Does Israel have a tax treaty with the US?

Yes. The US-Israel tax treaty has been in force since 1995. It covers income tax, capital gains, and dividends. However, US citizens are taxed on worldwide income regardless of residence, so the treaty has limited benefit for US citizens living in Israel.

5 FAQLast reviewed: 2026-06-042 Official sources

Yes, the United States and Israel have a comprehensive income tax treaty. The Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income was signed on November 20, 1975, entered into force on January 1, 1995, and remains in effect today.

What the treaty covers

The US-Israel tax treaty addresses:

  • Income from employment (salaries, wages)
  • Business profits of enterprises
  • Dividends paid between the two countries
  • Interest income
  • Royalties
  • Capital gains from the sale of property
  • Pensions and annuities
  • Government service income
  • Students and trainees

Key treaty benefits

Reduced withholding on dividends

When a US company pays dividends to an Israeli resident, or an Israeli company pays dividends to a US resident:

  • General rate: 25% withholding tax (reduced from the standard 30% US rate)
  • If the recipient owns 10%+ of the paying company: 12.5%

Reduced withholding on interest

Interest payments between the US and Israel are generally taxed at a maximum of 17.5% (down from 30% standard US rate).

Reduced withholding on royalties

Royalties are taxed at a maximum of 15% (industrial, commercial, or scientific) or 10% (literary, artistic, scientific works).

Capital gains

Capital gains are generally taxable only in the country of residence of the seller. However, gains from real estate in one country may be taxed by that country regardless of where the seller lives.

Pensions

Israeli pensions paid to US residents (and vice versa) are generally taxable only in the country of residence of the recipient. This matters for Israeli emigrants to the US who receive Israeli pension distributions.

The critical limitation: US citizen taxation

The most important thing to understand: The US taxes its citizens and permanent residents (green card holders) on worldwide income, regardless of where they live. This is called citizenship-based taxation (CBT), and the US is one of only two countries in the world that does this (the other is Eritrea).

The tax treaty does not override US citizenship-based taxation. It provides relief mechanisms (Foreign Tax Credit, Foreign Earned Income Exclusion) but does not exempt US citizens living in Israel from US tax filing obligations or potential US tax liability.

Practical implications for Israeli-Americans:

  • You must file US tax returns (Form 1040) annually, regardless of where you live
  • The Foreign Tax Credit (Form 1116) allows you to credit Israeli taxes paid against US tax liability, reducing double taxation in most cases
  • The Foreign Earned Income Exclusion (Form 2555) allows exclusion of up to ~$126,500 (2024) of foreign earned income
  • Passive income (dividends, interest, capital gains) may still create residual US tax liability

Implications for Israelis moving TO the US

For Israelis who become US tax residents (by moving to the US on any visa), the US will begin taxing their worldwide income from the date they become a US tax resident. The treaty helps:

  • Avoid double taxation on Israeli-source income
  • Clarify which country has primary taxing rights on specific income types
  • Obtain reduced withholding rates when receiving Israeli income

The "saving clause"

Like most US tax treaties, the US-Israel treaty contains a saving clause: the US reserves the right to tax its own citizens as if the treaty did not exist. This is why the treaty provides limited benefit to US citizens living in Israel — the US will still apply its standard worldwide income tax rules.

FATCA and reporting obligations

Beyond the income tax treaty, Israeli citizens with US financial connections must be aware of:

  • FATCA (Foreign Account Tax Compliance Act): Israeli banks report US persons' account information to the IRS
  • FBAR (FinCEN 114): US persons must report foreign bank accounts exceeding $10,000
  • Form 8938: Statement of Specified Foreign Financial Assets

Get professional advice

The US-Israel tax relationship is complex, particularly for dual citizens or Israelis with US green cards. A cross-border tax advisor specializing in US-Israel taxation is essential for anyone with significant financial interests in both countries.

This content is for informational purposes only.