You spent several years working abroad - New York, London, Berlin - and part of your pay came as equity: restricted stock units (RSUs) or stock options under an employee share plan. Now you are moving to Israel as a new oleh or a returning resident. Your equity is still sitting there. Some is vested, some is not, and most remains unsold. The question that follows you onto the plane is simple to ask but genuinely hard to answer: how much of this does Israel tax, and when?
If you hold foreign RSUs or options as your move approaches, you are probably turning over the same handful of questions:
- Should I sell before the move, after it, or wait? What does each do to the actual tax?
- Does it matter where I was working while the equity vested - abroad or in Israel?
- How do I avoid paying twice - once to the foreign tax authority and once to Israel?
For years, these questions caused disputes because the Israeli position was scattered and sometimes aggressive. Circular 9/2025 from the Israel Tax Authority now provides a clear framework - if not an easy one to read - and guidelines for equity held by people arriving in Israel.
In short, three dates dictate how much tax you pay: vesting, exercise, and sale. Where each date falls relative to the day you became an Israeli resident decides what is taxed as employment income, what is exempt, and what counts as a capital gain.
The companion piece to this post, Section 102: Israeli employee equity, covers equity granted by an Israeli company. This article is the mirror image: equity granted to you abroad, before you became an Israeli resident, and how Circular 9/2025 taxes it once you arrive.
What does Circular 9/2025 cover - and who does it apply to?
The circular covers anyone who received options or RSUs while a foreign resident, became an Israeli resident, and only then exercised or sold them. For the first time, it establishes a clear framework for how Israel taxes equity built up while working abroad, and crucially, how that income is split between Israel and the other country.
It applies when the granting company is not considered an Israeli "employing company". In most cases, this means a foreign company with no related company in Israel. In such cases, Section 102 and its benefits do not apply. The equity is taxed under the Section 3(i) route instead.
Under Section 3(i), there are two separate tax events. The first occurs at realisation (the option converting into a share, or the RSU vesting), when the benefit element is taxed as employment income. The second is the sale of the shares, when the difference between the value at realisation and the sale price becomes a capital gain or loss.
I'm moving to Israel with RSUs or options from abroad: which part will I pay tax on?
Israel imposes two separate taxes: tax on employment income and capital gains tax. The table below simplifies the main principles of how equity is taxed under the new guidance.
| Question | Tax on employment income | Capital gains tax |
|---|---|---|
| What is taxed? | The benefit element - the share value at the tax event, less any exercise price | The rise in value from that date until you sell the share |
| When is the tax event? | RSUs - at vesting; options - at exercise (conversion into a share) | On the sale of the share |
| When is it exempt in Israel? | RSUs - if vesting was completed entirely while you were still a foreign resident; options - if the exercise took place while you were still a foreign resident. Otherwise, a proportional exemption for the part attributed to your foreign-residency years | Ordinary returning resident - under section 97(b)(2); veteran returning resident and new oleh - under section 97(b)(1); back after fewer than six years - no exemption |
As for the taxable part (employment income), it is taxed at your marginal rate, which can reach roughly 50%. You may spread this over up to six years ending in the year of exercise. The size of your foreign tax credit depends on the vesting period. The more vesting workdays you spent abroad, the larger the share of foreign tax recognised as creditable. A veteran returning resident or a new oleh enjoys a broader exemption, which I explain below. Let's take these one question at a time.
How is the exempt part determined?
The exempt part follows your residency years within the spread period. For a veteran returning resident or a new oleh, it follows your workdays during the vesting period. The simplest way to understand the circular is to imagine two clocks measuring different periods:
- The first clock - the vesting period: This asks where you earned the income, based on your workdays in each country while the right vested. It determines the foreign tax credit and, for a veteran returning resident or a new oleh, the exempt part.
- The second clock - the spread period: This asks which years you held the right, from the tax year of grant to exercise, for up to six years. For an ordinary returning resident, or someone who returns after fewer than six years, it decides how much Israel taxes. The portion spread to years you were a foreign resident is exempt, unless you were physically working in Israel during that time. The portion spread to years you were already an Israeli resident is classed as income of an Israeli resident, making it taxable.
| Circular example | What happened | Taxable in Israel | Foreign tax credit |
|---|---|---|---|
| Example 1 | Four-year vesting, three of the years abroad; exercise in the year of return | One quarter | 3/4 of the foreign tax, on the taxable part |
| Example 2 | Vesting entirely abroad; exercise one year after return | One quarter | All of the foreign tax, on the taxable part |
| Example 3 | Vesting ends in Israel; exercise one year later | 2/5 | 3/4 of the foreign tax, on the taxable part |
The circular's examples assume an ordinary returning resident. Look at example 2: the vesting took place entirely abroad, yet a quarter of the income is taxable in Israel. This is because the year in which the option was held in Israel after it vested is part of the spread. For an ordinary returning resident, every such year increases the taxable part. For a veteran returning resident or a new oleh, it changes nothing.
