Israel Plans Major Investment Tax Reform Expanding Benefits to Retail Investors
The Israeli Finance Ministry has finalized a comprehensive reform of the investment sector, aiming to unify various savings products under a single investment account with standardized tax conditions. The reform, completed at the end of the current Knesset session, is expected to enter legislation once the new government forms after the upcoming elections. It will consolidate savings policies, provident funds for investment, and mutual funds into a dedicated platform.
Under the new system, deposits totaling up to 200,000 shekels will be exempt from capital gains tax if withdrawn as a pension after retirement age. Additionally, investors will be able to defer taxes on buying and selling transactions until funds are withdrawn to a checking account. Notably, the reform will extend these tax benefits to retail investors who hold securities accounts at banks or investment houses and trade individual stocks.
Moran Moshe Hantsis, Senior Deputy at the Chief Economist Division, explained in a podcast that the reform will eliminate the current significant tax benefit in provident funds for investment, which allows unlimited capital gains tax exemption on withdrawals as a pension after age 60, with an annual deposit ceiling of about 83,700 shekels. Other benefits in savings policies will also be curtailed, such as limiting tax deferral on switching investment tracks to the 200,000 shekel cumulative deposit cap.
The Finance Ministry emphasizes the reform is fiscally neutral, meaning it will neither increase nor decrease state revenues. However, data from the Investment Houses Association presented to the reform committee shows that only 0.04% to 0.06% of savers withdrew provident fund money as a pension between 2021 and 2023, indicating the current tax exemption is rarely utilized. This suggests the reform’s removal of this benefit will have minimal fiscal impact but may increase tax burdens on savers when switching investment tracks.
If adopted by the next government, the reform will primarily offer new tax advantages to retail investors while restricting existing benefits for provident fund holders, potentially leading to higher taxes for some savers.
