Capital Gains Tax in Israel for Non-Residents: Rates, Exemptions and Treaty Relief

If you hold Israeli shares, bonds, units in Israeli funds, or a stake in an Israeli private company, your gain on disposal is likely taxable in Israel — regardless of where you live. Israel taxes capital gains on Israeli-sourced assets, and the rules are more nuanced than any single headline rate suggests.

For non-residents, the analysis runs through three layers: the domestic statutory rate under Israeli law, a potentially significant exemption for gains from Tel Aviv Stock Exchange-listed securities, and a network of bilateral tax treaties that can shift or eliminate Israel's taxing rights entirely. Missing any one of these layers can result in overpaying — or, just as problematically, underpaying and later facing a tax authority inquiry. This guide explains each layer clearly, so you know where you stand before completing a transaction.

1. What Is a Capital Gain Under Israeli Tax Law?

Under the Income Tax Ordinance (New Version) 1961 (*Pekudat Mas Hachnasa*), a capital gain (*revach hon*) is the profit realized when an asset is sold or disposed of — calculated as the consideration received minus the original cost, adjusted for inflation. Israel taxes "real" gains rather than nominal ones: the gain is reduced by the rise in the Israeli Consumer Price Index (CPI) between the date of acquisition and the date of sale. Only the inflation-adjusted profit is subject to the headline capital gains tax rate.

This inflation adjustment — called the *revach inflatziyoni* (inflationary component) — is important for assets held over many years, because it can substantially reduce the taxable gain compared to a simple purchase-price-versus-sale-price calculation. Only the residual amount above the inflationary component is taxed at the relevant rate.

Note that real estate in Israel is governed by a separate statute — the Land Taxation Law (*Chok Misui Mekarke'in*) 1963 — and the tax on selling Israeli property is called *mas shevach* (betterment tax). That topic is covered in our dedicated guide on betterment tax on Israeli real estate. This article focuses on non-real-estate capital assets: primarily shares, securities, partnership rights, and interests in Israeli companies.

2. Which Assets Trigger Israeli CGT for Non-Residents?

Under Section 89 of the Income Tax Ordinance, a non-resident is subject to Israeli capital gains tax on gains from assets whose source is in Israel. In practice, this covers:

• Shares in Israeli-resident companies — both privately held companies (*chevra be'am*) and companies listed on the Tel Aviv Stock Exchange (TASE)
• Rights in Israeli partnerships and limited partnerships — common in real estate and technology joint ventures
• Options, warrants, and convertible instruments over Israeli securities — frequently issued in Israeli startup equity rounds
• Units in Israeli-resident mutual funds (*keren naamanot*) and exchange-traded funds
• Goodwill and business assets of an Israeli branch or business operation

What is generally not in scope for a non-resident:

• Shares in a foreign-registered company that merely does business with Israel, unless the company's main assets are Israeli real estate or the gain is Israeli-sourced under a specific treaty provision
• Units in a foreign fund that invests in Israeli listed stocks — the fund itself (not the unit-holder) bears any Israeli tax obligation

One area requiring care is the sale of shares in a foreign holding company whose underlying asset is an Israeli operating company or Israeli real estate. In such structures, the Israel Tax Authority (ITA) may treat the gain as Israeli-sourced and assert taxing rights. If you are selling shares in a foreign entity that holds Israeli assets, take specific advice before assuming no Israeli exposure.

3. CGT Rates for Non-Residents on Israeli Securities

Where Israeli CGT applies and no exemption reduces it, the rates under the Income Tax Ordinance for individuals are:

These rates apply to the real (inflation-adjusted) gain only. The inflationary component is exempt. For assets acquired before January 1, 2003, transitional rules may apply to the pre-2003 portion of the gain at different historical rates. If you have held Israeli securities for more than two decades, consult an Israeli tax professional to calculate the blended effective rate accurately.

For non-residents who are Israeli citizens living abroad (*yordim*), the same domestic rates apply and the TASE exemption discussed below does not reduce the rate — citizenship is a disqualifying factor for that particular relief.

