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Have You Prepared for the Impending Conversion?

Updated: Jul 3, 2018

The anticipated conversion of Teudot Sal to Kranot Sal is now scheduled to take place in October 2018. Most US CPAs are strongly advising their clients to sell the Teduot ahead of the conversion in order to avoid higher taxes and accounting fees. Below is a discussion of the matter that we originally published in October 2017.

In recent years, most US citizen residents of Israel have been advised by their US tax adviser not to invest via local Israeli mutual funds and insurance products, as they receive the burdensome US tax treatment of being PFICs (Passive Foreign Investment Companies.)  Some have taken the position though, that the note structure of local Teudot Sal avoids this complication and can offer efficient and diversified exposure to the Israeli markets. Regrettably, this is about to change.

Teudot Sal are currently structured as ETNs (Exchange Traded Notes) - certificates issued by sponsors in a manner similar to the issuance of other debentures, whereby the issuer commits to provide the return of an underlying investment index, such as the Tel Aviv – 35 Equity Index.

In an effort to bring these index-based vehicles under the full jurisdiction of the ISA, the Joint Investment Trust Law (Amendment No. 28), 5767 – 2017 mandates the conversion of Teudot Sal from their current ETN structures into Exchange Traded Funds (ETFs) - Kranot Sal, which by their nature will be PFICs.

While this conversion will provide the Israeli public with the benefits of full ISA oversight, US citizens will no longer be able to use Teudot Sal for the same efficient and diversified 

exposure to the Israeli markets. Holding the Teudot through the conversion will leave a US investor effectively taking possession of a PFIC, the accounting for which may be further complicated by the conversion itself.

Following the conversion, a portfolio of direct Israeli investments emerges as the likely best option for most US citizens to invest in the Israeli markets. This solution is even more compelling if it can be implemented systematically, as part of an overall global investment plan by a manager who is very familiar with the cross-jurisdictional issues facing a US citizen living in Israel.

Please contact us at if you would like to discuss any of this further. 

Disclaimer: This is not intended as tax or investment advice. Please consult with your qualified tax and investment advisers for guidance about how best to proceed given your circumstances.



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