Israeli Investment Accounts: Non-Resident Guide

Most non-residents who think about Israeli investments think about property. Israeli shares, bonds, and funds rarely come up — which is a missed opportunity, because the Israeli tax framework for non-residents investing through the Tel Aviv Stock Exchange contains one of the more generous exemptions in the region. Capital gains on most TASE-listed securities are simply not taxed for non-residents. The exemption is statutory, well-established, and applied automatically once the investor's status is on file with the broker.

That is the headline. The rest of this guide covers the practical details: which accounts are available, which investments do and do not qualify for the exemption, what dividend withholding applies, and what home-country reporting follows.

The Capital Gains Exemption on TASE Securities

The most important provision for non-resident investors in Israeli financial markets is Section 97(b3) of the Income Tax Ordinance 1961. It provides that a non-resident is exempt from Israeli capital gains tax on gains derived from the sale of securities listed on a recognised stock exchange — including the Tel Aviv Stock Exchange (Haboursa) — subject to three conditions.

Condition 1: The securities must not be of an Israeli real estate company — defined as a company whose assets consist primarily of Israeli land rights or rights in Israeli real property. Shares in regular Israeli technology, pharmaceutical, defence, or financial companies listed on the TASE qualify. Shares in Israeli real estate investment companies or property developers whose balance sheet is primarily land-based do not.

Condition 2: The non-resident must have no permanent establishment in Israel to which the gain is attributable. For a passive portfolio investor living abroad, this condition is met automatically.

Condition 3: The securities must have been acquired by a person who was already a non-resident at the time of acquisition. Investors who held Israeli securities as Israeli residents and then became non-residents cannot apply the exemption retroactively to the pre-emigration acquisition period.

When all three conditions are met, the gain is not subject to Israeli tax at all — the broker does not withhold, and no Israeli filing is required for the capital gain itself.

In Practice: Under Section 97(b3) of the Income Tax Ordinance 1961, a non-resident investor who purchases NIS 400,000 in TASE-listed Israeli technology shares and sells them three years later for NIS 620,000 realises a gain of NIS 220,000 that is entirely exempt from Israeli capital gains tax. No Israeli withholding is applied at the point of sale, and no Israeli tax return is required for the gain. To activate the exemption, the investor must file a non-resident declaration (hatzharat toshav zar) with the Israeli broker at account opening; the broker then codes the account accordingly. The Israel Tax Authority (Rashut HaMasim) can audit the classification at any time — retaining documentation of foreign residence (foreign tax residency certificate, foreign address proof) in the account file is the investor's protection. Home-country capital gains tax on the same gain may still apply in full; the exemption is Israeli only.

This exemption was introduced partly to attract foreign capital into Israeli equity markets. It is well-known among Israeli tax practitioners but routinely unknown to the foreign investors who could use it.

Dividend Withholding: What Non-Residents Receive

The capital gains exemption does not extend to dividends. Israeli companies withholding tax on dividends paid to non-residents at a flat rate regardless of the holding period.

In Practice: Under Section 125B(b) of the Income Tax Ordinance 1961, Israeli companies — and Israeli mutual funds distributing dividends — withhold 25% of gross dividend payments to non-resident shareholders before remittance. A non-resident holding NIS 300,000 in a TASE-listed Israeli pharmaceutical company that declares a NIS 15,000 dividend (5% yield) receives NIS 11,250 after withholding. "Substantial shareholders" — defined as those holding 10% or more of the company's shares, voting rights, profit entitlement, or right to appoint directors — face a 30% withholding rate under Section 125B(a). For investors in Israeli mutual funds (krupot naamanot), dividends distributed by the fund are subject to the same 25% withholding applied by the fund manager before distribution. Non-residents from treaty countries can reduce the rate to typically 10–15% by filing an annual treaty benefit declaration with the broker or fund manager; the declaration must be renewed each year and is not applied retroactively to dividends already paid.

