The Knesset Finance Committee has approved a new legislation that will allow the state to collect tax on trapped profits in personal service companies. The law will apply to companies with up to five shareholders with annual turnover of less than NIS 30 million, and holding or investment companies with significant passive shareholders' equity. Companies will have the option to choose between a compulsory dividend distribution or a 2% tax on cumulative profits. Most companies are expected to choose the dividend distribution option. The rise in surtax on dividend distributions will only apply to capital gains and not to other income from dividends.