Quick Answer: Israel's Income Tax Ordinance grants new immigrants (olim chadashim) and veteran returning residents a 10-year exemption from Israeli tax on all foreign-source income, including foreign pension distributions such as US 401(k)s, IRAs, UK occupational pensions, and European state pensions. This exemption is found in Section 14(a) of the Ordinance. Once it expires, Section 9(gimel) limits Israeli tax on foreign pensions to the rate that would apply in the pension's country of origin — often substantially lower than the Israeli marginal rate. Since 2024, you must also report foreign income annually even during the exempt years — the disclosure obligation exists independently of the tax exemption.

A new immigrant to Israel receives their first distribution from a US 401(k) two years after making aliyah. The distribution is taxable in the US. Israel claims it is also taxable — because the new immigrant is now an Israeli tax resident and the distribution is income received during Israeli residency. The US-Israel tax treaty addresses pension income, but the specific article that applies depends on whether the 401(k) is characterized as a "pension" or as "deferred compensation" — and the ITA and the IRS do not always agree on the characterization. Getting this wrong costs real money.

This guide covers the Israeli side of that picture: when your foreign pension is exempt, when it is not, how to calculate what you owe once the exemption expires, what Bituach Leumi (National Insurance) does and does not demand from pension income, and what filing obligations you carry even during the years you pay nothing. Where US and UK rules differ significantly, both are addressed separately.

1. The 10-Year Tax Holiday Under Section 14(a)

The legal foundation for most of what follows is Section 14(a) of the Income Tax Ordinance [Nusach Hadash] 5721-1961, as amended. That provision grants two categories of taxpayer a complete exemption from Israeli income tax on all foreign-source income for a period of ten years:

  • New immigrants (oleh chadash): Anyone who moved to Israel and received a teudat oleh (immigrant certificate) from the Ministry of Aliyah and Integration for the first time. The 10-year clock runs from the date printed on the certificate.
  • Veteran returning residents (toshav chozer vatik): Israeli nationals or prior residents who lived outside Israel for at least 10 consecutive years before returning. They receive the identical 10-year holiday from the date of their return.

A third category exists for "junior returning residents" who were abroad for between 6 and 10 years. They receive a more limited benefit: a 5-year exemption on specific categories of foreign income under Section 14(c). If you were away for fewer than 6 years, no special exemption applies.

The exemption is broad. It covers employment income earned abroad, rental income from foreign property, dividends from foreign companies, interest from foreign bank accounts, and distributions from foreign pension plans. The Israel Tax Authority (Rashut HaMisim) does not distinguish by income type; if it comes from a foreign source during the exempt years, it is not taxed.

⚖ In Practice — The 10-Year Clock

An oleh who received their teudat oleh on 1 March 2018 is exempt from Israeli tax on all foreign-source income — including pension distributions — until 28 February 2028. The Israel Tax Authority (Rashut HaMisim) counts from the date on the certificate, not from the day you physically arrived in Israel or started working. Keep your teudat oleh; it is the primary document for proving exemption status in any ITA audit or dispute.

In Practice: Under Article 20 of the US-Israel Double Taxation Treaty, pension payments from a US source (including 401(k) distributions, IRA withdrawals, and Social Security) are taxable only in the country of residence of the recipient — meaning an Israeli resident is taxable in Israel on US pension income, not in the US. However, the 10-year new immigrant exemption under Section 14 of the Income Tax Ordinance exempts this income from Israeli tax for up to 10 years from the year of aliyah. Olim must file an annual Israeli tax return disclosing the pension income even during the exempt period, and must submit Form 1301 with a supporting exemption declaration to the Israeli Tax Authority (Rashut HaMisim) each year. Failure to file during the exempt period results in late-filing penalties of NIS 500 per month from the deadline.

2. US Pensions: 401(k), IRA, Roth IRA, and Social Security

American olim face a layer of complexity that other nationalities often do not: the US taxes its citizens and lawful permanent residents on worldwide income regardless of where they live. This means that even when an American oleh is fully exempt in Israel, the IRS continues to apply US rules to their retirement accounts.