The treaty benefit declaration process varies by institution. Most Israeli brokers require a foreign tax residency certificate issued by the home-country tax authority (equivalent to the HMRC residence certificate for UK residents), translated into Hebrew and apostilled where the institution requires. The reduced rate applies from the date the declaration is received and accepted — not from the start of the tax year.

Types of Israeli Investment Accounts for Non-Residents

Standard brokerage account (cheshbon hashkaot). The primary vehicle for holding TASE-listed shares, bonds, Israeli ETFs, and mutual fund units. Available at all major Israeli banks and at independent brokers. Non-residents open these accounts through the bank's overseas branch or by visiting a branch in Israel in person; remote account opening is available at some institutions with apostilled documentation.

Savings deposits (pikkadon). Fixed-term NIS deposits paying Israeli shekel interest rates. Not equity investments, and subject to the 25% withholding on interest for non-residents (reducible under treaty). No capital gains exposure — the principal is returned at maturity. Useful for non-residents who need to park NIS proceeds from a property sale while awaiting a wire transfer clearance.

Israeli government bonds (gilaon, CPI-linked or shekel-fixed). Available through brokerage accounts. TASE-listed government bonds fall within the Section 97(b3) exemption for capital gains, and interest income is subject to a lower withholding rate than corporate bonds in many cases. An Israeli tax adviser should confirm the applicable withholding rate for the specific bond series before purchase.

Israeli mutual funds (krupot naamanot). Collective investment schemes regulated by the Israel Securities Authority (Reshut Nirot Erech, ISA). Available to non-residents through brokerage accounts. Capital gains on TASE-listed fund units qualify for the Section 97(b3) exemption for non-residents in the same way as shares. Dividends from the fund are withheld at 25%. The fund structure and underlying assets should be reviewed for home-country tax classification before investment, particularly for US persons.

Provident funds and pension assets (kupot gemel, keren hishtalmut). Not investment accounts in the conventional sense, but long-term savings vehicles accumulated through Israeli employment. Non-residents with prior Israeli employment may have dormant Israeli pension or provident fund balances. These are accessible from abroad with specific documentation — a non-resident declaration, Israeli tax residency confirmation for the period of accumulation, and the fund manager's withdrawal forms completed in Hebrew. Tax on withdrawal depends on the fund type, the basis for withdrawal, and any applicable treaty.

US Persons: A Separate Caution

Non-resident investors from the United States — citizens and Green Card holders — face a layer of compliance that does not apply to investors from other countries.

FATCA. Israeli financial institutions are FATCA-compliant and report US-person account holders directly to the IRS. A US person opening an Israeli brokerage account will be asked to complete Form W-9 (for US persons) as part of account opening. Some Israeli brokers decline to open accounts for US persons altogether due to the ongoing FATCA reporting burden; the major Israeli bank brokerage arms generally accept them.

PFIC rules. Under US tax law, a non-US investment fund in which a US person holds shares may be classified as a Passive Foreign Investment Company. If an Israeli mutual fund qualifies as a PFIC, gains on disposal and distributions are subject to the US PFIC regime — a punitive tax calculation that eliminates the timing benefits of deferral and imposes an interest charge. Investing in Israeli mutual funds through a TASE-listed ETF structure may produce different results from investing directly in the fund; a US tax adviser familiar with PFICs should review any Israeli fund structure before a US person invests.

FBAR. US persons with Israeli brokerage accounts where the aggregate value exceeds USD 10,000 at any point during the year must file FinCEN Form 114 (FBAR) with the US Treasury. The Israeli brokerage account is a foreign financial account for FBAR purposes regardless of the account type or the assets held within it.

