When you make aliyah part-way through a vesting schedule, the equity you were granted abroad does not slot into Israel’s friendly 25% employee-equity track. A foreign grant gets no Israeli מס הכנסה (Mas Hachnasa) Section 102 trustee capital-gains route. Instead, Israel takes the slice of the gain earned on workdays physically performed in Israel and taxes it as ordinary employment income at rates up to 47%7 plus surtax, while the United States taxes the very same vest in parallel.
Not advice
Almost every new oleh who arrives with unvested RSUs or options is blindsided by the same thing: in the US or UK your employer’s payroll quietly handled the equity, and the only question was when to sell. In Israel you walk into a sourcing problem that did not exist before — your gain is split between two countries by where you were sitting on each workday of the vesting period, and both tax authorities want to see it.
Why can’t a foreign grant use Israel’s 25% Section 102 trustee track?
Because Section 102’s preferential 25% capital-gains rate is reserved for equity granted by an Israeli employer (or an Israeli branch of a foreign company) into an ITA-approved trustee plan, with the shares held by an Israeli trustee from the grant date for a minimum holding period. A grant your US or UK company made to you years before aliyah was never deposited with an Israeli trustee and was never approved by the Israel Tax Authority, so it sits outside the track entirely. Israeli law treats that gain as ordinary employment income, not as a 25%-rate capital gain.
This is the single most expensive surprise. Olim assume “equity is taxed at 25% in Israel” because that is the headline number for local hi-tech employees. It is true for a properly trusteed Israeli grant. It is not true for the foreign grant you carried in. The gap between a 25% capital-gains rate and a marginal ordinary-income rate near 47%7 is the price of that misunderstanding.
How does Israel split the gain between countries by workdays?
Israel apportions equity income using a workday fraction over the vesting period: the share of the gain attributable to days you physically worked in Israel between grant and vest is Israeli-source and taxable here. The remaining days — worked abroad before aliyah — are foreign-source. This mirrors the method the IRS uses, which multiplies the option spread (or, for RSUs, the value at vest) by the fraction of in-country workdays over total workdays during the vesting period.1 Both sides use the same shape of formula, which is what makes a clean workday log so valuable.
Concretely: if an RSU tranche vests two years after grant and you spent the first year working in New York and the second year working from Jerusalem, roughly half the vest value is Israeli-source ordinary income and roughly half is foreign-source. The foreign half is where the 10-year exemption can help; the Israeli half cannot be exempted, because the work was done in Israel.
How much Israeli tax applies to the Israel-workday portion?
The Israel-workday portion is taxed as ordinary employment income on the graduated brackets, which top out at a 47% marginal rate, with an additional 3% surtax on annual taxable income above roughly ₪721,560, taking the top effective rate to 50%.7 A large single-vest spike can push an otherwise mid-bracket oleh into that top band for the year. Because equity vests lumpy and salaries are smooth, equity is exactly the income that triggers the surtax.
| Equity event | Israel treatment of the Israel-workday share | US treatment (US citizens) |
|---|---|---|
| RSU vests | Ordinary employment income at marginal rates up to 47% + surtax7 | Wages on the W-2 at fair market value on the vest date3 |
| NQSO exercised | Ordinary employment income on the spread, marginal rates + surtax7 | Ordinary income on the spread (FMV minus strike) at exercise2 |
| ISO exercised & held | Israel still treats the Israel-workday share as ordinary income (no ISO concept here)7 | No regular-income inclusion at exercise; can be capital gain at sale if holding periods met2 |
| Shares later sold for a gain | Post-vest appreciation is a separate capital gain, generally 25%7 | Capital gain or loss versus the vest/exercise basis3 |
Note the two layers, which olim routinely conflate. The vesting/exercise event is taxed as income on both sides. Any further price movement after that event is a separate capital gain— the post-aliyah appreciation is what is taxed at Israel’s 25% rate7, using מס שבח (Mas Shevach)-style capital-gains rules, not the headline Section 102 rate.
Does the 10-year exemption shelter my equity?
Only the genuinely foreign-workday portion. Israel’s 10-year exemption for new olim covers foreign-source income6, and the part of an equity gain mapped to days you worked outside Israel before aliyah is foreign-source. But the part mapped to days you worked in Israel is Israeli-source by definition, and no exemption reaches it. The exemption shrinks your taxable base; it does not turn an Israel-worked vest into foreign income.