4. The TASE Exemption: Tax-Free Gains for Non-Resident Portfolio Investors

The most significant relief for foreign investors in Israeli listed securities is the exemption under Section 97(b2) of the Income Tax Ordinance. Under this provision, a non-resident individual who is not an Israeli citizen is exempt from Israeli capital gains tax on gains from securities listed on the Tel Aviv Stock Exchange, subject to conditions.

The exemption applies when all of the following are true:

• The seller is a non-resident of Israel
• The seller is not an Israeli citizen (*ezrach yisraeli*)
• The securities are listed and traded on the TASE (or cross-listed on a recognized foreign exchange)
• The seller is not a "substantial shareholder" — meaning they did not hold 10% or more of the company's shares at any point in the 12 months before the sale
• The company whose shares are sold is not primarily a real estate holding company whose main asset is Israeli land

For most foreign portfolio investors — pension funds, institutional investors, and individuals holding ordinary stakes in TASE-listed companies — this exemption effectively removes Israeli CGT entirely. It is a deliberate policy choice by Israel to attract foreign capital into its capital markets without imposing an additional layer of Israeli tax on top of whatever tax the investor's home country charges.

The exemption does not work automatically if your broker is unaware of your status. In practice:

• Inform your Israeli broker (or foreign broker handling TASE-listed trades) of your non-resident, non-citizen status before the sale
• Provide documentation — typically a valid foreign passport and a signed non-residency declaration
• Some brokers may require a letter from the ITA confirming exemption; others accept the declaration alone

If the broker withholds tax before receiving your documentation, the withheld amount can be recovered by filing a refund application with the ITA — but this process takes time and requires professional assistance.

5. Withholding Tax: How Israel Collects CGT at Source

Israel uses a withholding mechanism (*nika'on bamkor*) to collect CGT on securities transactions. The mechanics differ significantly depending on whether the securities are listed or unlisted:

TASE-listed securities through an Israeli broker

The broker automatically withholds CGT at the applicable rate when a gain is realized. If you are a non-resident entitled to the Section 97(b2) exemption, you must provide the broker with the required documentation before the sale to prevent unnecessary withholding. Without it, the broker is legally required to withhold at the standard 25% rate.

Private (unlisted) company shares — M&A transactions

There is no automatic broker withholding for private company share sales. Instead, the acquirer (*hakoneh*) bears the obligation to withhold the applicable CGT from the purchase price and remit it to the ITA within 30 days of the transaction. Simultaneously, the seller must file a capital gains return with the ITA, also within 30 days. In practice, this means the CGT exposure and filing obligation should be built into the transaction documents from the outset — not left to be resolved after closing.

In many Israeli startup acquisitions or secondary share sales, the parties agree to an escrow or holdback arrangement specifically to cover the CGT obligation pending the ITA's assessment. Alternatively, a seller expecting to qualify for an exemption or reduced treaty rate can apply to the ITA in advance for a ptor minkuyat mikor (reduced or exempt withholding certificate), which instructs the acquirer to withhold at a lower rate.

Securities sold through a foreign broker

Executing a sale of TASE-listed securities through a foreign broker does not automatically remove the Israeli tax filing obligation where an exemption does not fully apply. Non-residents should not assume that keeping the transaction "offshore" eliminates Israeli exposure — the ITA has authority over Israeli-sourced gains regardless of where the broker sits.

A Dutch investor held a 12% stake in a TASE-listed Israeli technology company for three years before selling through his Amsterdam brokerage for a gain of approximately NIS 820,000. His broker withheld 25% — NIS 205,000 — at source because the investor had not submitted non-residency documentation in advance of the sale, and because his 12% stake placed him above the 10% substantial shareholder threshold that disqualifies the Section 97(b2) TASE exemption. The Netherlands-Israel double taxation treaty's capital gains article allocated taxing rights on non-real-estate gains to the shareholder's country of residence, which meant Israel had no legal right to tax the gain at all. Recovering the withheld NIS 205,000 required filing a formal refund application with the Israel Tax Authority, submitting a Dutch tax residency certificate (teudat toshavut mas), and waiting five months for the ITA to process the refund. The full amount was eventually returned, but the delay and professional fees could have been entirely avoided by obtaining treaty documentation before the sale executed.

