Do Israeli residents pay capital gains tax when they sell foreign shares?

Israel applies residence-based taxation. Once you are an Israeli tax resident, your worldwide income and capital gains fall within the Israeli net, and the location of the brokerage account or the company does not exempt the gain. Under the Income Tax Ordinance (New Version) 5721-1961, capital gains on securities are taxed at a flat 25 percent for an individual, and at 30 percent where the seller is a substantial shareholder holding 10 percent or more of the company. To prevent double taxation, Israel grants a foreign tax credit for tax paid abroad on the same gain, and its network of double-taxation treaties allocates taxing rights between the two countries. The gain is reported on the annual return, and the taxable amount separates the real gain from any inflationary component.

For a new immigrant the picture is more generous at first. Section 14 of the Ordinance gives an oleh and a qualifying returning resident a ten-year exemption from Israeli tax on foreign-source income and gains, which covers gains on foreign shares acquired before or during that decade. After the exemption ends, worldwide taxation resumes. Because a foreign broker will not withhold Israeli tax, the resident must self-report the gain. A US citizen living in Israel typically also owes US tax and relies on the treaty and credits to avoid paying twice. Keep clear records of purchase cost and dates, since the Israel Tax Authority computes the gain in shekels, which introduces an exchange-rate effect on top of the market movement.

From the full guide: Tax Residency in Israel: When Worldwide Taxation Applies

← Browse all Q&A