Summary
Israel imposes an "exit tax" (deemed capital gains tax) on individuals who cease to be Israeli tax residents, treating many assets as if sold the day before residency ends (Section 100A of the Income Tax Ordinance). The rules can trigger significant tax on accrued but unrealized gains, so advance planning and valuation are essential.
Key facts and rules
- Legal basis: Section 100A of the Income Tax Ordinance deems an individual who ceases to be an Israeli resident to have sold their assets one day before the "exit day" and to have realized the accrued capital gain.
- Assets covered: Generally applies to worldwide capital assets: shares in public and private companies, investment portfolios, and certain rights. Israeli-situs real estate is usually taxed separately under property rules.
- Gain calculation: The taxable gain is the difference between the asset's original cost basis and its fair market value on the day before residency ceases.
- Apportionment for later actual sale: Where an asset is sold after becoming a foreign resident, Israeli law may allocate part of the gain to the Israeli period and part to the foreign period, with mechanisms to reduce double taxation under treaties.
- Reporting and payment: Reporting and payment are generally due within 90 days of cessation of residency. The ITA may require a wealth declaration and security to ensure payment.
- Deferral options: Paying tax only upon actual sale, or in installments, may be available in some cases, subject to conditions and often requiring a ruling.
Common pitfalls
- Assuming no tax is due because nothing has been sold yet; the deemed-sale concept brings tax forward as if you sold assets on the exit day.
- Failing to obtain independent valuations for private company shares or other illiquid assets, inviting disputes later.
- Ignoring potential foreign tax interaction: a later real sale abroad may also be taxed in the new country, requiring careful treaty and foreign-tax-credit planning.
- Not filing or paying within 90 days, which can result in penalties, interest, and demands for collateral.
Action checklist
- Prepare an asset inventory: list all shares (public and private), options, funds, crypto, intellectual property, and major investments.
- Obtain professional valuations for non-listed assets as of the intended exit date.
- Stress-test whether it is preferable to realize gains before leaving (paying actual capital gains tax) versus relying on exit-tax deferral mechanisms.
- Consider a tax ruling if using complex structures, deferred payment, or if there are cross-border corporate holdings.
- Coordinate with foreign advisors to align Israeli exit tax with destination-country step-up or basis rules.
Important: Exit tax computations, valuations, and deferral structures require specialist advice and, in many cases, direct interaction with the Israel Tax Authority.