Investing in Israel as an Oleh: Brokers, ETFs, and Tax Implications

Why this matters

Investing as an Israeli resident requires thinking about three things at once: which broker to use, which products to buy, and how each jurisdiction (Israel and your home country) will tax you. New Olim get a 10-year Israeli tax exemption that creates very specific opportunities and traps.

The 2 broker categories

Israeli bank brokerage

Every Israeli bank operates a brokerage desk (Mishar Niyarot Erech). You can buy Israeli and foreign securities through your bank account.

Pros. All in one place. Strong shekel-cost averaging for Israeli securities. Tax reporting issued automatically by the bank.

Cons. Commissions are high (typically 0.4 to 0.8 percent per trade plus a custody fee of 0.1 to 0.3 percent per year). FX spread on foreign trades is 1 to 1.5 percent. Customer service in English is variable.

Independent Israeli broker

Specialty firms like Meitav Dash, IBI, Migdal Brokers, Yelin Lapidot, Excellence, and Phoenix Brokers compete with banks.

Pros. Lower commissions (0.08 to 0.25 percent per trade). Better trading platforms. Some offer English support.

Cons. Separate account from your bank. Funding requires a wire from your bank account.

Interactive Brokers Israel

Operates a regulated Israeli entity. Lowest commissions in Israel. Strong English support.

Pros. Among the cheapest. Excellent platform. English-first.

Cons. Tax reporting is detailed but requires care. Some US-domiciled products are restricted to Israeli residents (and vice versa).

What to invest in (Israeli securities)

Israeli index ETFs

- Pikadon Pikadon Madad TA-35. Tracks the top 35 Israeli companies.

- Pikadon TA-125. Broader index, 125 companies.

- Sectoral indexes. TA-Banking, TA-Real Estate, TA-Cleantech.

Managed by Israeli fund houses (Migdal, Harel, Meitav, KSM-Excellence). Annual management fees: 0.1 to 0.4 percent. Available at any Israeli bank or broker.

Foreign exposure through Israeli ETFs

- Pikadon S&P 500. Tracks the S&P 500. Israeli-domiciled ETF.

- Pikadon Nasdaq 100. Tech-heavy exposure.

- Pikadon MSCI World. Global developed markets.

Important: These Israeli ETFs are TAXABLE for Israeli residents at 25 percent on real (inflation-adjusted) gains. New Olim under the 10-year exemption don't get protection for these (they are Israeli-domiciled). Holding S&P 500 through a foreign broker may be more tax-efficient during the exemption window.

Israeli bonds (Agachim)

Government bonds (Shekel-denominated or Madad-linked) and corporate bonds. Yields in 2026: 3.5 to 5.5 percent for sovereign, 5 to 8 percent for investment-grade corporate.

Held through any broker. Taxed at 25 percent (real) for shekel-denominated, 15 percent (nominal) for foreign-currency bonds.

Israeli direct stocks

Top Israeli companies traded on TASE: Bank Leumi, Bank Hapoalim, Teva, Strauss Group, Nice, Cellcom, El Al, Migdal, ICL, Bezeq, and dozens more. Tax treatment same as ETFs.

Tax during the 10-year exemption

The Oleh tax exemption changes the right strategy.

Foreign securities held abroad (in your US or UK broker account)

- Income (dividends, interest): Exempt in Israel for 10 years.

- Capital gains: Exempt in Israel for 10 years.

- Home country tax: Still applies. US citizens still pay US tax on US-source dividends and gains.

Israeli securities held in Israel

- Income (dividends, interest): Taxed in Israel at 25 percent (real basis for Israeli equities, 15 to 25 percent on interest depending on type).

- Capital gains: Taxed at 25 percent (real basis).

- The Oleh exemption does NOT cover Israeli-source income.

Foreign securities held through an Israeli broker

This is the tricky one. The securities are foreign (e.g., S&P 500 stocks) but held through an Israeli broker. Israel may treat the location of the broker as Israeli for some purposes.

The cleanest interpretation: foreign-source income remains exempt under the Oleh rule, but you should ask your CPA to confirm given your specific holdings.

What this means in practice

Scenario A: 35-year-old Olah, NIS 500,000 portfolio, 1st year of aliyah

- Keep US/UK home-country broker account. Hold Vanguard ETFs (VOO, VTI, VEA, BND). Israeli tax-exempt for 10 years. Home-country tax applies normally.

- Open Israeli broker account. Hold a small position in Israeli index ETFs for diversification. Pay 25 percent capital gains in Israel.

- Do NOT move all assets to Israeli broker. Lose the 10-year exemption on foreign holdings.

Scenario B: 50-year-old US-citizen Oleh, $2M portfolio, planning retirement in Israel

- Keep US brokerage at Schwab or Fidelity. Hold US-domiciled ETFs (these are not PFICs from a US tax view).

- Make sure none of the holdings are foreign (non-US) mutual funds or ETFs - those would be PFICs.

- Year 9 of aliyah: re-evaluate. Consider crystallizing gains before exemption ends.

- Avoid Israeli mutual funds and pooled vehicles to skip PFIC reporting.

Scenario C: 30-year-old non-US Oleh, NIS 100,000 portfolio

- Open an account at Interactive Brokers Israel.

- Hold global ETFs (e.g., iShares MSCI World) and Israeli index ETF.

- Pay 25 percent Israeli capital gains on Israeli holdings.

- Foreign holdings exempt until year 10.

Israeli investment products to avoid for US citizens

Almost all Israeli pooled funds are PFICs. The following triggers Form 8621 filing and punitive PFIC tax:

- Pikadon (Israeli ETFs)

- Kupot Gemel L'Hashka'a (mutual fund-like provident funds)

- Keren Hishtalmut (most plans, see separate article)

- Israeli Kupot Pensia (pension funds) - some treaty protection but complicated

US citizens can hold individual Israeli stocks and bonds without PFIC issues. Just avoid pooled vehicles.

Brokerage account opening for Olim

At a bank

1. Walk into your bank, ask for Mishar Niyarot Erech.

2. Sign the trading agreement (Hesker Mischar).

3. Account opens within 1 week.

4. Trade through the bank's online portal.

At Interactive Brokers Israel

1. Apply online at interactivebrokers.co.il.

2. KYC verification: Teudat Zehut, foreign passport, proof of address, US W-9 for US persons.

3. 5 to 10 business days to open.

4. Fund via Israeli bank wire.

Common mistakes Olim make

Moving all assets to Israel immediately. Loses the 10-year exemption on foreign holdings. Keep most assets abroad during the window.

Buying Israeli ETFs as US citizen without checking PFIC status. Creates years of Form 8621 filings.

Closing the home-country broker. Many Olim close their Schwab or Fidelity to consolidate in Israel. Big mistake - the home-country broker is often the cheapest way to hold US-domiciled ETFs.

Using bank brokerage for active trading. Commissions kill returns. Use an independent broker for any meaningful trading volume.

What to do this month

1. Confirm whether you keep your home-country brokerage account open (yes for almost everyone).

2. Open an Israeli broker account for Israeli-specific holdings (small allocation in year 1).

3. Map your portfolio: which assets stay abroad (tax-exempt for 10 years), which move to Israel.

4. For US citizens: review every Israeli investment for PFIC status before buying.

5. Set a year-9 calendar reminder to plan the end-of-exemption strategy.

KolShekel does not provide investment advice. Past performance does not predict future returns. Consult a licensed Israeli investment advisor and a cross-border CPA before making changes.