One reform you must factor in: from 1 January 2026, the foreign-income exemption became report-but-still-tax-exempt — the income stays exempt from tax, but new residents must now disclose worldwide income and assets to the Israel Tax Authority annually.6 So even the foreign half of your equity has to appear on a return from roughly your first Israeli tax year onward, which is another reason a grant-date workday log is not optional.
How does the US tax the same vest, and how do I avoid double tax?
The US taxes it because US citizens are taxed worldwide regardless of residence. An RSU is wages at vest reported on the W-23; a nonstatutory option (NQSO) is ordinary income on the spread at exercise2; an incentive stock option (ISO) generally has no regular-income inclusion at exercise and can reach long-term capital-gains rates at sale if the holding periods are met.2The US sources its share of that income by US workdays over the vesting period — the same workday logic Israel uses.1
You relieve the overlap with the foreign tax credit, not by picking one country. Equity compensation is general-category income on Form 1116, so Israeli tax paid on the Israel-source slice can credit against US tax on that same slice.4The US–Israel treaty backstops the allocation and the credit ordering.5 Mismatched tax-year timing between a US vest and an Israeli filing is the classic trap, which is why a תיאום מס (Teum Mas) (tax coordination) and a cross-border preparer who runs both returns together are worth it.
Note that a single-company RSU or option grant is your employer’s own stock, not a pooled fund, so the punitive PFIC regime does not apply to it. PFIC enters only if you take the proceeds and buy non-US pooled vehicles (Israeli ETFs, a מטבע חוץ (Matbea Chutz)-denominated mutual fund, kupot gemel): for a US citizen, every non-US pooled fund is a PFIC requiring Form 8621 and exposing you to the §1291 interest-and-tax regime. Keep your concentrated equity and your diversification decision as two separate tax questions.
Foreign-granted RSUs and options you carry into aliyah do not get Israel's friendly 25% Section 102 trustee track, because that rate requires an Israeli employer and an ITA-approved trustee plan set up at grant, which a US or UK grant never had. Israel sources the gain by workdays-in-Israel over the grant-to-vest period and taxes the Israeli-workday share as ordinary employment income at marginal rates up to 47%, plus a 3% surtax above roughly 721,560 shekels that lifts the top effective rate to 50%. The 10-year new-oleh exemption shelters only the genuinely foreign-workday slice, not the part earned while you worked in Israel. The US taxes the same vest in parallel because US citizens are taxed worldwide (RSUs as W-2 wages at vest, NQSOs at exercise, ISOs potentially at capital-gains rates), and you relieve the overlap with the foreign tax credit on Form 1116, not by ignoring one side. From 1 January 2026 even the exempt foreign portion must be reported to the Israel Tax Authority annually, so keep a day-by-day workday log from grant date forward. This is general educational information, not tax advice.
Your own citizenship, not your spouse's, drives the US side. If you are a US citizen or green-card holder you still file US returns on worldwide income and report the vest as W-2 wages, while Israel taxes the Israel-workday share regardless of who you married. The foreign tax credit still does the de-duplication work on the overlapping slice.
No. Section 102's 25% track requires an Israeli employer and an ITA-approved trustee holding the shares from the grant date. You cannot back-date a grant that a foreign company already made into a foreign plan. Future grants from an Israeli employer can be structured under Section 102, but the equity you carried in cannot.
Keep a day-by-day log of where you physically worked from each grant date through each vest date, plus the grant agreements, vesting schedules, and W-2 or broker statements. Both Israel and the IRS apportion equity income by in-country workdays over the vesting period, so the workday count is the load-bearing number. Reconstructing it years later, after an audit notice, is painful.
Largely yes. If every workday of the grant-to-vest period was performed abroad, the income is overwhelmingly foreign-source, and the 10-year exemption can shelter it, though annual reporting is still required from 2026. The Israeli-source slice only grows once you start logging Israeli workdays inside a vesting window after you land.
Employment-type equity income can attract National Insurance and health contributions on the Israeli-source portion, on top of income tax. The exact treatment depends on how your work is classified, employee versus self-employed for a foreign employer. Factor it in alongside the income-tax hit rather than as an afterthought, and confirm the classification with Bituach Leumi.
That is an investment-concentration question, not just a tax one, and this guide does not make recommendations. What is tax-relevant: the income tax is owed at vest or exercise whether or not you sell, and only the appreciation after that point is a separate capital gain. Selling enough at vest to cover the combined Israeli and US tax is a common cash-flow consideration.
