How does Israel tax foreign currency exchange gains for residents?

The Income Tax Ordinance [New Version] 5721-1961 defines "asset" broadly, and foreign currency falls within that definition. When an Israeli tax resident holds foreign currency — whether in a bank account, a brokerage account, or in physical cash — and realizes a gain from the currency appreciating against the NIS, that gain is in principle a capital gain subject to Israeli tax. The gain is calculated as the difference between the NIS equivalent of the currency at acquisition and the NIS equivalent at disposal, using the Bank of Israel representative exchange rates on each date. Understanding your overall Israeli tax residency status is the first step in determining whether these rules apply to you.

The Section 9(13) exemption is the most important practical relief for individual residents. It excludes capital gains from the disposal of a "personal asset" — which courts have interpreted to include foreign currency held for personal, non-business purposes — from tax. An Israeli resident who converts USD savings to NIS to buy a property or cover personal expenses is generally not taxed on any exchange gain realized in that conversion. However, the exemption does not apply to currency held in a foreign brokerage account used for systematic investment trading, or to positions that are treated as financial instruments. New immigrants (olim) and returning residents (toshavim hozrim) who qualify for a 10-year tax exemption under Section 14(a) would also generally exclude foreign-source currency gains during that period — but the interaction with Section 9(13) and the nature of the currency holding must be assessed carefully in each case.

From the full guide: Tax Residency in Israel: How It Is Determined and What It Means

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