The amount of Olim living in Israel is increasing every year. Apart from the general effects this has on Israeli society, it also means that there are an increasing number of people each year who are more apprehensive than they should be about investing their savings and portfolios in Israel.
So if you are thinking about saving and investing in Israel, here are 5 basic (really basic) things you need to know about investing in Israel:
1. Fees – Most banks charge two fees – one for buying and selling securities, and one an annual “safe keeping” fee (which is basically an annual fee for holding your securities at the bank). If you have mutual funds or ETFs in your portfolio, then don’t forget that these too have internal management fees as well, which are separate to the bank's fees.
2. Tax – On gains and income/dividends from most securities it is 25% of the post-inflation gain (e.g. if your share went up by 10%, and inflation was 2% during the time between when you bought and sold the share, then you are taxed 25% on a gain of 8%). An exception to the above are Shekel non-inflation linked bonds, which are taxed at 15% of the nominal gain (i.e. 15% of actual gain, ignoring inflation). Interest on bank deposits and any loans you give (if done as a business) is also 15%.
3. Olim within their first 10 years – The tax-free benefit is also available for foreign securities that you hold through your Israeli bank account – you don’t need to keep your portfolio overseas to enjoy the 10 year tax benefit. Therefore, make sure the bank has your correct Aliyah date in their system so that it doesn't think that your ten years are up earlier than they should be!
4. Regulation - There are two main investment licenses in Israel – an Advisory license (think the banks, who can make investment recommendations but leave the final say to you) and a Portfolio Management license, where someone else manages your investments for you. The banks cannot offer the latter.
5. Only Banks? – You don’t have to invest through the banks (in fact often you shouldn’t!), and there are some very popular ways to invest through the insurance companies and investment management firms. Indeed in the last 3 years (to April 2019) Israelis have moved over 40bn Shekel out of the banks and in to investment policies of the insurance companies.
Of course there are more than 5 things to know about investing in Israel, more like 105, however the above 5 points, whilst basic, are not always made clear from the start. With potential big ramifications from all of the above, knowing and understanding them from beginning is, in our experience, a useful place to begin!
Want to learn more about Saving and Investing in Israel? Contact us here for a free telephone consultation.