6. Double Taxation Treaties and CGT Relief

Israel has concluded over 60 double taxation treaties (*amana limniaat kiful misuy*). Almost all of them contain a capital gains article (Article 13 under the OECD model), and the outcome for a non-resident selling Israeli securities depends on the specific language of the relevant treaty.

Three common outcomes under Israeli treaties:

Residence country has exclusive taxing rights on portfolio gains

Certain treaties — particularly those with older OECD member states — allocate exclusive taxing rights on capital gains from non-real-estate assets to the investor's country of residence. Under such treaties, a French or German resident selling Israeli shares would owe no Israeli CGT at all, regardless of the domestic rules. The gain is taxed only in France or Germany.

Israel retains taxing rights on substantial holdings

Many treaties permit Israel to tax gains where the seller is a substantial shareholder (the threshold varies by treaty — commonly 25% or more of a company's shares) or where the gain relates to Israeli real estate. If you are exiting a controlling or major stake, treaty relief may be limited or unavailable for the Israeli portion of the gain.

No treaty in force

Israel does not have tax treaties with every country. If your country of residence lacks a treaty with Israel, the domestic Israeli rules apply in full. Check the current treaty list published by the ITA — treaties are periodically added or updated, and relying on an outdated list can lead to incorrect conclusions. Your Israeli tax adviser should verify the current treaty status and its terms for capital gains.

Where a treaty applies, you will generally need to produce a teudat toshavut mas (tax residency certificate) issued by the tax authority of your home country to claim the treaty rate. Some treaties also require a certificate of beneficial ownership. Prepare these documents before the transaction if at all possible — it is significantly more difficult to obtain them retrospectively.

For a full overview of how Israeli treaties affect various income types, see our guide on double taxation treaties with Israel.

7. Practical Steps for Non-Residents Before Selling Israeli Securities

Whether you are selling TASE-listed shares, exiting a startup investment, or unwinding a stake in an Israeli private company, the steps below will help you avoid overpaying — and avoid the much harder position of having to recover withheld tax after the fact.

Step 1: Classify your asset and your shareholder status

Is the asset TASE-listed or unlisted? Do you hold less than 10% of the company (a portfolio holder) or 10% or more (a substantial shareholder)? Is the company primarily a real estate holding company? These three questions determine which exemptions and rates apply.

Step 2: Confirm your treaty position

Check whether your country of residence has a tax treaty with Israel and, if so, what the capital gains article says about Israeli securities. If treaty relief is available, obtain a current tax residency certificate from your home-country tax authority before completing the transaction. Understanding your Israeli tax residency status is equally important — if you have become an Israeli tax resident without realising it, domestic rules apply in full.

Step 3: Notify your broker or request a reduced-withholding certificate

For TASE-listed securities: provide your broker with documentation of non-resident, non-citizen status. For private company sales: apply to the ITA for a reduced or exempt withholding certificate (*tofes 2513*) before the transaction closes. This instructs the acquirer on the correct withholding rate and avoids overpayment followed by a refund application.

Step 4: File any required returns promptly

For private company share sales, the 30-day filing deadline is firm. Missing it attracts penalties and interest. Even for TASE transactions where the exemption applies, consider filing a brief declaration with the ITA to document your exemption claim and create a clear record — particularly for large transactions.

Step 5: Retain documentation

Keep copies of the acquisition cost documentation, broker confirmations, the non-residency declaration, and any treaty residency certificates. The ITA audit window can extend several years after the transaction, and having a clear paper trail makes any subsequent inquiry straightforward to resolve.

Non-residents navigating an Israeli startup exit or a secondary share sale for the first time are strongly advised to engage an Israeli tax attorney or certified public accountant before the deal closes. The cost of professional advice at the transaction stage is almost always lower than the cost of reconstructing the position — or filing amended returns — afterward.