Inheriting Israeli Company Shares as a Foreign Heir

When a parent who held shares in an Israeli company dies abroad, the heirs often assume the shares are already theirs, the way a bank balance feels like it belongs to the family the moment the account holder passes. Shares do not work that way. They sit, legally frozen in the deceased's name, on a register held in Israel, and they do not move to anyone until the right Israeli document is produced and the company acts on it. A grieving heir in New York or London who tries to vote those shares, or sell them, or even ask the company for a dividend, discovers quickly that the company cannot deal with them at all yet.

Israeli company shares are one of the more awkward assets a foreign heir can inherit, precisely because they sit at the meeting point of two legal systems: succession law, which decides who is entitled, and company law, which decides how and when the register changes. Add a shareholders' agreement or restrictive articles, which most private companies have, and what looked like a simple transfer becomes a sequence of steps that has to be taken in order. This guide sets out that sequence for an heir who does not live in Israel. For the broader task of administering an Israeli estate, see our guide to the Israeli estate administrator for non-resident heirs.

Nothing Moves Without a Succession Order

The first document is not a company document at all. It is a succession order (tzav yerusha) where there was no will, or a will execution order (tzav kiyum tzavaa) where there was, issued by the Inheritance Registrar (Rasham HaYerushot) at the Ministry of Justice. This order is what names you, in an Israeli legal instrument, as entitled to the deceased's estate, and it is what the company needs to see before it can touch the register.

For a foreign heir, obtaining that order is its own project. Documents from abroad, the death certificate, the will, proof of the family relationship, generally have to be apostilled and translated, and where the deceased lived and died outside Israel, the Israeli order is often built on the foreign succession proceedings rather than replacing them. The point to hold onto is that a foreign grant of probate does not, by itself, re-register Israeli shares. The Israeli order is the operative one.

In Practice: Under Section 299 of the Companies Law 1999, an Israeli company will recognise a deceased shareholder's estate administrator, or in their absence the lawful heirs, as entitled to the shares only after receiving evidence of entitlement, which in practice is an Israeli succession order or will execution order from the Inheritance Registrar (Rasham HaYerushot). The Registrar's application fee is roughly NIS 500 plus a publication fee of about NIS 130. An uncontested order for a purely Israeli matter can issue in a few weeks, but where the heirs and documents are abroad and require apostille and translation, two to four months is more typical before the company has what it needs.

How the Shares Are Transmitted

The passing of shares by death is called transmission, and it is different from a sale or gift, which is a transfer. Transmission happens by operation of law, and Section 299 is the mechanism the company uses to give effect to it.

Once you present the succession order, the estate's representative, or the heirs, can call on the company to enter the new holders in its register of shareholders and to record the change with the Companies Registrar (Rasham HaHevrot). Where the estate has several heirs, the shares may be registered in the names of all of them, or transferred to one heir under an estate division agreement (heskem chaluka) if the heirs agree to reallocate assets among themselves. That agreement is worth thinking about early, because splitting a small block of company shares among four heirs abroad can create a governance headache that a division agreement neatly avoids.

Read the Articles and the Shareholders' Agreement First

Here is where inheriting company shares diverges sharply from inheriting, say, a bank account or an apartment. A private company's own rules can reshape what you actually receive.

Two documents matter. The articles of association (takanon) may contain transfer restrictions, pre-emption rights, or a requirement of board approval. Many articles exempt transmission on death from these restrictions, so that heirs at least become registered holders, but not all do, and the detail governs. The shareholders' agreement, common in startups and family businesses, is often more consequential. It may provide that on a shareholder's death the surviving shareholders have the right, or the obligation, to buy out the deceased's shares at a defined price or formula. It may grant pre-emption before shares can pass to outsiders, which can include heirs. It may carry drag-along or tag-along terms that affect the value of what you hold.

An heir who assumes they will simply keep the shares, and only later reads an agreement requiring a buyout at book value, has lost the chance to negotiate from a stronger position. These documents are the first thing an Israeli lawyer asks for.

