ITA Clarifies Position on the Taxation of Section 102 Awards with “double-trigger” vesting provisions
After years of uncertainty regarding whether “double-trigger” options qualify for Section 102 treatment, the Israeli Tax Authority (ITA) has finally published its updated stance. On March 11, 2025, the ITA issued Professional Position Notice No. 01/2025 (“the Notice”), addressing the tax implications of accelerated vesting mechanisms—both single and double triggers—within employee equity awards in the context of an IPO or exit event.
Below is a summary of the key aspects of the Notice:
a. Single-Trigger Acceleration
The ITA clarifies that a single-trigger acceleration mechanism—where unvested options automatically vest upon an exit event or IPO, provided this condition is set in advance—does not violate Section 102 and does not alter the tax treatment of the awards.
b. Double-Trigger Acceleration
For a double-trigger acceleration mechanism, where vesting is contingent upon both (i) an exit event and (ii) termination of employment due to the transaction, the ITA takes the position that the resulting gain may be split into two portions: a capital gains portion and an ordinary income portion.
The Notice specifies different tax treatment depending on whether the consideration is received in cash or stock:
Example:
Elie received double-trigger stock options in private Company A under Section 102 in December 2021 with a four-year vesting schedule. In January 2024, Company A was acquired by Company B, and Elie’s unvested stock options were replaced with equivalent options in Company B under a tax ruling that ensured that Section 102 would apply to the substitute options. In February 2024, Elie was terminated, triggering full acceleration of his options. He exercised and sold the shares for cash in March 2024.
c. Vesting Acceleration Due to Termination Alone
The ITA also states that if accelerated vesting is triggered solely by termination of employment (and not linked to an IPO or exit event), the resulting income will be classified as salary income and taxed at ordinary income tax rates under Sections 121 and 121B of the Ordinance.
Our Comments:
We find it important to highlight the following points:
For more information, you can contact Yair Benjamini or Ariel Schaffer from our firm.
This memo’s objective is to inform you of general information on various topics. The law’s provisions themselves are more complex and include additional exceptions. Accordingly, the foregoing in this memo should not be implemented without consulting the relevant professional