My RSUs vested after I arrived and were taxed both abroad and in Israel - how do I avoid double tax?
You avoid double taxation through the foreign tax credit. If you paid foreign tax on the full benefit, you can credit it against your Israeli tax. However, the credit is limited and proportional. You cannot claim credit for foreign tax paid on income that is exempt in Israel. You may only claim the proportional share of the foreign tax attributed to the income taxable in Israel. The number of workdays spent abroad during the vesting period sets how much of the foreign tax is recognised as creditable "foreign taxes". The final credit is also subject to the limits in sections 200 to 204(a) of the Income Tax Ordinance.
What rate applies to the taxable part, and how does the spread help?
The taxable part is treated as employment income at your marginal rates, and spreading it back over earlier years may reduce the tax. This is the point people most often get wrong. Where options or RSUs are taxed under the Section 3(i) route, the benefit does not get the reduced 25% capital-gains rate. It is taxed as employment income at ordinary marginal rates - up to 47%, and up to roughly 50% with the surtax.
This is where the spread earns its keep. The same apportionment across the years from grant to exercise (Section 3(i)(2)) that decides what is exempt and what is taxable also spreads the taxable part across several tax years, up to six ending in the year of exercise. If your overall income in some of those years was lower, the spread may reduce the effective rate on the benefit.
There are two practical points to remember. First, the spread is not automatic. It applies only if you request it in your annual return or through a tax-coordination request to the assessing officer, who can also issue a withholding certificate reflecting it. Second, the spread counts tax years. The year of grant counts as a full year even if the options were granted in December. If more than six years have passed since the grant, the earlier years - in which you may have been a foreign resident - drop out of the calculation.
How much tax would I actually pay? A worked example
To make this concrete, let's look at Michal (the figures are illustrative; the method follows the circular):
- 1 Jan 2019 - Michal ceases Israeli residency and moves abroad for work.
- 1 Jan 2023 - her foreign employer (not an Israeli "employing company") grants her 10,000 options, with a four-year vesting period and an exercise price of ILS 12 per share.
- 1 Jan 2026 - Michal moves to Israel as an ordinary returning resident (Section 14(c)).
- 31 Dec 2026 - vesting ends: she exercises the options into shares and sells them the same day, when the share is worth ILS 92.
In the country where she worked, Michal paid ILS 160,000 in foreign tax on the full option income. In Israel, the income is spread across four years (2023-2026), from grant to exercise: three as a foreign resident and one as an Israeli resident.
| Step | Calculation | Amount (ILS) |
|---|---|---|
| Value of the shares at exercise | 10,000 × 92 | 920,000 |
| Less the exercise price | 10,000 × 12 | (120,000) |
| Benefit element | 920,000 - 120,000 | 800,000 |
| Benefit not taxed in Israel | 3/4 × 800,000 | 600,000 |
| Benefit taxed in Israel | 1/4 × 800,000 | 200,000 |
| Israeli tax before credit (47% plus 3% surtax) | 50% × 200,000 | 100,000 |
| Credit for the foreign tax | 3/4 × 1/4 × 160,000 | (30,000) |
| Tax payable in Israel | 100,000 - 30,000 | 70,000 |
Look closely at the credit line. Of the ILS 160,000 in foreign tax, only three-quarters counts as creditable "foreign taxes", reflecting the three out of four vesting years Michal worked abroad. Of that, only the share attributed to income taxable in Israel can be credited. The result is a credit of just ILS 30,000. The rest of the foreign tax, which relates to exempt income, cannot be credited at all.
If you are a US citizen or green-card holder, read this carefully. The United States taxes its citizens on worldwide income regardless of where they live, so making aliyah does not switch off the IRS. Israel's exemption relieves the Israeli side, but does nothing for the US side. The two systems must be coordinated deliberately - see the new olim guide for why the exemption is not the whole story.
Do returning-resident and new-oleh benefits apply to options and RSUs?
