Israel Investment Income Guide 2026

Overview — Taxation of Investment Income

Investment income in Israel is primarily taxed through withholding at source (WHT), which is generally a final tax for individual investors. The withholding rates depend on the type of income, the relationship between the payor and recipient, and whether the recipient is an individual, corporation, or non-resident. Israeli tax residents are subject to tax on worldwide investment income, with foreign tax credits available for taxes paid abroad. The withholding tax system is designed to be final for most passive income streams, meaning no additional tax return filing is required for those items.

Dividend Income — 25-30% WHT

Dividends paid by Israeli companies are subject to withholding tax at the following rates:

• Standard rate: 25% on gross dividends paid to individual shareholders
• Controlling holders (≥10%): 30% on dividends paid to a shareholder who holds 10% or more (alone or with related parties)
• Between Israeli companies: 0% — dividends paid between Israeli-resident companies are generally exempt from WHT (participation exemption applies for holdings of 10% or more)
• Non-resident individuals: 25% (standard) or 30% (controlling holder), subject to tax treaty reductions
• Non-resident companies: 25% — reduced under tax treaties (typically 10-15% for portfolio holdings, 0-5% for substantial holdings)

The WHT is a final tax for individual Israeli residents — no further tax return is required for dividend income. For corporate recipients, dividends are generally included in taxable income but a participation exemption may apply.

Interest Income — 15-25% WHT

Interest income is subject to withholding tax at different rates depending on the issuer:

• Government bonds (Israeli): 15% WHT — final tax for individuals
• Corporate bonds (Israeli companies): 25% WHT — final tax for individuals
• Bank deposits: 15% WHT on interest from standard bank deposits
• CPI-linked deposits (Madad): 15% WHT on interest (the CPI linkage component is tax-free)
• Foreign source interest: Taxable at the standard rate (15-25%), subject to foreign tax credit for withholding taxes paid abroad

Royalty Income — 25-30% WHT

Royalties paid to Israeli residents and non-residents are subject to:

• To Israeli individuals: 25% WHT (final tax)
• To Israeli companies: 25% WHT (not final — included in corporate income taxed at 23%)
• To non-residents: 25-30% WHT, reduced under tax treaties (typically 10-15% for patent royalties, 15-20% for copyright royalties)

Bank Deposits and Linked Deposits

Interest on standard bank deposit accounts is subject to 15% WHT, which is a final tax for individuals. CPI-linked deposits (Pikadon Tzamud Madad) receive favourable treatment: the CPI linkage component (the inflationary adjustment to principal) is tax-free, while only the real interest component is subject to 15% WHT. This makes CPI-linked deposits attractive for conservative investors seeking inflation protection. Unlinked deposits (Pikadon Lo Tzamud) have the full nominal interest taxed at 15%.

Foreign Investment Income

Israeli tax residents must report and pay tax on foreign-source investment income. The withholding tax paid to foreign tax authorities can be credited against Israeli tax liability, limited to the Israeli tax attributable to that income. Foreign tax treaties may provide reduced WHT rates at source. Key points:

• Foreign dividend income is taxable at 25-30% (depending on ownership), with credit for foreign WHT
• Foreign interest income is taxable at 15-25%
• Foreign accounts and assets may require annual reporting (if above certain thresholds)
• Passive foreign investment companies (PFICs) and controlled foreign corporations (CFC) have special reporting rules

Reporting Requirements

For investment income subject to final WHT in Israel (most domestic passive income), no additional reporting is required for individual taxpayers. For foreign investment income and income not subject to final WHT, taxpayers must report the income on their annual tax return (Doch Shnati) and pay any additional tax due. The annual return deadline is 30 April (30 June for electronic filing).

FAQs

Is the WHT on dividends really a final tax?

Yes, for individual Israeli tax residents, the 25% or 30% WHT on dividends is a final tax, meaning no further tax liability and no need to include dividend income in the annual tax return (assuming the WHT was correctly applied).

Can I avoid Israeli tax on foreign investment income?

No. Israeli tax residents are taxed on worldwide income. However, foreign tax credits and tax treaties generally prevent double taxation. You may need to file an Israeli tax return to claim foreign tax credits.

What happens if a foreign bank does not withhold Israeli tax?

You are required to self-report the income and pay the tax directly to the Israel Tax Authority. Failure to do so may result in penalties, interest, and criminal prosecution for tax evasion.

Disclaimer

This guide provides general information about Israeli investment income taxation for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Israeli tax advisor (Yo'etz Mas) or the Israel Tax Authority directly for advice specific to your situation. InvestmentKit does not provide tax advice.