Traditional 401(k) and Traditional IRA

Distributions from a pre-tax 401(k) or traditional IRA are ordinary income under US law, taxed by the IRS at the filer's marginal federal rate. During Israel's 10-year exemption window, those same distributions are entirely exempt from Israeli income tax under Section 14(a). American olim taking distributions during the exempt period pay US federal tax but nothing to the Israel Tax Authority.

Worth noting on withholding: US financial institutions automatically withhold 20% of 401(k) distributions unless you file a Form W-4P election. That withheld amount is credited against your US tax liability — it is not an Israeli tax and should not be treated as one. US withholding at source and Israeli tax obligations are completely separate.

Roth IRA

The Roth IRA is tax-free in the United States: contributions are made post-tax and qualifying distributions are not subject to US income tax. Israel's position on Roth distributions is less settled. During the 10-year exemption, Roth distributions are treated like any other foreign income and are exempt in Israel without further analysis. The question that comes up after the exemption expires is whether Israel will respect the Roth's tax-free status under Section 9(gimel), which taxes foreign pension income at the "rate that would apply in the country of origin." If the US rate on a Roth distribution is zero, a strict reading of Section 9(gimel) would produce zero Israeli tax as well. The Israel Tax Authority has not issued a definitive ruling on this, and until it does, the cautious approach is to confirm the position with a qualified Israeli tax advisor before taking large Roth distributions post-exemption.

US Social Security

Social Security benefits received by an American oleh are foreign-source income and are therefore exempt from Israeli tax during the 10-year period. Once the exemption ends, the US-Israel tax treaty of 1994 governs. Article 20 of that treaty allocates taxing rights over pensions and annuities between the two states, but the treaty contains a "savings clause" (Article 6) under which the United States reserves the right to tax its citizens as though no treaty existed. This means that US citizens generally cannot use the US-Israel treaty to eliminate US taxation of Social Security — the savings clause overrides any potential treaty-based reduction. After the exemption, Israeli tax may also apply to the extent not relieved by Section 9(gimel).

⚖ In Practice — US 401(k) During the Exemption

Under Section 14(a), a new immigrant who takes a 401(k) distribution during the 10-year window owes nothing to the Israel Tax Authority on that amount. However, the IRS still expects its share: the US financial institution automatically withholds 20% at source on most 401(k) distributions, and US citizens cannot circumvent this through the treaty's savings clause. The practical outcome for American olim is full US federal tax liability and zero Israeli tax liability on those distributions during the exempt decade — a meaningful, though incomplete, benefit.

3. UK and European Pension Plans

UK Occupational and State Pensions

UK nationals who make aliyah are in a notably favorable position compared to Americans. Israel and the United Kingdom concluded a new comprehensive tax treaty that entered into force in 2020, replacing an older agreement. Under Article 17 of that treaty, pensions paid by a UK source to a person who is resident in Israel are taxable only in the state of residence — Israel. During the 10-year exemption under Section 14(a), this means the pension is taxable in Israel (and nowhere else under the treaty), and since Israel exempts it under Section 14(a), the result is that a UK oleh pays no tax on UK pension income in either country during the exempt period. This is a substantially better outcome than the US position, where dual taxation during retirement remains a real risk for US citizens.

After the 10-year exemption expires, Article 17 of the Israel-UK treaty continues to allocate exclusive taxing rights to Israel. The ITA will then apply the Israeli tax scale to UK pension income, subject to the Section 9(gimel) cap discussed in the next section.

European State Pensions

Israel has double taxation treaties with most EU member states, including Germany, France, the Netherlands, Austria, Italy, Sweden, and others. The treatment of pensions varies by treaty, and some treaties follow the OECD model (residence state taxation) while others use a source-state taxation approach. During the 10-year Section 14(a) exemption, this distinction rarely matters because all foreign-source income is exempt regardless. Post-exemption, the specific treaty in force between Israel and the pension's country of origin governs which state can tax it and whether credit relief applies.

