Trading through Interactive Brokers or another international brokerage platform? Unlike Israeli banks that deduct tax at source on every transaction, foreign brokers do not deduct Israeli taxes and do not report to the Israel Tax Authority. The legal reporting duty falls entirely on you.

Why Foreign Brokers Require an Annual Return, While Israeli Banks Usually Do Not

Israeli financial institutions serve as statutory withholding agents, deducting 25% or 30% capital gains tax at source and producing Form 867. Foreign brokers like Interactive Brokers operate under international jurisdictions and do not withhold Israeli tax, creating a mandatory annual filing duty (Form 1301).

What Documents Must Be Collected from Your Broker Before Filing?

Download your comprehensive annual Activity Statement, Form 1042-S (for US withholding tax on dividends), foreign currency transaction logs, dividend payout summaries, and domestic Form 106 / Form 867 slips.

How to Report Step by Step

Convert every transaction into New Israeli Shekels (ILS) using the Bank of Israel representative exchange rate on the transaction date, reconcile capital gains and losses, integrate foreign withholding tax credits, and submit Form 1301 with accompanying capital gain appendices.

Foreign Tax Credits: How to Avoid Paying Double Tax

Under tax treaties, tax deducted abroad (e.g. 25% US tax on dividends) can be credited against Israeli tax liabilities, ensuring you do not pay double taxation on the same income stream.

Common Pitfalls in Annual Returns with Foreign Brokers

Converting currencies using incorrect average exchange rates, failing to claim dividend tax credits, overlooking cash interest income, and neglecting to offset losses against Israeli brokerage gains.

The Risk of Non-Reporting: The Tax Authority Already Knows

Under international Common Reporting Standards (CRS) and the US FATCA treaty, foreign financial institutions automatically transmit financial account data directly to the Israel Tax Authority.

Frequently Asked Questions About Annual Returns for Foreign Brokers

I Only Trade Through Interactive Brokers and Have Not Withdrawn Funds to Israel. Must I Still File?

Yes. In Israel, the taxable event occurs upon realizing the gain, receiving a dividend, or earning interest, regardless of whether funds are remitted to Israel.

I Incurred Net Losses This Year. Why Should I File a Return?

Filing is legally required, and establishing your net loss balance allows you to carry forward losses to offset future gains.

The US Already Withheld 25% on Dividends. Do I Still Owe Tax in Israel?

For standard stocks, the 25% US withholding tax matches the Israeli dividend tax rate, meaning you owe 0% additional tax after claiming your foreign tax credit.

I Also Have an Israeli Bank Account with Form 867. How Do I Report Both?

Both accounts are consolidated onto Form 1301, enabling cross-broker loss offsetting.

I Failed to Submit Tax Returns for Previous Years. What Should I Do?

Initiate voluntary compliance or retroactive filing for up to 6 prior tax years through a certified CPA.

I Only Seek a Tax Refund and Am Unsure if I Am Obligated to File. Is There a Shortcut?

Filing Form 1301 or 135 is the established statutory method to claim all eligible capital refunds.

Must I Also Report the Existence of the Foreign Account Itself?

Yes. Foreign financial balances exceeding statutory thresholds (such as 2,086,000 ILS) require explicit disclosure on annual schedules.

Summary: The Annual Return is Part of Investing, Not Pointless Bureaucracy

Proper annual reporting protects your investments, optimizes foreign tax credits, and keeps you fully compliant. Contact Bernstein & Co. for specialized foreign account reporting.

Compliance reference: Form 106, Form 867, Form 1042-S, Form 1301, Form 135, Section 18, Section 93, Section 135, statutory brackets 5%, 12%, 18%, 25%, 30%, and balance threshold 2,086,000 ILS.