In Practice: Where a shareholders' agreement contains a death-triggered buyout, the price mechanism, whether book value, an independent valuation, or a fixed formula, is usually decisive and is frequently the subject of dispute. A private Israeli company with no public market can be valued very differently by the surviving shareholders and by the heirs, and the gap on a modest operating company can easily run to hundreds of thousands of shekels. An independent valuation by an Israeli accountant, obtained early, is often what protects a foreign heir who cannot judge the business from abroad and cannot walk in to inspect the books.

Becoming a Shareholder or Director From Abroad

If you do keep the shares, you can hold them as a non-resident without difficulty. Israeli company law imposes no residency requirement on shareholders, and none on directors either, so a foreign heir can sit on the board and vote the shares from overseas if that makes sense. What the company needs from you is identification, a passport rather than an Israeli ID, and an address for the register.

The practical frictions are the familiar non-resident ones. The company needs a registered office and an address for service in Israel, it will usually keep an Israeli accountant, and if dividends are paid to you abroad they carry Israeli withholding tax, subject to any relief under a tax treaty between Israel and your country. Whether you take an active governance role or stay a passive holder is a judgment call, and it depends heavily on whether you trust the people running the company you have just become a co-owner of.

The Tax Position, Now and Later

The reassuring part first: Israel abolished estate and inheritance tax in 1981, so inheriting the shares is not a taxable event in Israel. There is no Israeli death duty to pay before the shares can pass.

The catch is deferred, not absent. Israel does not grant a step-up in the shares' base cost on death. You inherit the deceased's original acquisition cost, and when you eventually sell, Israeli capital gains tax is measured from that old base, not from the value at the date of death. Depending on the company and your status, the gain on sale may fall within a non-resident exemption, or it may be taxed at 25%, or 30% if you hold 10% or more. Layered on top is your home country. A US or UK estate, for example, is generally assessed on the worldwide assets of the deceased, Israeli shares included, and heirs may have their own reporting duties on a foreign inheritance received. The Israeli side and the home-country side are separate systems that do not net against each other automatically.

In Practice: Under Section 88 of the Income Tax Ordinance 1961, an heir inherits the deceased's original cost base rather than a value stepped up to the date of death, so on a later sale the capital gains tax under Section 91 reaches 25%, or 30% for a holder of 10% or more. The Israel Tax Authority (Rashut HaMasim) collects this through the annual return due by 30 April following the year of sale, with interim advance payments during the year. On shares that appreciated over decades in the deceased's lifetime, the absence of an Israeli step-up can mean tax on hundreds of thousands of shekels of gain the heir personally never enjoyed, which is exactly why the acquisition records from the original purchase are worth locating early.

Where It Goes Wrong

Common Mistake: A foreign heir, told informally by the company's other shareholders that "the shares are yours now," starts acting as an owner, agreeing to a share issue or a sale, before the succession order is granted and the register updated. Legally the shares are still the deceased's, so the heir's consent is worth nothing, and a later, properly appointed representative may repudiate the deal. Worse, a death-triggered buyout clause in the shareholders' agreement may already have fixed the heir's entitlement at a low formula price the moment the shareholder died. Untangling decisions taken out of order can add months and tens of thousands of shekels in legal costs, all avoidable by getting the succession order and reading the governing documents before doing anything.

Practical Checklist

• Obtain an Israeli succession order or will execution order from the Inheritance Registrar before approaching the company
• Gather and apostille the foreign death certificate, will, and proof of relationship, with Hebrew translation
• Ask the company for its current articles of association and any shareholders' agreement, and read them for death-triggered terms
• Identify pre-emption rights, transfer restrictions, or buyout clauses before asserting any ownership
• Get an independent Israeli valuation where price or a buyout formula is in play
• Decide, with the other heirs, whether to hold jointly or use an estate division agreement to consolidate the shares
• Plan for the deferred position: no Israeli step-up in cost base, plus your home country's estate and reporting rules

Facing a Similar Situation?

Inherited Israeli shares reward heirs who take the steps in the right order and punish those who do not. An Israeli attorney can secure the succession order, deal with the company under Section 299 to update the register, read the articles and shareholders' agreement for the terms that quietly govern your entitlement, and coordinate the Israeli and home-country tax positions, all without you needing to travel.

Contact us for a confidential initial consultation about your Israeli inheritance.