German citizens in particular should note that Germany imposes its own pension tax on distributions from the Deutsche Rentenversicherung (German statutory pension) regardless of where the recipient lives. The Israel-Germany treaty mitigates this through a credit mechanism, but the interaction is complex and should not be navigated without professional advice.

⚖ In Practice — UK Pension Double Exemption

A British national who makes aliyah in January 2026 begins drawing a UK workplace pension of £2,000 per month in 2030 (still within the exemption window). Under Article 17 of the Israel-UK treaty, the pension is taxable only in Israel. Under Section 14(a) of the Income Tax Ordinance, Israel exempts all foreign income for the first 10 years. The result: £0 tax in the UK, ₪0 tax in Israel — for as long as the 10-year clock runs. The key document to retain is proof of Israeli tax residency, which the UK pension provider may request to confirm that UK withholding at source does not apply.

In Practice: When the 10-year new immigrant tax exemption expires under Section 14 of the Income Tax Ordinance, all foreign pension income becomes taxable in Israel at full marginal rates (up to 47% for high earners). Section 9(gimel) of the Ordinance provides a partial exemption for pension income received as a life annuity — specifically, 35% of the annuity payment is exempt from Israeli tax in the year of receipt. This exemption applies to foreign annuity-type pensions (including UK final salary pensions and US Social Security paid as a monthly stream) but does not apply to lump-sum withdrawals from 401(k) or similar plans, which are fully taxable in Israel as ordinary income in the year of withdrawal. Tax planning before the exemption expires — particularly decisions about Roth conversions, withdrawal timing, and annuitization — can save NIS 50,000-200,000 in lifetime Israeli tax liability.

4. After the Exemption Ends: Section 9(gimel)

When the 10-year holiday ends, foreign pension income becomes fully taxable in Israel. Section 9(gimel) [Section 9(c)] of the Income Tax Ordinance does provide meaningful relief, however: it caps the Israeli tax rate on foreign pension income at the lower of:

  • The Israeli marginal income tax rate that would otherwise apply to that income (currently up to 50% for very high earners, but most individuals pay 31%–35%); or
  • The tax rate that would have been applied in the country from which the pension originates, had the recipient remained a tax resident there.

In concrete terms: an oleh who would have faced a 22% federal rate in the United States on their IRA distributions will not pay more than 22% in Israel on those same distributions, even if their Israeli marginal rate is higher. A UK retiree whose UK pension would have attracted 20% basic-rate income tax will not pay more than 20% in Israel.

Applying Section 9(gimel) correctly requires documentation. The ITA will not simply accept a taxpayer's stated foreign rate; it expects evidence of what that rate actually is. This typically means a recent foreign tax return, a calculation prepared by a foreign accountant, or official rate tables from the foreign tax authority. Without documentation, the ITA may default to the full Israeli marginal rate.

⚖ In Practice — Section 9(gimel) Calculation

An oleh whose 10-year exemption expired in 2025 draws an annual IRA distribution of NIS 180,000 (approximately $50,000). His Israeli marginal rate on that slice of income is 35%. His equivalent US federal rate on a $50,000 IRA distribution (assuming modest other income) would be 22%. Under Section 9(gimel), the Israel Tax Authority caps the Israeli tax at 22%, saving him NIS 23,400 per year compared to the full Israeli rate. He must file Form 1301 with the ITA by April 30, attach a calculation showing the US rate, and pay the 22% to the ITA. Any US federal tax withheld at source may be credited under the US-Israel treaty (for non-citizens) or claimed as a foreign tax credit on the US side (for US citizens).

5. Bituach Leumi (NII) and Foreign Pension Income

Foreign pension income is not subject to National Insurance Institute (NII / Bituach Leumi) contributions. This surprises many new immigrants, and the saving is real.

Under Israel's National Insurance Law 5755-1995, NII contributions apply to income from work: employee wages and self-employment income. Passive income from foreign sources, including pension distributions, foreign rental income, and foreign interest and dividends, falls outside the scope of the National Insurance Law entirely. This holds both during and after the 10-year Section 14(a) exemption.

