Capital Gains Tax on Israeli Investments: French Residents

A Paris engineer who took shares in a Tel Aviv software company during its early years called me the week the acquisition closed. His stake had turned into a seven-figure euro payout, and he had spent the previous fortnight bracing for a brutal squeeze: Israeli tax on the exit, then French tax on whatever survived. He had it almost inverted. Israel, on the facts, would take nothing from his gain, while the French treasury would want its full share under the flat tax. The shock was not that two states taxed him, but that only one did, and it was the one he had barely thought about.

That reversal is common among French residents holding Israeli investments. Israel deliberately exempts most foreign investors from capital gains tax on Israeli securities, precisely to pull outside capital toward Tel Aviv. France, for its part, taxes its residents on gains wherever those gains arise in the world. Knowing which gains Israel genuinely reaches, and where the real bill falls, is what turns a clean disposal into an orderly one rather than a panicked scramble across two tax administrations.

When Israel Taxes a French Resident's Gain

Start with source, because that is where Israel's claim begins. Section 89(b) of the Income Tax Ordinance 1961 treats a capital gain as Israeli-source when it comes from an asset located in Israel, which includes shares or rights in an Israel-resident company. On that basis alone, a gain on Tel Aviv-listed shares or in a private Israeli company sits, at first sight, inside Israel's net.

What lifts most French residents back out of that net is a deliberate set of exemptions built to court foreign capital. They are broad, but they run on conditions, and the conditions are where investors stumble.

One boundary needs stating up front. This guide is about investments: shares, funds, securities, bonds. Israeli real estate is a separate regime with its own tax, mas shevach (betterment tax), and none of the securities exemptions below touch it. A French resident selling a Tel Aviv apartment rather than a share portfolio is governed by the rules in our guide to capital gains tax on an Israeli property sale.

The Non-Resident Exemption for French Investors

For securities traded on the Tel Aviv Stock Exchange, a non-resident is generally exempt from Israeli capital gains tax, as long as the gain is not connected to a permanent establishment in Israel. For unlisted shares in a private Israeli company, an exemption reaches non-residents on shares acquired on or after 1 January 2009, again subject to conditions.

The condition that decides most cases is the character of the company. If the company's value comes principally from Israeli land, it is treated as a real estate company, the exemption falls away, and Israel taxes the gain. This is the very same line the France-Israel treaty draws, which is no accident: domestic law and the treaty were designed to point in the same direction.

In Practice: Under Section 97(b3) of the Income Tax Ordinance 1961, a French resident is exempt from Israeli capital gains tax on shares of an Israeli company acquired on or after 1 January 2009, unless the company derives its value principally from Israeli real estate. The Israel Tax Authority (Rashut HaMasim) administers the exemption, yet under the withholding rule in Section 164 an Israeli broker still applies a default deduction of 25% at the point of sale unless the exemption is documented first. Recovering wrongly withheld tax through a refund claim commonly takes four to nine months from filing. Establish the exemption with the broker, backed by a French certificate of tax residence, before you sell rather than after.

The Rates and Surtax When the Exemption Does Not Reach

Sometimes the exemption simply does not stretch. A pre-2009 private holding, a company whose worth is mostly Israeli property, or a gain tied to Israeli business activity can each pull Israel back into the frame.

When Israel does tax an individual's gain, the rates are:

• 25% on the real, inflation-adjusted gain for an ordinary shareholder
• 30% where you held 10% or more of the company at the sale or during the preceding twelve months, the substantial-shareholder rate
• A surtax on top at high income levels

The surtax is worth a line of its own, because it grew in 2025. Israel had long levied a 3% surtax (mas yesef) on very high income. From 2025 it added a further 2% aimed specifically at capital income, so a large Israeli investment gain that is actually within the Israeli charge can now carry a combined surtax of up to 5% under Section 121B of the Income Tax Ordinance 1961, on income above roughly NIS 721,000 in the year. For a one-off exit that briefly lifts you over the threshold, that surtax alone can be tens of thousands of shekels, which is another reason a French investor should model the Israeli position before assuming it is nil.

How France Taxes the Same Gain

Here is the half the Paris engineer had underweighted. A French resident is taxed by the French administration on worldwide capital gains, whatever Israel decides. An Israeli exemption does not erase the French tax; it simply leaves no Israeli tax to credit against it.

French securities gains normally fall under the prélèvement forfaitaire unique (PFU), the flat tax, at 30%. That headline splits into 12.8% income tax and 17.2% social levies (prélèvements sociaux). A taxpayer can instead elect the progressive income tax scale where that produces a better result, but for most investors with a substantial one-off gain the flat 30% is the reference point. You declare the foreign gain on form 2047, the return for foreign-source income, alongside the capital gains return, translating the shekel cost and proceeds into euros at the appropriate rates. The euro-shekel movement between purchase and sale can matter as much as the share price itself, because France measures the gain in euros, and a flat share price against a moving shekel can still throw off a taxable euro gain.

