Does Israel tax dividends from foreign companies received by an Israeli individual tax resident?

Under Section 125B of the Income Tax Ordinance (*Pekudat Mas Hachnasa*) 5721-1961, Israeli individual tax residents are subject to tax on dividends received from any foreign company, including offshore holding companies and foreign subsidiaries. The tax is levied on the gross dividend at a flat rate before deducting any foreign withholding tax: 25% for ordinary shareholders, or 30% for a "substantial shareholder" (*ba'al ma'amad mahuthi*) who holds 10% or more of the voting rights or profit entitlement in the distributing company at the time of distribution or at any point in the preceding 12 months. Unlike inter-company distributions between Israeli companies, no participation exemption applies to individual recipients of foreign dividends. The Israeli taxable base is the full pre-withholding gross amount received, and the foreign withholding is then credited separately. The income must be declared on Form 1301 (the individual annual tax return for residents with foreign income) and assessed by the Israel Tax Authority (*Rashut HaMisim*). The guide on dividend taxation in Israel covers the full framework.

Israel's network of double-taxation treaties — covering over 50 countries including the United States, United Kingdom, and Germany — typically reduces the foreign withholding tax on dividends to 10–15%. Under Section 196 of the Income Tax Ordinance, that foreign withholding is credited directly against the Israeli tax on the same dividend, reducing the effective Israeli burden to the difference. Where no treaty applies, a unilateral foreign tax credit is available under Section 199, though its scope is narrower. For new olim and veteran returning residents, Amendment 168 to the Income Tax Ordinance provides a 10-year exemption from Israeli tax on all foreign-source income — including dividends from foreign companies — making the timing of Aliyah relative to major dividend distributions a significant tax planning consideration. Olim nearing the end of their 10-year exemption window who anticipate large dividend receipts should consult an Israeli tax adviser well in advance.

From the full guide: Dividend Tax in Israel: A Complete Guide for Foreign Investors and Israeli Residents

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