Taxation on stocks in Israel
By: Lev Kantor | Updated: Apr 21
Investing in stocks is a great way to build wealth and financial security, but it’s very important to be aware of the taxes that you might have to pay. Generally, any profit you make on the sale of a stock is taxable. Also, any dividends you receive from a stock are usually taxable as well.
Here’s a quick guide to taxes on stocks in Israel, how and when to pay them.
Capital gains tax
Capital gains are the money you earn from the sale of any property, in our case the sale of securities (stocks).
In Israel, the rate of capital gains tax is 25%. This tax is paid only if you sell a stock for a profit. If you hold a stock and it gains value - you will not be required to pay the tax unless you sell the stock.
For example, if you bought a share of a company for $500 and a year later its value increased to $700 and you decided to sell it - the capital gains tax will be $50 ($200 - 25% = $150 your profit after-tax).
Pensioners and investors over the age of 60 are entitled to significant relief from the capital gains tax or even a full exemption. For example, pensioners and those aged 60 and over whose taxable additional income is lower than NIS 174,360 (as of 2019), or who have no additional taxable income at all, also enjoy benefits. Meeting these conditions entitles them to a reduced payment of capital gains tax - at a rate of 10%, 14% or 20%, depending on their income level.
Taxes on dividends
Some companies reward their shareholders by paying them dividends every quarter. Dividends are considered a profit from your investment and they are taxable.
In Israel, the rate of the tax on dividends is 25%.
For example, you hold 100 shares of a company, and last year you received $500 in dividends from your investment. The tax on your dividends will be $125 ($500 - 25% = $375 your profit after tax).
How to pay these taxes?
When it comes to paying taxes on capital gains and/or dividends, there are a few ways it can be done. It depends on what brokerage you chose to use and your willingness to do the paperwork. Here are a few scenarios.
You are investing through an Israeli brokerage or an Israeli bank.
In Israel, the broker is required by the law to deduct the tax from dividends or capital gains that occur from your investments. In other words - the broker pays taxes on your behalf, you don't need to report to the IRS and pay taxes yourself.
You are investing through a foreign brokerage.
This is where things change. If you are a resident of Israel and you decided to invest through a foreign broker then in case you have generated income from the sale of your stocks, you will be required to report all such income on your own initiative, and of course, pay the tax at the rate applicable to this income which is 25%. However, when it comes to dividends, a foreign broker (in our case an American brokerage like Interactive Brokers) will deduct the 25% tax automatically and it will go straight to the American IRS and then they will transfer it directly to the Israeli Tax Authorities - it is possible because of the Tax Treaty between Israel and the United States. If you did not sell any securities during the year and only received dividends - you are exempt from filing an annual report to the Israeli Tax Authorities. Become a Patreon to find out more on how to report your taxes, what forms to use, and when to do it in our Discord.
You are an Ole Hadash (new immigrant) and investing through your native country's brokerage.
As an Ole Hadash, you are entitled to 10-year tax relief on investments held abroad. For example, if you have American citizenship and invest through an American brokerage (e.g. Robinhood) you don't have to report to the Israeli Tax Authorities for 10 years after your Aliyah.