In Practice: Under the France-Israel Convention of 1995, a gain on Israeli shares is, as a rule, taxable only in France, and the French administration (Direction générale des Finances publiques) collects it through the flat tax at 30%. Where the treaty does allow Israel to tax, as with a real estate company, France relieves the double charge by crediting the Israeli tax against the French liability, claimed on form 2047 with the annual declaration due in the spring following the tax year. The same Convention caps Israeli withholding on dividends at 15% and on interest at 10%, well below Israel's domestic 25% to 30%, so a French investor who never documents treaty status routinely overpays at source and then has to chase the difference.

What the France-Israel Treaty Settles

The 1995 France-Israel Convention sits above the domestic rules and, for most disposals, confirms them. Its capital gains article assigns the right to tax a gain on shares to the country where the seller resides. For a French resident selling Israeli securities, that reinforces what Israeli domestic law already grants: the gain is primarily a French matter.

The treaty's important exception is the land-rich carve-out. Israel keeps the right to tax a gain on shares that derive their value principally from immovable property situated in Israel. That is exactly the case where the domestic Section 97 exemption also disappears, so the two rules move together rather than against each other. Where Israel does tax such a gain and France taxes it too, the treaty's elimination-of-double-taxation mechanism, a French tax credit, is what stops the same profit being taxed twice. For the wider structure of the Convention, including how it handles dividends, interest, and residence tie-breaks, see our France-Israel tax treaty guide.

One French-specific point sits outside the capital gains rules but often comes up in the same conversation. France's wealth tax, the impôt sur la fortune immobilière (IFI), reaches real estate only, not securities. So a French resident's Israeli share portfolio is outside IFI, while a Tel Aviv apartment held directly or through a property-heavy company can be within it. Investors sometimes conflate the two and worry about a wealth tax on shares that does not exist.

Withholding, Refunds, and Running It From France

Because this is managed from France, the mechanics deserve as much care as the law.

On the Israeli side, the broker or bank generally withholds at source when you sell or when a dividend is paid. Establishing your exemption and treaty rate means filing the right declaration with the institution, supported by a French attestation de résidence fiscale, ideally before the trade settles. If tax is over-withheld, you reclaim it from the Israel Tax Authority, a process run in Hebrew that generally needs an Israeli representative acting under a power of attorney, because you cannot present yourself at the Jerusalem tax office from Lyon or Marseille.

On the French side, you declare the gain, claim treaty relief for any Israeli tax genuinely due, and keep your shekel records and exchange rates. Where the Israeli account itself is involved, separate reporting applies: Israel and France exchange financial account information automatically under the Common Reporting Standard, so the French administration may already know about the account before you file, which makes a matching declaration all the more important.

The coordination gap is the true risk. An Israeli accountant optimising the Israeli side and a French expert-comptable optimising the French side will not, left alone, talk to each other, and the Israeli non-resident exemption in particular is invisible from Paris. Someone has to hold both halves of the picture at once.

Where It Goes Wrong

Common Mistake: A French resident sells Tel Aviv-listed shares, lets the Israeli broker apply the default 25% withholding "to be safe," and never reclaims it, assuming it was owed. In most cases it was not: the exemption for non-residents applied and no Israeli tax should have been taken. Reclaiming it after the fact means a Hebrew-language refund claim to the Israel Tax Authority, an Israeli representative under power of attorney, and a four-to-nine-month wait, while the French administration still expects the full gain declared and the flat tax paid on time. On a NIS 400,000 gain, that is roughly NIS 100,000 idle in the Israeli treasury that a single declaration beforehand would have kept in the investor's account.

Practical Checklist

• Confirm whether your Israeli shares qualify for the non-resident exemption before you sell
• Check whether the underlying company is real estate-heavy, which removes the exemption and revives Israeli tax
• File your non-resident declaration and French certificate of tax residence with the Israeli broker to prevent the default 25% withholding
• Keep shekel purchase records and exchange rates for both Israeli indexing and the French euro calculation
• Declare every disposal in France on form 2047 and the capital gains return, even where Israel taxed nothing
• Claim the French treaty credit only where Israeli tax was actually due
• Use an Israeli representative under power of attorney for any refund claim with the Tax Authority
• Keep the Israeli share portfolio distinct from Israeli real estate, which is taxed and reported on entirely different rules

Speak With an Israeli Attorney

Whether Israel taxes your Israeli investment gain, and how to stop an Israeli broker withholding tax you do not owe, turns on details most French advisers never see: the company's asset mix, your acquisition date, and your non-resident status. An Israeli attorney can confirm your exemption, file the declarations that prevent or recover Israeli withholding, and coordinate with your French accountant so the treaty and reporting pieces line up.

Contact us for a confidential initial consultation.