International Taxation for Israeli Residents — Your Guide

Who Is This Guide For?

If you are an Israeli resident with income or assets abroad, this guide is built for you. This includes freelancers working for foreign companies, employees who received bonuses or grants from abroad, business owners marketing through international platforms, new immigrants still in the process of settling their tax status, and foreign residents who moved to Israel and need to understand their new tax obligations.

International taxation may seem complicated at first, but in many cases it is simply a matter of proper reporting and timing. When you handle it early, you avoid penalties, interest, and banking issues. It also opens the door to smart tax planning — there are cases where you can use international tax provisions to reduce your tax burden.

On this page, we will cover the basic concepts, concrete steps, mistakes we often see in the field, and when it is advisable to seek professional help. If you are reading this because you received a letter from the Tax Authority or your bank — do not worry. Many of these issues can be corrected.

What Is International Taxation and Who Does It Affect?

International taxation means that Israel imposes tax on all income of its residents — including income from abroad. It does not matter if you work for a company in New York, hold a bank account in Britain, or receive dividends from an investment fund in Singapore. If you are an Israeli resident, the Tax Authority wants to know about it.

Additionally, banks in Israel must report all of your foreign assets to international authorities (this is called FATCA — Foreign Account Tax Compliance Act). All of this happens behind the scenes, but it means that if you do not report, it will be discovered. Not necessarily in the first year, but when the bank reports, the Tax Authority will see the discrepancy.

One point that is not always clear: you do not necessarily pay tax twice on the same income. There are international tax treaties between Israel and many countries that prevent double taxation. But to take advantage of this, you need to report correctly and sometimes file specific forms.

Reporting Foreign Income — Step by Step

1. Identify the source of income. Is it employment income? Commissions? Dividends? Rental income from a foreign property? Each has different rules and sometimes separate reporting requirements. A self-employed person receiving foreign income must report in an annual tax return; an employee must obtain a reporting document from their foreign employer (typically a form similar to a 1099 or W2 in the United States).
2. Collect supporting documents. Obtain confirmations from your foreign employer, your foreign bank, entities paying you dividends or interest — anything that proves the amount and source. Also maintain the exchange rates for dollars, euros, or other currencies for the date of each transaction (this is important for tax calculation).
3. Report in the annual return or FBAR form if required. If you are a exempt business person or an authorized business person, foreign income is included in your regular income form in the annual return. If you are an employee, it should appear on your salary slip (or you file self-employment reporting if it is not through your official employer). Additionally, if you have a foreign bank account with a balance exceeding $50,000 in any given year, you must file an FBAR report (Form 3520 in Israel).
4. Calculate tax and report with foreign tax withholding. Typically, the country where you receive the income will withhold tax itself (withholding tax). When you report to the Israeli tax authority, you can prove this withholding and credit it against your Israeli tax — if certain conditions are met (usually there is an international tax treaty between Israel and the relevant country).
5. Submit/upload the report to the tax authority on time. The deadline for filing the annual return is usually by the end of May. If you are an employee and the foreign income was not reported on your salary slip, you must notify your employer on time or report it yourself. If you are self-employed, it is part of your regular annual return.

What You Need to Know About Tax, Reporting, and FBAR Filing

The tax rate on foreign income is the same rate you pay in Israel — it depends on your income bracket. If you are a exempt self-employed individual, it can range from 10% to 31% (depending on your total annual income). If you are an employee, it is already deducted from your paycheck. However, the important point is that there are cases where the foreign state has already withheld tax, and Israel will credit this as "foreign tax credit" — meaning you will not pay tax twice on the same income.

The FBAR report is a separate filing with the tax authority regarding bank accounts and financial accounts abroad. If in any given year you have a cumulative balance exceeding $50,000 in any foreign account (whether it is a salary account, investment account, or regular checking account), you must file an FBAR. This is not an additional tax — it is merely a reporting requirement. However, if you failed to report and it is discovered, you could face substantial penalties.

In short: foreign income = reporting in an annual return or on a paycheck stub. foreign accounts = FBAR filing (if the balance exceeds $50,000). These two matters operate separately, but both are mandatory.

Field Examples — Different Scenarios

Scenario 1: Self-Employed Individual Working for a U.S. Company

You are a self-employed consultant, and an office in New York pays you $5,000 per month. The U.S. company deducts 10% withholding tax and sends you a 1099 at year-end. You need to: (1) report the annual gross income ($60,000) in your annual tax return in Israel; (2) calculate Israeli tax on that amount (at the 31% bracket, this will be approximately NIS 18,600); (3) document the U.S. withholding (6,000 dollars annually); (4) use that amount as a "foreign tax credit" — provided there is a tax treaty between Israel and the U.S. (there is). In the end, you will pay Israeli tax on the difference only.

