The taxrate for dividends paid with respect to shares allotted under Section 102 ofthe Income Tax Ordinance is not clearly specified in the Income Tax Ordinance.However, the District Court judgment in the Conduit case decided that the taxrate on dividends on "ordinary" shares, which is 25%, should beimposed. This is consistent with the intent of Section 102.

Dividendsare taxed at 15% if the corporation qualifies for advantages under the IsraeliEncouragement of Capital Investment Law-1959. This is due to provisions in the EncouragementLaw that provide various tax breaks to corporations investing in specifiedindustries or locations. One of these advantages is a lower dividend tax rate.

Inconclusion, under section 102 of the Income Tax Ordinance, the tax rate for adividend received by an employee on a capital track is 25%, unless the companyqualifies for benefits under the Israeli Encouragement of Capital InvestmentLaw-1959, in which case the tax rate is 15%.

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