In part, and how far depends on your arrival status. An ordinary returning resident gets no additional relief on the salary element, but may be exempt on the capital gain. A veteran returning resident or new oleh enjoys a broad exemption on both the salary element and the capital gain. Someone who returns after fewer than six years is not entitled to returning-resident benefits at all. These differences can substantially reduce your total tax in Israel and abroad, which is why careful planning is essential before you land.
| Status | Tax on employment income (the benefit element) | Capital gains tax (sale of the shares) |
|---|---|---|
| Back after fewer than six years (no status) | The same spread as an ordinary returning resident: exempt only on the part spread to the foreign-residency years, with the rest taxed at full marginal rates. | No exemption: all the rise in value until the sale is taxable, including the part that built up before the return. |
| Ordinary returning resident (a foreign resident for at least six consecutive years, Section 14(c)) | No additional relief on the salary element: exempt only on the part spread to the foreign-residency years, with the rest taxed at full marginal rates. | Exempt under section 97(b)(2) on shares received abroad while a foreign resident, if sold within ten years of the return. Shares received after the return are not exempt. |
| Veteran returning resident (at least ten consecutive years) / new oleh (Section 14(a)) | If the vesting period ended while still a foreign resident, the entire benefit is exempt. If it ended after arrival, only the part reflecting Israeli workdays is taxable. | Exempt under section 97(b)(1) on the gain from selling an asset held outside Israel, if sold within ten years of arrival. |
It is worth being clear about who falls into each category. Ordinary returning resident status generally requires at least six years abroad, and veteran returning resident status at least ten. Someone who returns to Israel after fewer than six years falls into neither category: no Section 14 benefits and no capital-gains exemption under section 97(b). The spread of the salary element, however, does not depend on status, so it applies to them too. For more on these classifications, see the new olim guide.
Moving to Israel with equity?
I map the Israeli tax on your RSUs and options before you set an arrival date - and coordinate with your advisor abroad. Book a consultation.
Get in touchHow are RSUs taxed if sold after you arrive?
With RSUs, the benefit element (the employment income) is the share value at vesting. How it splits between the exempt and taxable parts is covered above. Then comes the second tax event: the sale of the share. Any rise in value from vesting to sale is a capital gain, taxable in Israel. If the RSUs vested while you were a foreign resident, an ordinary returning resident may be exempt under section 97(b)(2), and a veteran returning resident or new oleh under section 97(b)(1). Someone who returns after fewer than six years receives no exemption.
How are options taxed if sold after you arrive?
With options, the benefit element is measured later: the share value at exercise, when the option is converted into a share. How it splits between exempt and taxable is covered above. The second tax event is the sale of the share: any rise in value from exercise to sale is a capital gain, taxable in Israel subject to returning-resident relief.
Note: if the option both vested and was exercised while you were still a foreign resident, the entire benefit element is exempt from Israeli tax. The next section deals with that case.
What if I exercised the options before arriving in Israel?
If you had already converted the options into shares while still a foreign resident, and you only sell those shares after arriving in Israel, there is no employment-income element left for Israel to tax. The entire gain on the sale is a capital gain under Part E of the Ordinance, subject to the exemptions available to returning residents and new olim (such as section 97). Timing your exercise before or after the move can therefore change the picture materially.
Should I exercise, sell or accelerate vesting before moving to Israel?
There is no single answer. Sometimes exercising or vesting before the move removes the salary element from Israeli tax. In other cases there is no need - for example, for a veteran returning resident or new oleh whose vesting period ended abroad. I recommend making this decision before you fix your arrival date.
Circular 9/2025 brings clarity and valuable relief to returning residents and olim with options and RSUs built up abroad. However, open questions, complexities, and varying scenarios remain that may affect your personal tax, and these should be weighed before you set the date you become an Israeli resident. Key factors include: the timing of vesting and exercise; the status you arrive in (ordinary returning resident, veteran returning resident, or new oleh); and the option of asking to move onto the Section 102 capital-gains track. That step can help, but the move itself may trigger a tax event on options that have already vested. The tax on them is calculated and paid only at exercise, and the salary part is the higher of two figures: the benefit value based on the average share price, or a split by days from the original grant to the conversion. Additionally, an Israeli circular cannot settle the tax rules of the country you are leaving. Proper planning before your move can produce significant tax savings, both in Israel and abroad.
Related: Section 102 - how Israel taxes equity granted by an Israeli employer »