Opening an Israeli Investment Account from Abroad

The account opening process for a non-resident brokerage account at an Israeli institution typically requires:

• Passport and proof of foreign address (utility bill or foreign government document)
• FATCA/CRS self-certification form declaring tax residency
• Non-resident declaration for Israeli tax purposes (hatzharat toshav zar)
• Source-of-funds information for the initial deposit under Anti-Money Laundering Law 2000 requirements
• In some cases, a reference letter from the applicant's home-country bank

Israeli banks with overseas branches — particularly Bank Leumi and Bank Hapoalim, which maintain branches in major financial centres — allow account opening at those branches without travelling to Israel. Fully remote account opening is available at some institutions with apostilled identity documents; availability changes with each institution's compliance policy and should be confirmed directly before starting the process.

Once the brokerage account is open, trading on the TASE is conducted online through the bank's trading platform. Israeli trading hours are Sunday through Thursday, aligned with the Israeli business week — a practical difference from European or American investors accustomed to Monday-to-Friday markets.

Home-Country Reporting for Israeli Investment Income

The Section 97(b3) exemption removes Israeli tax on TASE capital gains. It does not remove the obligation to report those gains in the investor's home country.

Under CRS, Israeli brokers report annual account data — including gross proceeds from securities sales — to the investor's home-country tax authority. A UK investor who sells Israeli shares at a NIS 200,000 gain will find those proceeds reflected in HMRC's CRS data for the year, regardless of the Israeli exemption. HMRC will expect to see the capital gain on the Self Assessment return. The fact that no Israeli tax was withheld means the investor has no foreign tax credit to apply — the full home-country capital gains tax applies to the gain.

For most home countries, Israeli dividends are treated as foreign dividend income, reportable in the year of receipt. The Israeli withholding tax withheld at source (25% or the applicable treaty rate) generates a foreign tax credit in the investor's home-country return to prevent double taxation on the same income.

What Frequently Goes Wrong

Common Mistake: Non-residents who hold shares in TASE-listed Israeli real estate companies — property developers, real estate investment trusts, land-holding groups — assume they qualify for the Section 97(b3) capital gains exemption simply because the shares are listed on the TASE. The exemption explicitly excludes companies whose primary assets consist of Israeli land rights. On disposal, the broker is required to withhold Israeli capital gains tax at 25%, regardless of the investor's non-resident status. A non-resident who sells NIS 500,000 worth of TASE-listed Israeli real estate company shares at a NIS 120,000 gain faces NIS 30,000 withheld at the point of sale with no automatic recourse. Whether a given TASE-listed company qualifies as a real estate company under Section 64A of the Income Tax Ordinance 1961 requires reviewing its asset composition — not merely its sector label on the exchange. Confirm the classification through the company's annual report or with an Israeli tax adviser before investing.

Practical Checklist

• File a non-resident declaration (hatzharat toshav zar) with the Israeli broker at account opening to activate the Section 97(b3) capital gains exemption
• Confirm that each TASE-listed security in your portfolio is not classified as a real estate company before relying on the exemption
• File an annual treaty benefit declaration with the broker to activate any reduced dividend withholding rate applicable under your home country's tax treaty with Israel
• Retain proof of foreign tax residency in the account file — ITA can audit the non-resident classification
• US persons: complete Form W-9 at account opening and review Israeli fund holdings for PFIC classification before investing
• US persons: file FBAR (FinCEN Form 114) annually if the aggregate account value exceeds USD 10,000 at any point during the year
• Report Israeli capital gains (even if Israeli-exempt) and dividends on the home-country tax return; claim the foreign tax credit for Israeli withholding on dividends
• For Israeli provident or pension fund access: obtain the fund's current balance statement before engaging withdrawal procedures — balances may have grown significantly through investment returns since the accumulation period ended

Speak With an Israeli Attorney

Israeli investment accounts offer non-residents a capital gains exemption that few other jurisdictions provide to foreign investors — but the exemption has boundaries, and the compliance picture on the home-country side requires careful handling. Getting the account classification and treaty declarations in place from the start protects the tax position on both sides.

Contact us for a confidential initial consultation.