Why Doesn't Anyone Take Tax Out of My US Brokerage Gains?
Because no one is supposed to. An Israeli broker withholds your מס הכנסה (mas hachnasa) on capital gains at source, so a lifelong Israeli investor never files for it. A foreign brokerage (your US account at Fidelity, Schwab, or Interactive Brokers) withholds nothing for Israel. So once you become taxable in Israel, after your oleh 10-year exemption ends or on any non-exempt income, the duty to report and pay the 25% gain falls entirely on you, on an annual Israeli return12.
Not advice
This is the single most common under-reporting trap for olim who keep a US brokerage. The invisibility of Israeli withholding on a local account trains you to assume tax is "handled." On a foreign account it is not handled, there is no withholding agent between you and the Israel Tax Authority, and many olim simply never file the gain because nothing ever prompted them. The Israeli system expects you to come forward.
How Does Israel Tax a Foreign Brokerage Gain (the Israeli Mechanics)?
Israel taxes the real capital gain on securities at 25%, rising to 30% if you are a substantial shareholder (broadly, 10% or more of the company)2. Most dividends are taxed at 25% as well (a דיבידנד (dividend)), and ריבית (ribit) (interest) is generally taxed at the same 25% on the real component2.
The word real is the part that catches olim. Israel does not tax your raw gain; it strips out the inflationary component first, measured by the מדד (madad) (the Consumer Price Index)3. For a foreign-currency asset there is a second twist that no resident with a shekel account faces: your cost basis and proceeds are both translated into shekels at the מטבע חוץ (matbea chutz) (foreign currency) exchange rate on each date. The dollar-shekel move between your buy date and your sell date is itself part of the taxable gain or loss.
How Do You Actually Self-Report and Pay It?
You report the gain on your annual Israeli tax return, the doch shnati, and pay the tax yourself; there is no Israeli broker to do it for you1. Because a foreign account produces tax the authorities did not collect at source, the Israel Tax Authority will often put you on mikdamot (advance installments) so the tax arrives through the year rather than in one lump at filing. Two practical duties follow that a resident never has: keep your cost basis in shekels(the dollar price times the dollar-shekel rate on the purchase date), and keep the matching exchange rate for every sale, because your broker's US dollar gain is not the number Israel taxes.
When Does This Switch On? The 10-Year Exemption and Year 11
As a new oleh you get a 10-year exemption on foreign-source income and gains, so a US brokerage can grow and even be sold Israel-tax-free during the window1. The self-report-and-pay duty described above is dormant for those years on your foreign assets. It switches on in year 11, when foreign gains, dividends, and interest become ordinary taxable Israeli income with no withholding agent attached.
The 2026 reporting change
Worked Example: The Self-Report Duty and the Currency Effect
Suppose you are now in year 11 (your exemption has ended) and you sell a US-listed holding in your Schwab account. You bought it for $10,000 and sell it for $13,000, a clean $3,000 dollar gain. Here is why the Israeli number is not $3,000, and why no one bills you for it automatically.
| Step | If this were an Israeli broker | Your US (foreign) brokerage |
|---|---|---|
| Cost basis recorded | Already in shekels by the broker | $10,000 times the buy-date rate (say 3.40) = NIS 34,000 |
| Proceeds recorded | Already in shekels by the broker | $13,000 times the sell-date rate (say 3.70) = NIS 48,100 |
| Shekel gain before inflation relief | Computed for you | NIS 48,100 minus NIS 34,000 = NIS 14,100 |
| Inflation (madad) relief | Applied automatically | You strip the CPI component yourself, on the real gain only |
| Who pays the 25% | Withheld at source; you do nothing | You self-report on the doch and pay, often via mikdamot |
The $3,000 dollar gain became a roughly NIS 14,100 shekel gain (before inflation relief) because the shekel weakened from 3.40 to 3.70 against the dollar. Run it the other way: if the shekel had strengthened to 3.10, your $13,000 proceeds would be only NIS 40,300 against a NIS 34,000 basis, a far smaller shekel gain, and a different dollar move could even turn a dollar gain into a shekel loss. The dollar price on your statement is not the taxable figure, and crucially, nobody computes or collects this for you on a foreign account23.
What About US Tax on the Same Sale (the US Side)?
If you are a US citizen or green-card holder, you owe US capital-gains tax on that sale whether or not Israel taxes it, because the US taxes its persons on worldwide income for life5. Long-term gains (assets held over a year) are taxed at US 0%, 15%, or 20% depending on income; short-term gains are taxed as ordinary income4. During your Israeli exemption years there is no Israeli tax to credit, so the US tax simply applies. From year 11, both sides tax the gain and you coordinate them with the foreign tax credit.
How Does the Foreign Tax Credit Order the Two Bills?
