Israel Bonds for Non-Residents: A US Investor Guide

Ask ten American supporters of Israel what an "Israel Bond" is and most will describe the certificate a grandparent bought at a bar mitzvah decades ago. That product still exists, and 2026 marks the 75th year of the program. But the broader question of how a non-resident lends money to the State of Israel actually has two very different answers, and the difference matters enormously for liquidity, minimum investment, and how the income is taxed and reported.

The first route is the familiar one: Israel Bonds sold through the Development Corporation for Israel, a US broker-dealer. The second is buying Israeli government bonds directly on the Tel Aviv Stock Exchange through an Israeli account. People routinely assume these are the same instrument. They are not, and choosing the wrong one for your situation leads to either locked-up capital you cannot access or an Israeli account you did not need to open. This guide separates the two.

What Israel Bonds Actually Are

Israel Bonds are debt securities issued by the State of Israel and sold to the diaspora through dedicated distributors. In the United States that distributor is the Development Corporation for Israel (DCI), a registered broker-dealer and member of FINRA and SIPC. DCI is the exclusive underwriter of State of Israel debt securities in the US market. Outside the US, the sister companies handle the same role: Canada-Israel Securities, Limited for Canadian residents, and Development Company for Israel (International) Ltd for the United Kingdom and Europe.

This structure has a practical consequence that non-residents often miss. When a US resident buys an Israel Bond, the transaction happens entirely within the US financial system. You pay in dollars from a US bank account, DCI holds the position, and the State of Israel sends interest and principal in dollars. No Israeli bank account, no shekels, no Tel Aviv brokerage. The bond is a claim on Israel, but the plumbing is domestic to your home country.

Current offerings fall into two families. Fixed-rate bonds, such as the Jubilee and Maccabee series, carry a set interest rate and a fixed term. Savings bonds, including the Sabra, Shalom, and Mazel Tov series, function more like a held-to-maturity certificate of deposit. The flagship Jubilee Fixed Rate Bond carries a minimum subscription of USD 25,000 with additional increments of USD 5,000. Savings bonds carry lower entry points, with the Mazel Tov gift bond historically the entry-level product. Rates and minimums change with each offering period, so confirm the current prospectus before committing.

In Practice: Israel Bonds bought through the Development Corporation for Israel are direct obligations of the State of Israel, and under Israel's standing undertaking, payments to non-residents are made free of Israeli tax. The Israel Tax Authority (Rashut HaMasim) takes no withholding from a US holder's interest. New bonds are typically issued on the 1st and 15th of each month, and fixed-rate series pay interest semi-annually. A USD 25,000 Jubilee bond paying, for example, a 5% coupon returns roughly USD 1,250 a year in two payments. Because settlement runs through a US broker-dealer, funds usually clear within 1 to 3 business days of purchase, far faster than opening an Israeli account.

Israeli Government Bonds on the Tel Aviv Stock Exchange

The second route is to buy government bonds the way an Israeli investor does: on the Tel Aviv Stock Exchange (Haboursa), through an Israeli brokerage account. These are tradable securities, not held-to-maturity savings instruments, and they come in several families.

Shahar bonds are fixed-rate shekel bonds. Galil bonds are linked to the Israeli Consumer Price Index, protecting principal against inflation. Gilon bonds carry a floating rate. Makam are short-term treasury bills issued by the Bank of Israel, typically with maturities up to one year, used by investors who want a near-cash shekel instrument.

Unlike DCI Israel Bonds, these instruments trade. You can sell a Shahar bond on any business day at the prevailing market price, which also means the price moves with interest rates. The trade-off is access: you need an Israeli brokerage account to buy them, which for a non-resident means going through the account-opening process at an Israeli bank or broker, with the identity, address, and anti-money-laundering documentation that involves. Our guide on Israeli investment accounts for non-residents walks through that account in detail.

Why would a non-resident take this harder route? Liquidity and inflation protection. A US investor who wants to hold shekel-denominated, CPI-linked Israeli debt that can be sold at will cannot get that from DCI. Only the Tel Aviv market offers it.

In Practice: Under Section 97(b3) of the Income Tax Ordinance 1961, a non-resident who sells Tel Aviv Stock Exchange securities, including listed government bonds, is exempt from Israeli capital gains tax, provided the securities were acquired while non-resident and no Israeli permanent establishment is involved. Interest on traded Israeli government bonds paid to non-residents is likewise generally exempt from Israeli withholding. A US investor holding NIS 300,000 in Galil bonds who sells at a NIS 24,000 gain pays no Israeli tax on that gain, and the Israeli broker applies no withholding once the non-resident declaration (hatzharat toshav zar) is on file. The Israel Tax Authority can audit the classification at any time, so keep proof of foreign residence in the account file. Account opening at an Israeli bank typically takes 3 to 6 weeks for a non-resident.

