Updated: August 2026 • GetGlobalYields.com • Read time: ~9 min
Bottom Line
The US-Israel tax treaty is one of the least generous US treaties for individual investors. It caps US dividend withholding at 25% - barely below the 30% non-treaty default, and far above the 15% most European investors pay. Capital gains on US stocks are still generally tax-free in the US for an Israeli resident, which remains the treaty’s real value.
You still need to file W-8BEN with your broker to claim the 25% rate instead of the full 30%. This guide covers the actual 2026 rates, how to claim them, and what Israeli investors need to know.
Why the US-Israel Tax Treaty Is Weaker Than Most
If you’re an Israeli investor buying US stocks or ETFs, the default US tax treatment is harsh:
- Dividends: 30% withholding at source
- Interest: up to 30% withholding at source, depending on category
- Capital gains: generally not taxable in the US for a non-resident, treaty or not
The US-Israel tax treaty (signed 1975, amended by a 1993 protocol) reduces some of these rates - but by less than almost any other major US treaty partner. Germany, the UK, and most of Europe get dividends down to 15%. Israel gets 25%.
Most Israeli investors still don’t file the paperwork that gets them even that modest reduction.
Current Treaty Rates (2026)
| Income Type | Default US Rate | Treaty Rate | Notes |
|---|---|---|---|
| Dividends (individual/portfolio) | 30% | 25% | Applies to Israeli residents with a valid W-8BEN; this is the rate that matters for virtually every retail investor |
| Dividends (qualifying 10%+ corporate holder) | 30% | 12.5% | Narrow corporate case - not applicable to individual investors |
| Interest (general) | 30% | 17.5% | Applies to most interest an individual investor receives, including US Treasury and corporate bond interest |
| Interest (bank/savings institution/insurer loans) | 30% | 10% | Applies to interest paid on loans from a bank, savings institution, or insurance company - not typical portfolio bond interest |
| Interest (government-guaranteed) | 30% | 0% | Interest guaranteed or insured by a government or its agencies |
| Royalties (copyright/film) | 30% | 10% | |
| Royalties (industrial/other) | 30% | 15% | |
| Capital Gains | Generally not US-taxable for non-residents | 0% | Israeli residents selling US stocks; treaty confirms this, doesn’t create it |
| Social Security | Varies | Exempt | Certain Israeli social security payments |
Sources: US-Israel Income Tax Treaty (1975) and 1993 Protocol; IRS treaty text (irs.gov/pub/irs-trty/israel.pdf); Joint Committee on Taxation explanation of the 1993 Protocol; PwC Israel - Corporate Withholding Taxes (2026).
Key correction worth flagging directly: older guides (including an earlier version of this one) sometimes state the Israeli dividend rate drops to 15% with a W-8BEN. It does not. The 15% rate belongs to treaties like Germany’s or the UK’s - Israel’s individual portfolio rate under Article 12 of its own treaty is 25%. If your broker’s dividend statement shows 15% on an Israeli account, something is misconfigured; it should show 25%.
Capital Gains: The Genuinely Good Part
Article 15 of the US-Israel tax treaty (and, independently, US domestic law for non-resident aliens under IRC §871) means capital gains from the sale of US stocks by an Israeli resident are not taxable in the US.
This means:
- When you sell US stocks (Apple, Microsoft, etc.), you pay no US capital gains tax
- You still owe Israeli capital gains tax - 25% on real (inflation-adjusted) gains for most individual holdings, rising to 30% if you held 10% or more of the company at any point in the 12 months before the sale
- The treaty protects you from double taxation on the same gain, since the US isn’t taxing it in the first place
Important exception: this doesn’t apply if you’re a US person for tax purposes (green card holder, or you meet the substantial presence test). In that case, you’re taxed as a US person on capital gains regardless of the treaty.
How to Claim the 25% Rate: The W-8BEN Form
To get the reduced 25% dividend rate (instead of the full 30%), file Form W-8BEN with your US broker.
