The Israeli exit tax (מס יציאה) is a tax on unrealized capital gains when an individual permanently ceases to be an Israeli tax resident. If you leave Israel while holding appreciated assets, Israel taxes the gain that accrued while you were a resident, even though you haven't sold anything yet.
Which assets are subject to exit tax
Exit tax applies to assets that produce capital gain, including:
- Company shares (public or private)
- Employee stock options (vested and unvested options are treated differently)
- Restricted Stock Units (RSUs) that have vested
- Real estate outside Israel (Israeli real estate is taxed separately under the Land Appreciation Tax Law)
- Business interests in partnerships or sole proprietorships
- Bonds and other financial instruments
Israeli real estate is subject to a different regime and is not part of the exit tax calculation.
How it works: the deemed sale rule
When you disconnect from Israeli tax residency, the Israeli Tax Authority (ITA) treats it as if you sold all your foreign and financial assets on the day of departure at their market value. This creates a "deemed gain" equal to the appreciation from acquisition cost to the value on departure day.
You have two options for how to handle this:
Option 1: Pay exit tax at departure Calculate and pay Israeli capital gains tax on the deemed gain as of the date you stop being a resident. Rate: 25% for most individuals (33% if you hold 10%+ of a company).
Option 2: Defer and pay on actual sale (Linear Allocation) You may choose to defer payment and use a linear allocation method instead. When you eventually sell the asset, you divide the total gain between the Israeli period and the post-departure period. Only the Israeli-period gain is taxed by Israel; the post-departure gain is taxed by your new country.
Formula: Israeli taxable gain = Total gain × (Israeli holding period ÷ Total holding period)
Options and RSUs: special rules
Stock options from Israeli tech companies are common and have specific rules:
- Vested options under Section 102 of the Income Tax Ordinance: the portion of value attributable to the Israeli period is taxed as employment income (not capital gain) at marginal rates
- Unvested options at departure: future vesting creates a split between the Israeli period and the post-departure period
- RSUs: similar linear allocation applies
The interaction between Israeli tax and destination-country tax here is highly complex. A specialist cross-border tax advisor is essential.
When does the ITA trigger the tax
- The ITA can assess exit tax within 6 years of you filing (or failing to file) the year-of-departure return
- The ITA has been known to challenge departures where significant option/RSU packages existed
Practical steps
- Before departure: Get a valuation of all appreciated assets (company 409A, market prices for public shares, etc.)
- In the year of departure: File Israeli tax return (Form 1301) and declare your departure
- Choose your option: Pay exit tax now or elect linear allocation
- Document everything: Keep records of acquisition dates, costs, and valuations
- Coordinate with destination-country tax: Make sure the basis you report in your new country matches, to avoid being taxed twice on the same gain
Common mistakes
- Assuming employee stock options are not subject to exit tax (they are, partially)
- Failing to file a year-of-departure return
- Not getting a professional valuation of private company shares at departure
- Ignoring the 6-year lookback window
Get specialist help
Exit tax is one of the most technically complex parts of Israeli tax for departing residents. Situations involving significant equity packages (options, RSUs, founder shares) require a tax attorney or accountant specializing in Section 102, cross-border equity compensation, and relocation tax planning.
This content is for informational purposes only.