deal unless the Tax Authority successfully challenges its classification. The bigger question is whether Israeli tax authorities will attempt to take a tougher stance on tech entrepreneurs who have deliberately registered companies abroad. While Wiz was incorporated in the U.S. long before recent political turmoil, many newer Israeli startups have done so as a direct response to uncertainty in Israel.
If the Tax Authority disregards the founders’ intent and pursues aggressive taxation, it could create a chilling effect on Israeli tech entrepreneurs. Many may move even more of their operations overseas, weakening Israel’s position as a high-tech powerhouse.
"At a macro level, this is a major event," says Guz-Lavi. "The Trapped Profits Law was expected to bring in 9 billion shekels, but this single deal could generate 14–15 billion shekels. If managed wisely, this influx of funds could significantly impact Israel’s budget and serve as a major boost to the economy. The significance of such a deal occurring in the midst of a war cannot be overstated—it highlights the strength and resilience of Israel’s cybersecurity industry and its broader high-tech sector."