The form is one page. You:
- Certify that you’re an Israeli resident for tax purposes
- Claim benefits under the US-Israel tax treaty, Article 12
- Provide your Israeli tax ID number (מספר זהות)
Where to file it:
- Interactive Brokers: Account Management → Tax Forms → W-8BEN
- eToro: Settings → Account → Tax Forms
- Firstrade: My Account → Tax Information → W-8BEN
- Charles Schwab: Similar sections in account settings
The form is valid for three calendar years from signing. After that, renew it - if you don’t, your broker reverts to the 30% default.
Israeli Tax Treatment of US Income
The treaty reduces the US side. Israel still taxes the same income on the Israeli side.
Dividends
- US withholds 25% (treaty rate, with W-8BEN on file)
- Israel taxes the gross dividend at your marginal rate (up to 47%, or up to 50% including the general 3% surtax above ILS 721,560 of total annual income)
- You get a foreign tax credit for the 25% US tax already paid, capped at the Israeli tax otherwise due on that income
- A detail most guides miss: capital-source income - dividends, capital gains, interest, and rental income combined - above ILS 721,560 in a year faces an additional 2% surtax on top of the general 3% one. For an investor with substantial US dividend and capital gains income in the same year, both surtaxes can apply simultaneously to the portion above that threshold.
Worked example: an investor with a 30% Israeli marginal rate on a $2,000 US dividend pays $500 to the US (25%) and can credit that against the Israeli tax due ($600 at 30%), leaving $100 owed to Israel - a combined $600, or 30% overall, matching the Israeli marginal rate with no double taxation. Because the US rate (25%) is closer to typical Israeli marginal rates than the 15% many other countries get, the credit absorbs less of a gap for Israeli investors than it does for, say, a German or British one.
Capital Gains
- US: 0% (treaty and domestic law both point the same direction)
- Israel: 25% on real gains (30% for 10%+ holders), inflation-adjusted
- No foreign tax credit needed, since no US tax was paid on the gain in the first place
Interest
- US withholds 17.5% on most portfolio interest (Treasury bonds, corporate bond ETFs) with a valid W-8BEN - not 10%; the 10% rate is reserved for interest on loans from banks, savings institutions, or insurers, which doesn’t describe a typical individual bondholder
- Israel taxes at your marginal rate
- Foreign tax credit for the US withholding actually paid
Common Mistakes Israeli Investors Make
Assuming the treaty gets dividends down to 15%. It doesn’t. 25% is the individual portfolio rate. Confusing this with the European rate leads to under-forecasting US tax owed and can mean under-withholding surprises when reconciling against Israeli tax filings.
Not filing W-8BEN at all. Without it, your broker withholds the full 30%, not 25%. Still a meaningful gap worth claiming even though it’s smaller than in most other countries.
Assuming the 17.5%/10% interest distinction doesn’t matter. Most individual investors holding US bonds or bond ETFs directly get 17.5%, not the lower 10% rate that applies specifically to bank/institutional lending interest.
Ignoring the capital-source surtax at higher income levels. An investor with substantial combined dividend and capital gains income in a given year can face both the general 3% surtax and the additional 2% capital-source surtax above ILS 721,560 - a detail that changes the real marginal cost of realizing a large gain.
Confusing treaty rates with Israeli tax rates. The treaty only reduces US withholding. Israeli tax on the same income (net of the foreign tax credit) is still owed.
Letting W-8BEN expire. Three-year validity. Mark a reminder, or you’ll see 30% withholding reappear with no notice.
Not reporting US income to the Israeli tax authority. All foreign income - including US dividends and capital gains - belongs on your Israeli tax return, even though the US already withheld its share.
