Does Israel charge an exit tax when you stop being a tax resident?

You sell your Tel Aviv apartment, move to London, and assume Israel is now behind you. Not for tax. The day before you stop being an Israeli tax resident, Israel treats every asset you own as if you sold it, and the built-in gain becomes taxable. This is the exit tax, in Hebrew mas yetzia, set out in Section 100A of the Income Tax Ordinance 1961. It reaches your foreign shares and portfolios too, not only what you left behind.

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Detailed Explanation

The logic is straightforward. Once you are no longer a resident, Israel loses the right to tax future gains on your assets, so the law captures the gain that accrued while you were a resident by pretending you sold everything on the day before residency ended. That deemed sale produces a capital gain equal to the difference between what you paid for the asset and its market value on the exit date, and this gain is taxable in Israel. You do not, however, have to write a cheque the moment you leave. The law gives you a choice.

Option one is to pay now. You report the deemed gain, calculate the tax, and settle it as you leave. Option two is to defer. You pay nothing at departure and wait until you actually sell. When that real sale happens, perhaps years later, Israel taxes only the slice of the gain that relates to your Israeli-residency period. The apportionment is mechanical. The gain is split by the holding period, so the time you held the asset as a resident, divided by the total time you held it, sets the taxable fraction. Hold a share for ten years, four as an Israeli resident, and roughly forty percent of the eventual gain falls into the Israeli net.

Deferral is often attractive, but it carries a long tail. You stay tied to the Israeli tax system for that asset until you dispose of it, and the cost, the exit-date value, and the acquisition date must be documented, sometimes decades later. Which option wins depends on your own numbers, so decide before you leave.

Because the tax bites at the exact moment you become a non-resident, timing matters, and so does knowing when your residency ends. That turns on the center-of-life test and the day-count presumptions, which I explain in the guide on how Israel decides who counts as a tax resident. Get the exit date wrong and the whole calculation shifts.

The reach of Section 100A surprises people. Worldwide assets are caught, including foreign securities and holdings in overseas companies you built up while living in Israel. A brokerage account in New York is as exposed as a flat in Herzliya.

Then comes the coordination problem with your new country. Your destination, whether the United States, the United Kingdom, or elsewhere, will usually tax the gain when you sell, under its own rules. Many countries give no credit for the Israeli exit tax, because from their point of view no sale happened when you left. So the same economic gain can be taxed twice. The destination may also reset your cost basis to the arrival value, or it may not, which changes how much overlap there is. Some treaties soften this, some do not.

Reporting is the last piece. The exit-tax position goes into your Israeli annual return for the year you left, whether you pay immediately or defer. That return is where you disclose the deemed sale and record your choice.

In Practice: Section 100A of the Income Tax Ordinance 1961 sets the exit tax at the ordinary capital gains rate, generally 25 percent, or 30 percent for a material shareholder holding 10 percent or more. On a deemed gain of NIS 1,000,000 that is NIS 250,000 of tax. The deemed sale is fixed to the day before residency ends, and the position is filed with the Israel Tax Authority (Rashut HaMisim) in the annual return for the exit year, due by 30 April following that tax year.

Key Considerations

• The choice between paying now and deferring is not just a cash-flow question. Deferral keeps you inside the Israeli system for that asset, sometimes for years, with all the record-keeping that implies.
• Valuation is where disputes start. You need a defensible market value for each asset on the day before you left, and illiquid assets are hard to price after the fact.
• Foreign assets are fully in scope, so an overseas portfolio built up during your Israeli years cannot be assumed to fall outside the charge.
• Double taxation is a real risk where your new country gives no credit for the Israeli exit tax against its own tax on the same gain.
• Check whether a treaty between Israel and your destination addresses the deemed sale, because relief varies and cannot be assumed.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You hold a substantial foreign portfolio or an interest of 10 percent or more in a company, where the rate and the apportionment can move the tax by large amounts.
• You are unsure of your exact residency-cessation date, since it fixes the valuation day and the whole calculation flows from it.
• Your destination country will tax the same gain and you need to model whether paying now or deferring produces the smaller combined bill.

A qualified Israeli attorney should review your circumstances before you finalize your departure date or make the pay-now versus defer election.

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Speak With an Israeli Attorney

The exit tax rewards planning done before you leave. We can model the deemed sale, the deferral election, and your new country's tax so you are not taxed twice on the same gain.

Contact us for a confidential initial consultation.