1. Overview
Israel's income tax system is governed primarily by the Income Tax Ordinance (Pekudat Mas Hachnasa), a British Mandate-era ordinance that has been substantially amended since statehood. For non-residents — foreign nationals who are not tax-resident in Israel — the scope of Israeli income tax is limited to income that has a sufficient connection to Israel.
Understanding your Israeli tax exposure as a non-resident requires identifying which of your income streams have an Israeli source and how those streams are taxed. This guide covers the key categories of Israeli-source income and the applicable rates, withholding mechanisms, and treaty reliefs.
2. The Source (Territoriality) Principle for Non-Residents
Israel taxes its residents on their worldwide income — wherever earned. But for non-residents, Israel applies the source principle: only income that arises from an Israeli source is subject to Israeli tax. Income earned abroad — from a foreign employer, foreign investments, or foreign business activity — is outside Israel's taxing jurisdiction for non-residents.
This territorial limitation is a fundamental protection for foreign nationals with Israeli investments or occasional work in Israel. It means that simply owning Israeli property, receiving dividends from an Israeli company, or doing occasional work in Israel creates a defined, limited tax exposure — not a general obligation to report all worldwide income to the Israeli Tax Authority.
Critically, the line between resident and non-resident is not always obvious. See our dedicated guide on Tax Residency in Israel for a full analysis of how residency is determined.
3. What Counts as Israeli-Source Income?
The following income types are generally treated as Israeli-source and therefore subject to Israeli tax for non-residents:
- Employment income: Wages and salary for work physically performed in Israel — even for a single day's work. The taxable amount is pro-rated based on the proportion of work days spent in Israel.
- Business income: Income from a business or professional activity carried on in Israel — including fees for services performed in Israel, regardless of where the payer is located.
- Rental income: Rent from property located in Israel. This is a common source of Israeli tax exposure for foreign nationals who own Israeli real estate. See our guide on Rental Income Tax in Israel.
- Dividends: Dividends paid by Israeli companies are subject to Israeli withholding tax at source.
- Interest: Interest paid by Israeli residents or Israeli banks is subject to withholding tax.
- Royalties: Royalties from the use of rights in Israel are subject to Israeli tax.
- Capital gains: Gains on the sale of Israeli assets — including Israeli real estate, shares in Israeli companies, and Israeli securities — are subject to Israeli capital gains tax.
- Pensions: Pensions from Israeli sources paid to non-residents are subject to withholding tax (subject to treaty relief).
4. Income Tax Rates for Non-Residents
Israeli income tax is levied at progressive rates for employment and business income. The 2024 rate schedule:
- Up to NIS 81,480 per year: 10%
- NIS 81,481 – 116,760: 14%
- NIS 116,761 – 187,440: 20%
- NIS 187,441 – 260,520: 31%
- NIS 260,521 – 557,520: 35%
- NIS 557,521 – 698,280: 47%
- Above NIS 698,280: 50%
Non-residents are generally entitled to a reduced personal credit point allowance compared to residents. In practice, for occasional work in Israel, the applicable tax is often collected through employer withholding.
For passive income (dividends, interest, royalties), flat withholding rates apply:
- Dividends: 25% (30% for substantial shareholders holding 10%+)
- Interest: 15–25% depending on the type of instrument
- Royalties: 25%
These rates may be reduced under applicable double taxation treaties — see section 8.
5. Withholding Tax at Source
The primary mechanism for collecting Israeli tax from non-residents is withholding at source (nikui bemkor). This means that the Israeli payer (employer, company, bank, tenant) is legally required to deduct tax from payments to non-residents before remitting the net amount.
Key withholding obligations:
- Employers must withhold income tax on wages paid to non-resident employees for work in Israel
- Israeli companies must withhold on dividends paid to non-resident shareholders
- Banks and financial institutions withhold on interest and investment income
- Real estate purchasers may have withholding obligations when buying from a non-resident seller
Where withholding has been correctly applied at the standard treaty rate, a non-resident may have no further filing obligation in Israel. However, if excess withholding occurred, a refund claim can be filed.
6. Capital Gains Tax for Non-Residents
Non-residents are subject to Israeli capital gains tax (mas revach hon) on gains from the sale of Israeli assets, including:
- Israeli real estate: Gains on the sale of Israeli property are subject to a combination of betterment tax (mas shevach) and, in some cases, income tax. See our guide on Betterment Tax on Real Estate Sale.
- Shares in Israeli companies: Capital gains at 25% (or 30% for substantial shareholders). Gains on shares in Israeli public companies traded on the Tel Aviv Stock Exchange are generally exempt for non-residents.
- Israeli securities: Gains on other Israeli financial instruments at applicable rates.
An important exemption: gains on shares in Israeli companies traded on a recognised foreign stock exchange (such as Nasdaq or NYSE) are generally exempt from Israeli capital gains tax for non-residents, subject to conditions.
7. Filing Obligations for Non-Residents
Non-residents generally have limited filing obligations in Israel. Where income has been correctly withheld at source, no Israeli tax return is required. However, a return must be filed where:
- The non-resident has Israeli-source business income (self-employment, freelance)
- The non-resident has rental income from Israeli property that is not fully withheld
- The non-resident has sold Israeli real estate and the tax was not fully settled through the real estate transaction withholding
- The non-resident wishes to claim a refund of excess withholding
Non-residents who do file an Israeli return must do so by April 30 of the year following the tax year (or by an extended deadline available by application). The return is filed in Hebrew through the Israeli Tax Authority's online system or paper forms.
8. Treaty Relief for Non-Residents
Israel has concluded double taxation treaties (DTTs) with over 50 countries. These treaties can significantly reduce Israeli withholding tax rates — particularly on dividends, interest, and royalties — and provide rules for allocating taxing rights between Israel and the other country.
To claim treaty relief, a non-resident must typically provide their Israeli payer with a tax residency certificate from their home country, and the payer must apply to the Israeli Tax Authority for a reduced withholding rate or exemption certificate.
See our full guide on Double Taxation Treaties with Israel for a country-by-country overview.