As previously written here, the US is currently in active negotiations with over 50 countries and jurisdictions around the world to improve international tax compliance and implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).  These Intergovernmental Agreements (IGA) allow for an information exchange between countries on the bank accounts of it’s citizens and tax residents.  Israel is one of these countries.

There is a great deal of investment and immigration or emigration between the US and Israel, giving rise to tax implications for both countries.  All US persons must report their income on an annual basis to the US and under the new FATCA legislation, all foreign banks are required to implement procedures to identify and report information regarding US citizen and resident account holders to the IRS or suffer a withholding tax of 30%.

Currently Israeli banks are requiring those individuals identified as US persons to sign forms W-9:  Request for Taxpayer Identification Number and Certification, as a condition to maintaining an account with the bank.  In some cases, Israeli banks have already frozen the accounts of those individuals who have refused to sign the form W-9.  And note, banks are currently requiring new clients and approaching existing clients to clarify their US status and obtain a signed W-9 from US citizens.

The US/Israel Tax Treaty, provides relief from double taxation.  However, depending on the type of income received, it is quite possible that after the application of the foreign tax credit, an additional US income tax liability may remain.   Furthermore, self-employed individuals are subject to US self-employment tax, a separate tax liability which cannot be offset by payments made to Bituach Leumi or Israeli income tax paid on self-employment income.

Although some or all income may be temporarily exempt from tax in Israel due to the special 10-year tax holiday for a new Oleh or returning citizen, as a ‘US Person’ it is still a requirement to report worldwide income to the US.  This is in addition to an information report on all foreign financial assets and bank accounts (including pensions, insurances, trusts, etc.) and report on your ownership interest in foreign corporations, partnerships and trusts. See for requirements of FBAR (TD-F 90-22.1) and Form 8938.

Israelis investing in residential or commercial real estate in the USA are required to report and pay income tax on income generated from their US real estate investments.

In addition they will also be subject to US estate tax with respect to their real estate located in the US (as well as other assets located in the US).

Please contact us if you have any questions on compliance for US persons and cross border tax with Israel.