Israel taxes capital gains at a flat 25% on the real, inflation-adjusted profit from selling an asset, rising to 30% if you hold 10% or more of the company you’re selling. But the Israel capital gains tax for immigrants works very differently for the first ten years: new olim and long-term returning residents pay zero Israeli tax on foreign-source capital gains during that decade, and they don’t have to report those gains at all. Everything below explains how that decade works, what happens when it ends, and how the ordinary rules apply to gains that don’t qualify.
The 10-Year Exemption on Foreign Gains
Amendment 168 to the Income Tax Ordinance, signed in 2008 and applied retroactively from January 1, 2007, created a ten-year exemption from Israeli tax on foreign-source income for two groups:1The Times of Israel. Did a Little-Noticed Tax Exemption Law Turn Israel Into a Criminals’ Paradise?
- New immigrants (Olim Hadashim): individuals who become Israeli tax residents for the first time.
- Senior Returning Residents (Toshavim Hozrim Vatikim): Israeli citizens or former residents who return after living abroad for at least ten consecutive years.
During the ten years starting on your date of arrival, you pay no Israeli tax on any income sourced outside Israel. That covers capital gains on foreign stocks, profits from overseas real estate, dividends from foreign companies, rental income from properties abroad, and business income earned outside Israel. The exemption reaches both assets you owned before the move and foreign assets you buy after arriving, as long as the asset itself sits outside Israel.
Just as valuable, there is no obligation to report foreign income or foreign assets to the Israel Tax Authority during the ten-year window. No tax, no disclosure, whatever the size of the gain or the frequency of the trades.
A boundary worth stating: the exemption is for foreign-source gains only. If you sell an Israeli-situated asset — a Tel Aviv apartment, shares in an Israeli company — the ordinary rules apply from day one.
What Happens After the Ten Years End
Once your holiday ends, worldwide capital gains become fully taxable under Israel’s standard rules. The transition is softer than it sounds. When you sell a foreign asset after the exemption has expired, only the gain attributable to the post-exemption period is taxable. The exemption phases out linearly: the taxable portion is calculated proportionally, based on how long you held the asset after the exemption ended compared with your total holding period.
Say you bought foreign shares five years before moving to Israel, held them through your entire ten-year exemption, and then sold them three years after the exemption expired. Only the fraction of the gain matching those final three years out of the total eighteen-year holding period would be taxable in Israel. This linear apportionment prevents a cliff where selling a day after year ten would trigger tax on decades of appreciation.
Standard Capital Gains Rates and the Inflation Adjustment
For gains that don’t qualify for the exemption, or for anything you sell after the ten years end, individuals pay 25% on the real capital gain. The rate rises to 30% for a “substantial shareholder,” meaning someone who held 10% or more of any means of control in the company either at the time of sale or at any point in the twelve months before it.
The word “real” is doing a lot of work. Israel splits every capital gain into two components:
- Inflationary gain: the portion of profit attributable to changes in the Consumer Price Index between purchase and sale. For assets acquired on or after January 1, 1994, this component is taxed at 0%. For the portion of inflationary gain that accrued before 1994, a 10% rate applies.
- Real gain: everything above the inflation-adjusted cost basis. This is the portion taxed at 25% or 30%.
On long-held assets this can meaningfully shrink the tax bill. If prices roughly doubled through inflation over your holding period, a large slice of your nominal profit gets classified as inflationary and taxed at zero. The Tax Authority runs the calculation using the actual CPI figures for your acquisition and sale dates.
The reach of the tax is broad. Once you’re a resident, worldwide assets are in scope: tangible property, intangible rights like intellectual property and goodwill, and standard financial instruments including stocks, bonds, and mutual fund shares regardless of where the account is held.2PwC Worldwide Tax Summaries. Israel – Individual – Income Determination
When You Count as an Israeli Tax Resident
All of this depends on being an Israeli tax resident, so the threshold question is when Israel considers you one. The primary test is “center of life,” a qualitative assessment that looks at where your family lives, where you work, where your economic and social ties are strongest, and where you spend most of your time. It’s a totality-of-circumstances test, and the Tax Authority can weigh the factors differently case by case.
On top of the center-of-life test, the law sets two rebuttable presumptions based on physical presence. You’re presumed resident if you spend 183 days or more in Israel during a single tax year. You’re also presumed resident if you spend at least 30 days in Israel during the year and your cumulative presence over that year plus the two preceding years reaches 425 days. Either presumption can be rebutted with evidence that your center of life is genuinely elsewhere, but that takes affirmative proof.
For a new immigrant, the ten-year clock generally starts on the date you become a resident under these rules, which is normally the date you actually move and shift your center of life to Israel.
Real Estate: A Separate Regime
Israeli real estate sits under a different law, the Land Appreciation Tax Law, and the tax on the sale is commonly called Mas Shevach. The concept is the same — you’re taxed on the real increase in value between purchase and sale — but the mechanics and exemptions are their own system.
