Exit Tax on Stock Options upon Relocation: Section 100A and Deferral of Payment

Not necessarily. Under Section 100A of the Income Tax Ordinance, a person who ceases to be an Israeli resident is deemed to have sold all of their assets — including employee stock options and shares — on the day before the date of departure from residency. However, anyone who does not pay the exit tax at that time is treated by law as having elected to defer it until the actual sale date. Israel then taxes only the proportionate share of the gain attributable to the period during which you were a resident, and linkage differentials and interest accrue only from the date of the actual sale. Before relocating, it is advisable to map out all of your equity grants and determine what portion of each will be attributed to Israel.

The section creates a deemed sale: an asset held by an Israeli resident who ceases to be a resident is treated as sold on the day before the date on which residency ended. The tax event is triggered without any actual sale, and the taxpayer has two ways to pay the tax:

1. Payment at the date of departure from residency, based on the asset's value on the day before departure. For non-traded assets, such as shares in a private company, this route generally requires a valuation.

2. Deferral of payment until the actual sale date. This is the default: anyone who did not pay at the date of departure is deemed to have elected deferral. At the time of sale, the entire capital gain is calculated, and Israel taxes only the proportionate share — based on the ratio of the period from the acquisition date to the date of departure from residency relative to the entire holding period through the date of sale.

Under the deferral option, linkage differentials and interest accrue only from the date of sale until actual payment. Deferral therefore does not depend on any special arrangement with the Israel Tax Authority. The exception: where the sale of the asset is in any event subject to tax in Israel at the time of sale, the tax is paid under the ordinary capital gains rules applicable at that time.

According to the language of Section 100A, the allocation is based on the holding period, but for employee stock options the Israel Tax Authority allocates the gain according to the workdays in each country during the vesting period. InIncome Tax Circular 9/2025 dated November 11, 2025, the Israel Tax Authority stated that the source of income from the exercise of options is determined by the location where the employee worked during the vesting period: the gain is multiplied by the number of workdays in a given country and divided by the total number of days in the entire vesting period.

The same approach appears in advance tax rulings (ruling by agreement) issued by the Israel Tax Authority to companies with relocating employees, such as Ruling 6539/17. These rulings provide that Section 102 continues to apply to the options, and that the Israeli portion is the gain multiplied by the number of days from the grant date (or the start of the vesting period, whichever is earlier) through the departure date, divided by the number of days through the end of the vesting period. No foreign tax credit is allowed against the Israeli portion, and the company or trustee withholds tax on that portion at the time of exercise.

An advance tax ruling by agreement is binding only on the parties to it and on the specific circumstances examined. Where the departure date is also the date of cessation of residency, some argue that under Section 100A the allocation should be based on the holding period through exercise rather than the vesting period, which would reduce the Israeli portion. This is a question that is examined on a case-by-case basis according to the plan terms and the vesting schedule.

It depends on the track under which the options were granted. Under the capital gains track through a trustee, where the shares remained with the trustee for at least 24 months, the gain is generally taxed as a capital gain at 25%, and in a publicly traded company part of it is taxed as employment income. However, Section 102(f) provides that notwithstanding Section 100A, the portion of the gain taxable in the hands of an employee who ceased to be a resident is taxed at the marginal tax rate under Section 121 in each of the following cases:

• A grant through a trustee under the employment income track.

• A grant through a trustee under the capital gains track, where the shares were exercised before the end of the required holding period with the trustee.

• A grant not through a trustee of a non-traded right, which is taxed at the time of exercise as employment income (Section 102(c)(2)).

The practical implication: an employee who leaves while the shares are still held by the trustee and sells them before the end of the required holding period will pay marginal tax on the Israeli portion — up to 47% at the top bracket — rather than 25%.

Circular 9/2025 addresses the reverse scenario: options granted to an employee while a foreign resident, by a foreign employer that is not an "employing company" under Section 102, and exercised after the employee returned to Israel. According to the circular, the income from such an exercise is classified as employment income and is spread in equal portions over the tax years from the grant date through the exercise date, up to a maximum of 6 years. The portion spread to years in which you were a foreign resident is exempt from Israeli tax, while the portion spread to years in which you were already a resident is taxable. The workdays in each country during the vesting period determine which portion was generated abroad, and accordingly the credit for foreign tax. Separate rules are set out in the circular for veteran returning residents and for first-time Israeli residents, based on the exemption under Section 14 of the Ordinance.

A person who was a foreign resident for at least 10 consecutive years and returns as a veteran returning resident from January 1, 2026 onward is still exempt from tax on foreign-source income for 10 years, but is no longer exempt from reporting. Amendment 272 to the Ordinance repealed Sections 134B and 135(b), and therefore such individuals must file an annual tax return and a capital declaration that include foreign income and assets. For more on the benefits and reporting requirements, see Returning Residents and New Immigrants.

1. Whether residency is severed at all, and when. Relocating employees often remain Israeli residents, in which case Section 100A does not apply to them. The criteria are detailed on the Severing Tax Residency page.

2. A list of all grants: grant date, tax track, trustee, vesting schedule, and exercise price.

3. Documentation of workdays in Israel and abroad throughout each vesting period. This is the basis for allocating the gain.

4. For each asset: whether to pay at the date of departure or to defer. In a private company, immediate payment requires a valuation.

5. The tax treaty with the destination country, and whether the destination country grants a credit for Israeli tax. According to the tax rulings, Israel does not grant a credit on the Israeli portion.

6. Notification to the employer and the trustee of the departure date, so that the tax withheld at source upon exercise is calculated correctly.

For more on Section 102 tracks and grant planning, see Stock Option Taxation and Executive Compensation. Relocation and stock option cases at our firm are handled by Adv. and CPA Shlomi Vaknin.