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How is a kupat gemel lehashkaa (investment provident fund) taxed in Israel?

A kupat gemel lehashkaa is an Israeli savings vehicle that defers tax while the money stays invested. Switching between investment tracks or between fund managers triggers no tax event, which is its main advantage over an ordinary brokerage account. A lump sum withdrawal is taxed at 25% on the real gain, meaning the gain after inflation indexation, and the fund manager withholds that at source. A saver aged 60 or over who converts the balance into a lifetime annuity receives that annuity free of income tax. Deposits attract no tax deduction or credit, unlike pension and keren hishtalmut contributions.

The fund operates under the Control of Financial Services (Provident Funds) Law 5765-2005 and is supervised by the Capital Market, Insurance and Savings Authority. Deposits are capped per beneficiary per calendar year and the ceiling is indexed annually, so a family of four can shelter four times the individual ceiling by opening a fund in each name. The money stays fully liquid and can be withdrawn at any time, which separates this vehicle from a pension fund. The 25% figure is the standard real capital gains rate in Section 91 of the Income Tax Ordinance [New Version], and it bites only when money actually leaves the fund. The manager reports and withholds, so a straightforward withdrawal does not by itself create a filing obligation.

Two groups should think carefully before opening one. A new immigrant relying on the ten-year exemption gains little from the shelter, because the fund is an Israeli asset producing Israeli source income that the exemption does not reach, so foreign held investments are often the better home for that capital during the exemption window. United States citizens face the harder problem, since the fund is not a recognised pension arrangement under the US-Israel treaty and can attract passive foreign investment company or foreign trust reporting. Get cross-border advice before funding one. Our guide to the Israeli pension system for foreign workers compares the main savings vehicles side by side.

⚖ In Practice
  • Governing law: Control of Financial Services (Provident Funds) Law 5765-2005; Section 91, Income Tax Ordinance [New Version]
  • Competent authority: Capital Market, Insurance and Savings Authority (Rashut Shuk HaHon, Bituach VeHisachon); Israel Tax Authority
  • Annual deposit ceiling: approximately NIS 82,000 per beneficiary per calendar year (2026), indexed each January
  • Tax on withdrawal: 25% of the real gain, withheld at source by the fund manager
  • Age-60 route: converting the balance into a lifetime annuity through a pension provider makes the annuity income tax exempt
  • No deduction: deposits carry no income tax credit or deduction, and switching tracks or managers is not a taxable event

From the full guide: Israeli Pension System for Foreign Workers

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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