Israel offers a full exemption from Mas Shevach on the sale of a qualifying primary residence, with stricter conditions than most sellers expect. To qualify, the property must be your only residential property in Israel, you must have owned it for at least eighteen months, and you must not have used this exemption on another property within the previous eighteen months. The sale price must fall below approximately NIS 5 million; above that, only a partial exemption applies.
A married couple is treated as one taxpayer, so if one spouse owns even a partial interest in another residential property, the exemption can be denied for both. Minor children fall under the same unit, so buying property in a child’s name doesn’t create a separate exemption.
Non-residents face a higher bar. Since 2014, foreign residents can claim this exemption only if they prove they don’t own a residential property in their country of residence, which often requires official documentation that foreign governments don’t readily provide.
US Citizens and Green Card Holders
American olim face a burden other immigrants don’t: the United States taxes its citizens and permanent residents on worldwide income regardless of where they live. Gains that are exempt in Israel during the ten-year holiday can still be fully taxable in the U.S., and gains taxable in both countries need coordination to avoid double taxation.
The US-Israel Tax Treaty
Article 15 of the US-Israel tax treaty generally provides that a resident of one country is exempt from capital gains tax in the other country. The carve-outs are significant. The other country keeps taxing rights over gains from real property, gains connected to a permanent establishment there, gains realized by an individual present for 183 or more days in the tax year, and gains from selling stock in a company of that country where the seller owned 10% or more of the voting power within the prior twelve months.3Internal Revenue Service. United States-Israel Income Tax Treaty These exceptions catch many of the common transactions American olim actually run into.
Foreign Tax Credit
Where both countries tax the same gain, the main relief is the U.S. foreign tax credit. Israeli capital gains taxes that qualify as income taxes can be credited against U.S. tax on the same income using Form 1116.4Internal Revenue Service. Foreign Tax Credit You can’t claim the credit against income you’ve excluded from U.S. gross income, and the credit can’t exceed your U.S. tax on the foreign-source income, so a very high Israeli rate on a particular gain can leave a residual you can’t fully offset.
FBAR and FATCA Reporting
Holding financial accounts in Israel triggers two U.S. reporting duties that have nothing to do with whether you owe tax. If the combined value of your foreign financial accounts — Israeli bank accounts, brokerage accounts, pension funds, mutual funds — exceeds $10,000 at any point during the year, you must file FinCEN Form 114 (the FBAR) electronically by April 15, with an automatic extension to October 15.5Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
FATCA separately requires Form 8938 with your tax return if your foreign financial assets exceed $200,000 on the last day of the tax year or $300,000 at any time during the year for single filers living abroad. Married couples filing jointly face thresholds of $400,000 and $600,000.6Internal Revenue Service. Summary of FATCA Reporting for US Taxpayers Many olim cross those thresholds within a few years.
The Israeli ten-year reporting exemption does not touch any U.S. obligation. Israel may not ask about your foreign brokerage account during the holiday, but the IRS still expects to see it on your FBAR, your Form 8938, and your 1040.
Reporting a Gain and Paying the Tax
When a capital gain is taxable in Israel, it’s reported on Form 1399 under Section 91 of the Income Tax Ordinance. The form requires transaction dates, cost basis, sale proceeds, and the details needed to calculate the inflationary adjustment.7Israel Tax Authority. Report the Sale of Property Under Section 91 of the Income Tax Ordinance – Form 1399
The filing deadline is 30 days from the date of sale. You submit the completed form either through the Tax Authority’s online portal or by printing it and delivering it to your local income tax office.7Israel Tax Authority. Report the Sale of Property Under Section 91 of the Income Tax Ordinance – Form 1399 Most gains are then consolidated into your annual income tax return at year-end. Keep original purchase contracts, brokerage statements, settlement documents, and records of deductible expenses like legal fees, commissions, and improvement costs. Those reduce the taxable gain and need to be substantiated if the Tax Authority reviews the filing.
Late filing and late payment both trigger interest and CPI-linkage penalties that compound quickly. Thirty days is a tight window for a real estate sale or a large equity trade, so have your documentation organized before closing.
If You Later Leave Israel
One boundary to keep in mind if you may not stay permanently. If you become an Israeli tax resident and then cease residency, Section 100A of the Income Tax Ordinance triggers a “deemed sale” of your assets one day before you stop being a resident. Personal-use items like cars and furniture are excluded. Most departing residents don’t pay on departure day; the law deems a deferral, and the tax is due when you actually sell. The amount owed covers the portion of the gain attributable to your period of Israeli residency, calculated by a linear formula: the real capital gain at the time of actual sale, multiplied by the ratio of days you held the asset as an Israeli resident to your total holding period.8International Center for Not-for-Profit Law. Income Tax Ordinance New Version 5721-1961 Interest and CPI-linkage adjustments accrue on the deferred tax from the actual sale date until payment.