Trapped Profits (Revach Kalu'a)
Multinational earnings accumulated tax-free in Israel under the Encouragement of Capital Investments Law, taxable only when distributed as dividends or moved offshore — leaving large balances "trapped" inside Israeli subsidiaries.
Trapped Profits (Hebrew: revach kalu'a) are multinational earnings accumulated tax-free inside Israeli subsidiaries under the Encouragement of Capital Investments Law. The law grants reduced or zero corporate tax on qualifying industrial and tech profits — but the exemption holds only so long as the money stays in Israel. Distribute it as a dividend or move it offshore, and the deferred tax comes due.
The result is large cash balances that companies are reluctant to release, because doing so crystallizes a tax bill. The mechanism is structurally important to how foreign-owned Israeli operations — particularly in tech and pharma — manage their balance sheets, and it is the standing problem that periodic reform windows are designed to unlock.