An exit after relocation: How not to become an ATM for the Tax Authority
Selling shares after moving between countries can lead to complex tax consequences. The Israeli Tax Authority considers not only the exit date but the entire history of asset ownership, including periods of residency and tax exemptions.
A founder holding shares in a foreign company moves to Silicon Valley, returns to Israel after more than a decade, leaves again, and finally sells the shares in an exit. This is no longer an unusual scenario in high-tech, but it can be tax-complex. Israel may look not only at the day of the exit but at the entire path the shares took along with their owners.
Two mechanisms come into play: the "exit tax," which applies when a person ceases to be an Israeli tax resident, and the exemption granted to "veteran returning residents" on profits from assets outside Israel. The problem begins when both apply to the same asset in different periods.
Two mechanisms, one exit
When a person "severs residency," an exit tax may apply. Israel reserves the right to tax the appreciation accumulated while the person was an Israeli resident. In some cases, tax payment can be deferred until the actual sale, with profit divided according to holding periods.
Conversely, a veteran returning resident (absent for at least ten years) may enjoy a ten-year exemption on foreign asset profits. Even if sold after the benefit period ends, the portion of profit attributed to the benefit years remains exempt.
Difficulty arises when a person leaves, returns, and leaves again while holding the same shares. The question is how to divide that profit between taxable years, exempt years, and years when the shareholder was not an Israeli resident at all.
How a gap of millions can be created
Suppose Maya purchased shares in 2000 as a non-resident. In 2008, she returned to Israel as a veteran returning resident, in 2018 her benefits ended, in 2022 she severed residency again, and in 2026 she sold the shares for a 10 million shekel profit.
Linear calculation suggests a taxable base of 1.54 million shekels (four years without benefits out of 26). However, a literal reading of the exit tax formula could push the tax base to 8.46 million shekels if counting the entire period from 2000 to 2022. The same exit can produce a gap of millions depending on how the timeline is divided.
Important planning principles
The last event on the timeline should not erase what came before. Periods without benefits should be taxable, and periods with exemptions should retain their character. Since the intersection of these provisions is not fully regulated, this is a risk that must be identified in advance.
Tax planning should start at relocation, not when a purchase offer arrives. Document the value of shares, purchase and vesting dates, allocation agreements, and holding structure in real-time. Ordinary shares, options, and RSUs may be subject to different rules, and the destination country may calculate profit differently, complicating foreign tax credits.
From 2026, the exemption from reporting foreign income and assets for new and returning residents has been cancelled. This increases the need for orderly documentation of assets and residency history.
The exit is only the last station. For those holding significant equity, it is worth managing a "tax axis" alongside the career axis. This documentation may be the difference between a substantiated tax calculation and a dispute that starts only after the money is on the table.
The author is a partner at Almakies Tax Solutions. This article presents general principles and does not constitute individual tax advice.