A US person generally claims a foreign tax credit (Form 1116) for the Israeli tax paid on the same gain, to avoid paying twice7. The catch is sourcing: the credit only offsets US tax on income the US treats as foreign-source, and a gain on US-listed stock can be sourced to the US, which can blunt or block the credit. The mismatch (Israel taxing the real, FX-adjusted shekel gain; the US taxing the nominal dollar gain) means the two figures rarely line up cleanly. This is exactly where a cross-border preparer earns their fee.
Does PFIC Change Which Funds I Can Hold?
Yes, and decisively for US persons. A US-domiciled ETF or mutual fund held in your US brokerage is a normal US investment with no PFIC problem. A non-US pooled fund, an Israeli keren ne'emanut (trust/mutual fund), an Israeli or European-listed ETF, or any kupat gemel-style vehicle, is a Passive Foreign Investment Company (PFIC) for a US person6. The default IRC section 1291 method taxes its gains and distributions punitively (top historic ordinary rates plus an interest charge) and forces an annual Form 86216.
This is the precise inversion that proves olim guidance is not Hebrew advice translated. A lifelong Israeli is correctly told to buy a shekel-denominated Israeli fund. A US-citizen oleh doing the same thing walks straight into the PFIC regime. For a US person the safer pattern is US-domiciled ETFs inside the US brokerage you already keep, not the local Israeli fund, unless a cross-border adviser has mapped your specific case.
Israeli Broker vs Foreign Broker: Who Handles the Tax?
| What happens | Israeli broker | Foreign (US) brokerage |
|---|---|---|
| Capital-gains tax on a sale | Withheld at source automatically | Not withheld; you self-report and pay |
| Cost basis and FX conversion | Tracked in shekels for you | You keep shekel basis at the buy-date rate yourself |
| Annual Israeli return needed | Often not, if withholding is final | Yes, you file the doch shnati and may pay mikdamot |
| Dividends and interest | Withheld at source | Self-reported; US dividend withholding does not satisfy Israel |
| During the oleh 10-year window | Exempt income still flows through a local account | Exempt, but reportable from 1 Jan 2026; taxable from year 11 |
An Israeli broker withholds your capital-gains tax at source, so you never file. A foreign (US) brokerage at Fidelity, Schwab, or Interactive Brokers withholds nothing for Israel. Once you are taxable in Israel, after your oleh 10-year exemption ends or on any non-exempt income, you must self-report the gain on your annual Israeli return (the doch shnati) and pay it yourself, often through mikdamot advance installments. Israel taxes the real, shekel-adjusted gain at 25% (30% for a substantial shareholder), so the dollar-shekel rate on your buy and sell dates moves your bill, and a flat dollar price can still be a taxable shekel gain. The exemption shields foreign gains, dividends, and interest for ten years, but from 1 January 2026 that exempt income must still be reported. Year 11 is when the self-report-and-pay duty switches on. US persons keep paying US capital-gains tax on the same sale and must avoid non-US pooled funds, which are PFICs taxed punitively under IRC section 1291.
Yes. A foreign brokerage has no duty to withhold or report Israeli tax, so the absence of any Israeli paperwork does not mean the gain is untaxed. Once your exemption has ended, you must self-report the real shekel gain at 25% on your annual Israeli return and pay it, typically through mikdamot installments.
It can be. Israel taxes the real gain measured in shekels, so the dollar-shekel move between your buy and sell dates is part of the computation. A flat dollar price with a weaker shekel produces a taxable shekel gain; a stronger shekel can shrink the gain or create a shekel loss. The number on your US statement is not the Israeli taxable figure.
Not from 2026. The exemption still removes Israeli tax on foreign gains during the window, but from 1 January 2026 that income must be reported on your return even while it is untaxed. Ignoring the account is what creates the year-11 surprise, when the same gains become fully taxable with no withholding to catch them.
After year 11, both regimes tax the gain, and you use the US foreign tax credit (Form 1116) to avoid double tax. The credit is limited by income sourcing, and US-listed stock can be US-sourced, which can reduce or block the offset. During your exemption years there is no Israeli tax to credit, so only US tax applies.
If you are a US person, generally no. A non-US pooled fund, such as an Israeli keren ne'emanut or a TASE-listed ETF, is a PFIC, taxed punitively under IRC section 1291 with a mandatory Form 8621. A US-domiciled ETF in your US brokerage avoids this. Non-US olim without US tax ties do not face PFIC and can hold Israeli funds normally.
For every lot: the purchase date and price, the sale date and price, and the dollar-shekel exchange rate on both dates, so you can state the cost basis and proceeds in shekels. Keep the CPI (madad) figures for inflation relief too. US persons keep a parallel set in US dollars for the US return; the two bases differ on purpose.
Israel taxes the real capital gain on securities at 25%, rising to 30% if you are a substantial shareholder, broadly someone holding 10% or more of the company. Most dividends are taxed at 25% as well, and interest is generally taxed at the same 25% on its real component. On a foreign account there is no Israeli withholding agent, so you report and pay these yourself.
