Dividend and Investment Tax in Israel

Israel taxes investment income through flat withholding rates set in the Income Tax Ordinance (ITO), rather than folding it into the general progressive brackets that rise to 47%. Understanding the interaction of base rates, the high-income surtaxes, and treaty-relief mechanics matters for residents, non-residents, and new immigrants alike.

How are dividends from Israeli companies taxed?

Under the ITO, dividends paid by an Israeli-resident company to an individual shareholder are subject to a 25% withholding tax deducted at source. The rate rises to 30% when the recipient is a "substantial shareholder" -- defined as a person who holds, directly or indirectly, 10% or more of any class of rights in the distributing company on the distribution date or at any point during the preceding 12 months (ITO Section 88 definition applied by reference). The withholding operates as a final tax for most resident individuals; no further income-tax return entry is required unless the shareholder elects to include dividend income in the progressive bracket calculation where that produces a lower liability. Inter-company dividends between Israeli-resident corporations generally benefit from a participation-exemption framework, avoiding cascading tax on intra-group flows. Figures verified against PwC Worldwide Tax Summaries -- Israel (individual income determination, accessed June 2026).[1]

How is interest income taxed?

Interest received by an Israeli-resident individual is taxable at a 25% flat rate in most cases, withheld at source by the paying financial institution or issuer. A reduced 15% rate applies specifically to interest on instruments that are not linked to the Consumer Price Index (CPI) -- for example, deposits and traded securities denominated in a fixed nominal amount at a licensed Israeli financial institution (ITO Section 125C framework). Interest on foreign-currency deposits held with Israeli banks may qualify for a full exemption under specified conditions set by the ITA. Foreign-source interest received by Israeli residents is also taxed at 25%, with a credit for foreign withholding tax paid, subject to treaty caps.[2]

What are the 3% surtax and the new 2% capital-income surcharge?

Israeli law imposes two high-income levies that stack on top of the base investment rates for high earners.

The 3% Mas Yesef surtax (ITO Section 121B) applies when an individual's total annual taxable income from all sources exceeds ILS 721,560 (2025 indexed threshold, equivalent to approximately ILS 60,130 per month). The 3% applies only to the portion of income above the threshold, not retroactively to the entire amount. For an investor whose combined employment and dividend income crosses the threshold, dividend income above it becomes effectively taxable at 28% (25% + 3%) for ordinary shareholders or 33% (30% + 3%) for substantial shareholders.

For 2025, a new additional 2% surcharge on capital-source income was enacted under an amendment to the Economic Efficiency Law (Section 121B(a1) ITO). This surcharge targets taxable income derived specifically from capital sources -- dividends, interest, capital gains (excluding residential apartment sales below the ILS 5,382,285 exemption ceiling), CPI linkage differentials, and similar passive flows -- that exceeds the same ILS 721,560 threshold. The two levies are cumulative: capital-source income above the threshold bears 3% + 2% = 5% combined surtax, producing effective marginal rates of 30% (ordinary shareholder dividend above threshold) or 35% (substantial shareholder dividend above threshold). Source: Barnea law firm client update on Israel's 2025 high-income surtax (barlaw.co.il, accessed June 2026) and PwC individual taxes-on-personal-income page.[1][3]

How does Israel tax dividends paid to non-residents?

Israel withholds at the domestic rates (25% or 30%) on dividends paid to non-resident individuals and companies unless a reduced rate applies under a bilateral tax treaty. Israel has over 60 active treaties. To claim the reduced rate, the non-resident must supply a residency certificate (Form 2513 / Tofes Tushavut) to the Israeli paying entity before the dividend is distributed; the paying entity is then authorised to withhold at the treaty rate rather than the domestic rate. If standard withholding has already occurred, the non-resident may file a refund claim with the ITA within four years. Common treaty rates on dividends include: United States 12.5%-25%; United Kingdom 5%-15%; Germany 5%-10%; France 5%-15%; Netherlands 5%-15%.[2]

The table below summarises the main domestic rates before any surtax:

Who qualifies for the new-immigrant 10-year foreign-income exemption?

New immigrants (olim chadashim) and veteran returning residents who become Israeli tax residents qualify for a comprehensive 10-year exemption on income derived from sources outside Israel under ITO Section 14(a). Covered income includes foreign-source dividends, interest, royalties, rent, annuities, and pensions, as well as capital gains on the sale of overseas assets -- even assets acquired after Aliyah during the exemption window. The exemption does not extend to Israeli-source income: dividends from Israeli companies, interest from Israeli banks, and gains on Israeli securities remain taxable at standard rates regardless of new-immigrant status.

Importantly, an amendment to the ITO that took effect on 1 January 2026 abolished the reporting exemption for immigrants who arrive on or after that date: new olim from 2026 onward must report their foreign-source exempt income (even though tax is not owed), whereas those who immigrated before 31 December 2025 continue to benefit from a full reporting exemption during the window. Immigrants who arrived by end-2025 preserve the pre-amendment rules. An additional 0% Israeli income-tax incentive on employment income (declining caps over five years) was introduced for qualifying new immigrants and returning residents for the period 2026-2030, but that is separate from the passive-investment exemption described here. Source: PwC Israel individual other-tax-credits-and-incentives (accessed June 2026); Times of Israel reporting on 2026 immigrant incentives.[4][5]

For a broader view of how Israeli residency rules affect your global tax position, see the Israel country overview and the related guide on expat tax residency in Israel.

What reporting obligations apply to investment accounts?

Israeli-resident individuals who are required to file an annual return submit Form 1301 (the standard individual income tax return) by 30 April of the year following the tax year, with extensions available. Investment income reported on Form 1301 includes capital gains from securities (supported by Form 1322 / Appendix C and auxiliary Form 1325 for sales listed by rate), and foreign-source investment income not already withheld at source by an Israeli agent. The ITA also operates the Common Reporting Standard (CRS) regime: Israeli financial institutions report foreign-account-holder data automatically to the ITA, which exchanges information with participating countries. For new olim arriving from 2026 onward, foreign assets and exempt foreign income must be disclosed in the annual return even when no tax is owed. Many individuals whose investment income is fully withheld at source by Israeli intermediaries -- and who have no other filing trigger -- are not required to submit Form 1301 at all. A qualified tax professional can assess whether a filing obligation applies in your specific circumstances.[2]

The rules in this area are technical and fact-specific. If you hold Israeli-source dividends, maintain foreign investment accounts as an Israeli resident, or have recently made Aliyah, consult a qualified tax professional who is licensed in Israel before making decisions about your portfolio.