The Tax Picture: Two Products, Two Treatments

This is where keeping the products separate pays off, because the tax and reporting consequences diverge sharply.

For DCI Israel Bonds, the State of Israel pays interest to non-residents free of Israeli tax, so there is nothing to report to the Israel Tax Authority and no Israeli withholding to reclaim. The tax event happens in your home country. For a US investor, DCI issues a Form 1099-INT for any year with USD 10 or more of interest, and that interest is ordinary income on your federal return. A useful quirk: because the bonds are obligations of a foreign government, the interest is generally exempt from US state and local income tax in most states, mirroring the treatment of US Treasury interest. Confirm your specific state's rule, since a minority treat it differently.

For Israeli government bonds on the Tel Aviv Stock Exchange, Israel removes its own tax through the Section 97(b3) exemption and the non-resident interest exemption, but these are genuine foreign financial accounts. Where an Israeli resident would pay interest tax under Section 125C of the Income Tax Ordinance 1961 at 15% to 25%, a qualifying non-resident pays nothing on traded government bond interest. Israel participates in the Common Reporting Standard and complies with FATCA, so the Israeli broker reports your account, balances, and income to your home-country tax authority, and for US persons directly to the IRS. The income is fully taxable at home with no Israeli tax credit to offset it, because no Israeli tax was charged.

A frequent point of confusion for Americans concerns FBAR and Form 8938. An Israeli brokerage account holding government bonds is plainly a foreign financial account and is reportable. DCI Israel Bonds are a harder question, because they are bought and held through a US broker-dealer even though the underlying obligor is the State of Israel. The reporting analysis turns on how and where the bond is held, and US persons should put this specific question to a cross-border tax adviser rather than assume either answer. Our guide to FATCA and FBAR reporting for US citizens with Israeli accounts covers the framework.

Which Route Fits Which Non-Resident

The decision usually comes down to three questions: how much liquidity you need, whether you want shekel or dollar exposure, and whether you are willing to open an Israeli account.

A US donor-investor who wants a simple, dollar-denominated way to support Israel, is comfortable locking funds to maturity, and wants no Israeli paperwork should use DCI Israel Bonds. The purchase takes days, not weeks, and never touches the Israeli banking system.

A non-resident who wants tradable, inflation-protected, shekel-denominated Israeli government debt, perhaps as part of a broader Israeli portfolio that already includes a brokerage account, should use the Tel Aviv Stock Exchange route. The Section 97(b3) exemption makes the Israeli tax side clean, and the bonds can be sold whenever cash is needed.

A non-resident who already holds shekels in an Israeli account, for instance from a property sale or an inheritance, often finds the Tel Aviv route more natural, because the funds are already in the right currency and the right country. Parking idle shekel proceeds in Makam bills while deciding what to do next is a common move.

What Frequently Goes Wrong

Common Mistake: Non-residents treat DCI Israel Bonds as if they were liquid like a stock or a Tel Aviv-listed government bond, then discover they cannot get their money out. Israel Bonds sold through the Development Corporation for Israel are non-negotiable and non-transferable, and most series can only be redeemed at maturity, which for a Jubilee bond can be several years away. A non-resident who puts USD 50,000 into fixed-rate Israel Bonds expecting to access it for a property deposit six months later finds the capital locked, with no secondary market to sell into and only limited early-redemption rights on a few savings series. If you need the funds to remain accessible, a tradable Tel Aviv Stock Exchange government bond, which settles and sells on any business day, is the correct instrument, not a DCI savings bond.

Practical Checklist

• Decide first which product you actually want: a held-to-maturity diaspora bond through DCI, or a tradable Israeli government bond on the Tel Aviv Stock Exchange
• For DCI Israel Bonds, buy through the distributor for your country: DCI in the US, Canada-Israel Securities in Canada, or Development Company for Israel (International) in the UK and Europe
• Confirm the current minimum and rate in the live prospectus before subscribing, as both change with each offering period
• Budget for illiquidity on DCI bonds: assume the money is committed until maturity
• For Tel Aviv-listed government bonds, open an Israeli brokerage account first and file the non-resident declaration to activate the Section 97(b3) exemption
• Keep proof of foreign tax residency in the Israeli account file in case the Israel Tax Authority audits your non-resident status
• Report all bond income in your home country, even where Israel charges no tax, and have a cross-border adviser confirm your FBAR and Form 8938 position
• Match the currency to your need: DCI bonds pay in your home currency, Tel Aviv bonds pay in shekels

Speak With an Israeli Attorney

Lending to the State of Israel is straightforward once you know which of the two products you are actually buying, but the tax reporting on the home-country side rewards getting advice before you commit funds, not after. If you are weighing Israel Bonds against a Tel Aviv brokerage holding, or you already hold shekels you want to put to work, a short review of your residency and reporting position will point you to the right route.

Contact us for a confidential initial consultation.