Scenario 2: Employee Who Received a Foreign Bonus

You work for a company in Israel, but your bonus for this year (NIS 20,000) is paid by a sister company in London. The Israeli employer did not report it on your payslip because it came from abroad. You need to notify the Israeli payroll department or report it yourself on your tax return. If you don't, next year when the Israeli bank sees income coming in from London, the tax authority will ask questions.

Scenario 3: Business Owner with a Foreign Bank Account

You operate an exempt business in Petah Tikva, but you have a bank account in Singapore with $60,000 in it (income from digital exports). This year you need: (1) an FBAR report on the Singapore account; (2) disclosure of all income that passed through that account in your annual return. If you did not file an FBAR and the Singapore bank reports to international authorities, it will be discovered.

Common Mistakes and How to Avoid Them

• "I don't need to report because it's abroad." This is the biggest mistake. Israel taxes its residents on foreign income, just as it does on domestic income. If you are an Israeli resident, the tax authority wants to know. Foreign banks report automatically, so it doesn't matter if you think it "won't be discovered."
• "I reported the income, but forgot the FBAR report." The FBAR report and income are different things. You can report income in an annual report, but if you have a foreign account with a high balance, you need a separate FBAR report. If you forgot, it's not "almost correct" — it's incomplete.
• "I don't know what the dollar exchange rate was on that date." This is important. When you report income in dollars, you must convert it to shekels at the official Bank of Israel exchange rate on the date of receipt. If you use an incorrect rate, it can result in incorrect tax calculation and penalties.
• "I think I have an international tax treaty, so I don't pay tax in Israel." International tax treaties prevent double taxation, not taxation altogether. You still pay tax in Israel, but you receive a credit for taxes paid abroad. You need to report correctly to take advantage of this.
• "My self-employed work abroad didn't send me a reporting document (1099 or anything else)." You still need to report. If the foreign employer didn't send a document, send them a registered letter or email requesting it. If they don't cooperate, you can report based on your bank statements and business agreement. But you need some supporting documentation.
• "I received foreign income last year and didn't report it. Now it's too late." No, it's not too late. You can file an amended return or a late return. There will be a penalty, but it's much better than not reporting at all. If you're concerned, contact an accountant to arrange it properly.
• "I'm a new immigrant and Israeli tax laws confuse me." New immigrants have special rules in some cases (exemption on foreign income in the first years of absorption under certain conditions), but it's not automatic. You need to examine each case individually and report correctly.

Relocation and Tax Laws — What Changes When You Move to Israel?

When you move to Israel from abroad, you become a "resident of Israel" for tax purposes. This means that from the day you arrive, Israel taxes all your income — both from Israel and from abroad. However, there are several important points:

First, if you are still receiving income from your former employer abroad, you must report it. Second, if you have assets abroad (real estate, bank accounts, investments), you must report their value in a "capital declaration" statement. Third, if you hold shares or options in a foreign company, there are special reporting rules for them.

One important point: if you are a new immigrant, you have an "absorption period" (typically 10 years). During this period, certain types of foreign income may be exempt from tax in Israel, but this is subject to certain conditions and you must report correctly to benefit from it. If you did not report properly during the absorption years, you may have lost these benefits.

When Should You Consult a Certified Public Accountant?

If you find yourself in any of these situations, it's time to seek professional advice:

1. You are self-employed or a business owner with foreign income. Taxation for the self-employed is already complex, and when you add international income, it becomes even more complicated. An accountant can help you understand how to report correctly, how to use international tax agreements, and how to plan your taxes to avoid penalties.

2. You are an employee and reported foreign income, but you're not sure if it's correct. If you're concerned that you reported it incorrectly, or if you're unsure whether your Israeli employer reported that income, it's worth checking. This can save you from a penalty in the future.

3. You hold a foreign bank account and are unsure if you need an FBAR report. This is a question that causes a lot of confusion. An accountant can calculate precisely whether you exceed the $50,000 threshold and whether you need to file a report.

4. You are a new immigrant and Israeli tax laws confuse you. New immigrants have special rights, but you need to know how to take advantage of them. An accountant who specializes in new immigrants can help you plan your taxes wisely.

5. You haven't reported in the past and fear it will be discovered. If you're worried that the tax authority or the bank will discover that you haven't reported, it's better to settle this now. There are procedures for amended reporting, and it's much better than waiting for the problem to explode.

6. You're planning to move to another country or bring assets back from abroad. If you're planning major changes to your income or assets, it's worth planning it in advance with an accountant. This can save you significant taxes.