Setting Up Your Account for the 25% Rate
- Open an account with a broker that accepts Israeli residents (IBKR, eToro, Firstrade, and others)
- Complete identity verification (Teudat Zehut, proof of address)
- Navigate to tax forms in account settings
- Fill out Form W-8BEN: Part I personal information, Part II claim Article 12 treaty benefits (select Israel), Part III Israeli tax ID, sign and date
- Submit the form electronically
- Verify dividends arrive withheld at 25%, not 30% - and not 15%, which would indicate the broker misapplied a different country’s rate
Most brokers process W-8BEN within 1-3 business days; the reduced rate applies from the next dividend payment.
Which Brokers Accept W-8BEN from Israeli Residents?
| Broker | Accepts Israelis | W-8BEN Support | Notes |
|---|---|---|---|
| Interactive Brokers | Yes | Full | Clearly displays the treaty withholding rate in tax documents |
| eToro | Yes | Full | Simple interface, good for beginners |
| Firstrade | Yes | Full | Commission-free US stocks |
| Charles Schwab | Limited | Full | International account available |
| Saxo Bank | Yes | Full | European broker with US access |
For a broader comparison of brokers that specifically serve Israeli residents, see Best Brokers for Israeli Investors in US Markets.
Frequently Asked Questions
Do I need to file a US tax return as an Israeli investor? Generally no. If you’re only receiving dividend and interest income subject to withholding, with no US trade or business, you don’t need to file a US return. The withholding is your final US tax liability.
What if I’m a dual US-Israeli citizen? Different rules apply. US citizens are taxed on worldwide income regardless of residence, via the treaty’s saving clause. You’ll likely need to file both US and Israeli returns and claim foreign tax credits on each side.
Does the treaty apply to ETFs and mutual funds? Yes for US-listed ETFs (like VOO, QQQ) - dividends qualify for the 25% treaty rate the same as individual stocks. Foreign-domiciled ETFs may have different treatment; see PFIC rules for non-US-domiciled funds. For leveraged ETFs like TQQQ, the TQQQ tax guide covers fund-level specifics.
What about Israeli bonds or stocks held by US investors? The treaty works both ways, with its own set of Israeli-side withholding rates and conditions - those are outside the scope of this guide, which focuses on Israeli residents investing in US markets.
Can I get refunds for over-withholding in past years? Yes, via Form 1040-NR, generally for up to three prior tax years. A cross-border tax professional is worth engaging for this given the paperwork involved.
Useful Tools for Israeli Investors
- Tax Map - Compare Israel’s treaty rates against other countries side by side.
- Broker Finder - Find brokers that accept Israeli residents and support W-8BEN filing.
- Broker Fee Calculator - Calculate the real cost difference between IBKR, eToro, Saxo, and others, including FX conversion drag.
Action Steps for Israeli Investors
- Check your current withholding rate on your broker’s tax documents - it should read 25%, not 30% and not 15%
- If it’s 30%, file W-8BEN immediately to bring it down to 25%
- Mark your calendar to renew W-8BEN every three years
- Keep records of all US dividend, interest, and capital gains activity for Israeli tax reporting
- If your combined capital-source income is approaching ILS 721,560 in a year, factor the additional 2% surtax into your planning before realizing a large gain
- Consult a tax advisor for dual citizenship, trusts, or other complex situations
The US-Israel treaty is real, but it is not one of the generous ones - understanding that the ceiling is 25%, not 15%, is the single most important correction most Israeli investors need to make to their expectations.
Affiliate Disclosure: GetGlobalYields.com may earn a commission if you open an account through links on this page. This does not affect our editorial independence.
⚠️ Tax Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Tax treaties are complex and subject to change. Consult a qualified cross-border tax professional for guidance specific to your situation.
Sources: US-Israel Income Tax Treaty (1975) and 1993 Protocol, IRS treaty text; Joint Committee on Taxation explanation of the 1993 Protocol; PwC Israel - Corporate Withholding Taxes and Individual Other Taxes (2026); IRS Publication 515 (2026).
