Exits & Acquisitions: A Tax Guide for US Citizens Living in Israel
For US citizens living in Israel, selling a business, merging with another company, or acquiring a new venture comes with complex tax implications in both countries. Understanding how US and Israeli tax laws apply to business exits and acquisitions is crucial for maximizing profits while remaining compliant.
In this guide, MasAmerica’s US tax advisors review key tax considerations, strategies for minimizing liabilities, and essential compliance steps for US expats in Israel navigating a business exit or acquisition.
1. Understanding Business Exits & Acquisitions
A business exit or acquisition can take many forms, each with its own tax consequences:
✅ Mergers & Acquisitions (M&A): When two companies combine, tax obligations depend on whether the transaction is structured as a stock or asset sale.
✅ Selling a Business: Entrepreneurs selling their US-based or Israeli company may owe capital gains tax in both countries.
✅ Equity Buyouts: Selling company shares requires careful planning to reduce tax exposure.
✅ IPO or Public Listing: If an Israeli startup goes public, US expats with equity stakes must understand reporting and tax implications.
Proper tax planning can help reduce liabilities and ensure compliance with both the IRS (US tax authorities) and Mas Hachnasa (Israeli Tax Authority).
2. US vs. Israeli Taxation on Exits & Acquisitions
| Factor | US Taxation | Israeli Taxation |
| Capital Gains Tax | Up to 20% for long-term gains, plus 3.8% NIIT (Net Investment Income Tax) for high earners (IRS Capital Gains Tax) | Standard capital gains rate is 25%-33%, but exemptions may apply |
| Foreign Tax Credit (FTC) | US expats can use foreign tax credits to offset double taxation | Israeli taxpayers may also receive credits for US taxes paid |
| Corporate vs. Individual Taxation | If selling shares in a US company, tax may be due at both corporate and personal levels | If the sale is of an Israeli company, local taxes apply, but US citizens may still owe US taxes |
| Stock Sale vs. Asset Sale | Stock sales are typically taxed as capital gains | Asset sales may trigger higher tax rates on goodwill or intangible assets |
Key Consideration: Since Israel and the US have a tax treaty, it’s essential to determine where taxes should be paid and how to apply for foreign tax credits.
For US tax guidance on business sales, see the IRS guide on capital gains.
3. Minimizing Tax Liabilities on Business Exits
When structuring an exit or acquisition, tax planning is key. Consider these strategies:
A. Capital Gains Deferral Strategies
- Installment Sales: Spreading payments over multiple years can reduce taxable income in any given year.
- 1031 Exchanges (Like-Kind Exchanges): If selling a US-based business property, reinvesting in similar assets can defer capital gains taxes.
B. Using Foreign Tax Credits (FTC)
- US citizens paying Israeli capital gains tax can offset their US tax liability through the Foreign Tax Credit (IRS Foreign Tax Credit Guide).
C. Estate Planning for Future Exits
- Gifting or Trusts: Placing shares in a trust before an acquisition may reduce future tax burdens (consult tax professionals for compliance).
- Israeli “Preferred Income” Exemptions: Some foreign investors in Israeli startups may qualify for tax reductions under Israeli law.
4. US Tax Reporting Requirements for Exits & Acquisitions
If you’re involved in a business sale or acquisition, certain IRS filings may be required:
| Form | Purpose |
| Form 8949 & Schedule D | Reports capital gains/losses from the sale of business assets |
| Form 5471 | If you own 10% or more of a foreign corporation, you may need to report international business activities |
| Form 926 | If transferring money or property to a foreign corporation, this must be disclosed |
| FBAR (FinCEN 114) | If you hold over $10,000 in foreign accounts, reporting is required (FBAR Details) |
Failure to report can result in heavy penalties, so consulting a US-Israel tax expert is highly recommended.
5. Should You Exit a Business While Living in Israel?
✅ Selling a business while living in Israel may be a good option if:
- You can use the US-Israel tax treaty to avoid double taxation.
- You qualify for Israeli foreign investor tax benefits when selling Israeli shares.
- You plan to invest in a new business or asset and can defer taxes strategically.
❌ Selling in the US while living in Israel may not be ideal if:
- You still owe significant US capital gains tax, reducing your overall profits.
- Israeli tax residency rules subject you to unexpected taxation.
- You do not have a tax plan to offset liabilities (e.g., via trusts or reinvestment strategies).
6. Alternative Strategies for Business Owners
If a full exit isn’t ideal, consider:
- Merging instead of selling: If an acquisition deal involves equity rather than a full cash buyout, tax exposure may be minimized.
- Holding through a US LLC or Corporation: Keeping shares in a business entity may defer taxation.
- Estate Planning Transfers: Gifting business shares before an exit can reduce taxable income for heirs.
For those considering an Israeli startup acquisition, check Israeli tax incentives at the Israel Innovation Authority.
From Israel in America: How to Plan for a Business Exit or Acquisition
For US citizens in Israel, selling a business or acquiring a new one requires careful tax and financial planning. With the right strategy, you can maximize profits, minimize tax exposure, and stay compliant with both US and Israeli tax laws.
At MasAmerica, we specialize in helping US expats navigate business exits, acquisitions, and tax planning. Contact us today to ensure your exit strategy is optimized for both countries.
