Capital gains tax in Israel

What rate applies to capital gains in Israel?

Israeli individuals pay capital gains tax at a flat 25% on the real (inflation-adjusted) gain from disposing of shares, securities, and most other assets. A higher rate of 30% applies to a substantial shareholder -- defined in the Income Tax Ordinance as a person who held, directly or indirectly, 10% or more of any class of means of control in the company at the date of sale or at any point during the 12 months preceding it. These rates apply to assets acquired on or after 1 January 2003; gains on earlier acquisitions are split: the portion attributable through 31 December 2002 is taxed at the individual's marginal rate, and only the post-2002 portion is taxed at 25%/30% [pwc-summaries].

How does Israel's inflation adjustment work?

Israel taxes only the real gain -- the nominal gain minus the inflationary component. Under Section 88 of the Income Tax Ordinance, the cost basis is multiplied by the ratio of the Consumer Price Index (CPI) at the date of disposal to the CPI at the date of acquisition, producing an inflation-adjusted cost basis. The inflationary component of any gain accruing after 1 January 1994 is fully exempt; the pre-1994 inflationary portion is taxed at 10%. This mechanism means that a long-held asset in a high-inflation environment may carry a significantly reduced real gain compared with the nominal price appreciation, distinguishing Israel from most OECD jurisdictions that tax nominal gains [pwc-summaries].

For bonds and non-CPI-linked commercial paper, a separate 15% rate applies rather than the standard 25%/30% framework.

What is the 3% surtax and the new 2% capital-gains surcharge?

High-income residents face two overlapping surtaxes. First, a 3% surtax (Mas Yesef) applies to the portion of annual taxable income -- from any source -- that exceeds ILS 721,560 (2025). At the top, this pushes the effective personal income tax rate to 50%. Second, legislation that took effect in January 2025 added a further 2% surcharge on capital-source income -- including capital gains, real estate appreciation, dividends, interest, CPI linkage differentials, rental income, and passive royalties -- that exceeds the same ILS 721,560 threshold. The two surtaxes stack: capital gains above the threshold therefore carry an additional 5% surcharge on top of the 25% or 30% base rate, producing effective rates of 30% / 35% for high-income individuals depending on substantial-shareholder status [pwc-summaries] [jdsupra-jan2025]. Note: capital gains from the sale of a qualifying residential apartment (up to ILS 5,008,000 sale price) are excluded from the 2% surcharge base.

How does the Land Appreciation Tax (Mas Shevach) work?

Gains from the disposal of Israeli real estate are governed by the Land Appreciation Tax Law (Mas Shevach), administered through the Land Appreciation Tax Office (Misrad Mas Shevach), a branch of the Israel Tax Authority. The headline rate mirrors the general capital gains rates: 25% for most individuals, 30% for a 10%+ shareholder in a real-estate association. The tax is calculated on the real (CPI-adjusted) gain, not the nominal price difference. Gains on interests in non-traded real-estate associations (chevrot ba'am) where the principal assets are Israeli real property are treated identically.

Linear exemption for pre-2014 holdings. For properties acquired before 1 January 2014, the gain is apportioned linearly across the full holding period. Only the portion attributable to days held after that cut-off date is taxed at 25%; the remainder is either exempt or taxed at lower transitional rates depending on the acquisition era (pre-November 2001 gains: marginal rate up to 50%; November 2001 to December 2011 gains: 20%). For a property bought in 2000 and sold in 2025, roughly 44% of the holding period (11 of 25 years) falls after 2014, so only 44% of the real gain is taxed at 25% [pwc-summaries] [buyitinisrael].

Who qualifies for the single-residence exemption?

An Israeli tax resident who sells their sole residential apartment qualifies for a full exemption from Mas Shevach provided all of the following conditions are met [buyitinisrael] [givatilaw]:

1. The apartment is the seller's only residential property in Israel (owning up to one-third of another property does not disqualify).
2. The seller has owned the apartment for at least 18 months from the date of purchase (or 18 months from the Certificate of Occupancy for newly built homes).
3. The sale price does not exceed ILS 5,008,000 (the 2025 ceiling, frozen until at least end of 2026 under the January 2025 legislative amendments).
4. Where the sale price exceeds ILS 5,008,000, only the proportional gain attributable to the first ILS 5,008,000 of sale price is exempt; the remainder is taxed at the linear rate.

Foreign residents are not eligible for the single-residence exemption even if the Israeli apartment is their only property worldwide. They may, however, benefit from the linear exemption for pre-2014 holdings described above.

What exemptions apply to non-residents and new immigrants?

Non-residents (foreign residents) are taxed only on Israeli-source capital gains, not worldwide gains. However, specific statutory exemptions ease the burden on portfolio investment: gains from selling shares of Israeli companies that are listed on a recognized stock exchange (Israeli or foreign) are generally exempt from Israeli capital gains tax for foreign residents. For non-traded Israeli shares acquired from 1 January 2009, foreign residents are exempt provided the gain does not arise from a permanent establishment in Israel, the shares were not acquired from a related party, and the company's assets are not primarily Israeli real estate or natural resources [pwc-summaries].

New immigrants and senior returning residents (Olim Hadashim and Toshavim Chozrim) receive a 10-year exemption from Israeli income tax and reporting obligations on income derived from outside Israel, running from the date of immigration or qualifying return. For capital gains this covers: gains on foreign real estate, gains on shares of non-Israeli companies held through foreign brokers, and gains on other foreign assets -- provided they originate outside Israel. Israeli-source gains (Tel Aviv Stock Exchange-listed shares, Israeli real estate, Israeli company shares) are not exempt even during the 10-year window. The exemption applies in full for the first 10 years and phases out linearly thereafter. Importantly, the longstanding 10-year reporting exemption is cancelled for anyone who becomes an Israeli resident on or after 1 January 2026; immigrants who completed Aliyah before that date preserve the full reporting exemption [auren-il] [nbn-cg].

Consult Israel country overview for broader residency rules and tax treaty interactions that affect cross-border capital gains. For US citizens subject to the Israel-US tax treaty, treaty Article 8 and the Saving Clause preserve US taxation of worldwide gains alongside Israeli taxation, with a foreign tax credit typically eliminating double taxation.

Any complex multi-asset or cross-border situation warrants review by a qualified tax professional familiar with both Israeli and home-country rules.