The combined NII and health tax rate for an Israeli tax resident in the lower tier is approximately 9.07% (5.97% NII plus 3.1% health tax) and approximately 22.83% on income above the upper-tier threshold of roughly NIS 47,465 per month in 2026. For an oleh receiving a monthly foreign pension of NIS 15,000, the NII exemption on that income saves roughly NIS 3,425 per year in contributions that a person earning the same amount from Israeli employment would owe.

One nuance: if an oleh is also working in Israel as an employee or self-employed person, those earnings are subject to NII contributions in the normal way. The NII exemption applies specifically to the foreign pension component of their income, not to any Israeli-source earnings.

⚖ In Practice — NII on Foreign Pension

A British oleh aged 68 receives a monthly UK pension of £2,500 (approximately NIS 12,000 at current rates). She does not work in Israel. Her foreign pension income is exempt from Bituach Leumi contributions under the National Insurance Law 5755-1995. She does, however, need to register with the NII (Bituach Leumi) as an Israeli resident in order to access the Israeli state health system through Kupat Holim. Once registered as a "non-working" resident whose sole income is a foreign pension, she pays a nominal health insurance premium — substantially lower than the full NII contribution scale.

6. The 2026 Annual Disclosure Obligation

The Section 14(a) exemption eliminates the tax liability on foreign income. What it has never eliminated is the obligation to interact with the Israeli tax system as a resident. Since Amendment 223 to the Income Tax Ordinance (effective for the 2024 tax year), new immigrants and returning residents are required to report their foreign income and assets to the Israel Tax Authority, even when no Israeli tax is owed.

The reporting obligation applies if you hold foreign assets or receive foreign income above prescribed thresholds, updated for the 2026 filing cycle:

  • Foreign financial assets totalling more than approximately NIS 1,870,000 (roughly $520,000) must be declared, including foreign pension fund balances in the accumulation phase.
  • Foreign income received during the tax year, including pension distributions, must appear in the annual return (Form 1301) in the exempt-income section, even though no tax is generated.
  • Foreign bank and investment accounts must be disclosed by account number, institution name, and approximate balance.

Non-disclosure is a separate infraction from non-payment. The ITA can impose administrative penalties under Section 131 of the Income Tax Ordinance even when the underlying income is fully exempt. The ITA also receives data through the OECD Common Reporting Standard (CRS) and from Israeli banks about inbound transfers; undisclosed foreign income tends not to stay hidden.

⚖ In Practice — Disclosure Without Tax

An American oleh in year 4 of her 10-year exemption draws $60,000 from her US IRA in 2026. She owes no Israeli income tax — the distribution is fully exempt under Section 14(a). She must, however, file Form 1301 with the Israel Tax Authority (Rashut HaMisim) by April 30, 2027, declare the NIS equivalent of the IRA distribution as exempt foreign income, and list her US IRA account details in the foreign-asset schedule. Filing late or omitting the disclosure can result in penalties separate from any income tax assessment. Her Israeli accountant submits the return showing NIS 0 tax due alongside the full foreign income disclosure — legally clean on all sides.

7. Practical Filing Steps for Olim with Foreign Pensions

Knowing the rules is only part of the task. Here is how the process works in practice for an oleh receiving a foreign pension.

First, register with the Israel Tax Authority. New immigrants with foreign income above reporting thresholds must open a taxpayer file in the ITA system, either through the Shaam online portal at www.taxes.gov.il or at the local ITA branch. Registration creates your file; it is separate from actually filing a return.

Next, confirm whether you must file Form 1301. Not every Israeli resident is required to submit an annual return, but most olim with significant foreign income or foreign assets above the disclosure thresholds will be. This applies throughout the exempt decade, not just after it ends.

Gather documentation from your pension provider each year. For US accounts, you need Form 1099-R for IRA and 401(k) distributions and Form SSA-1099 for Social Security. UK pension holders should obtain a P60 or annual pension payslip. For European state pensions, request an annual benefit statement from the relevant social security authority in your home country.

The filing deadline is April 30. The Israeli tax year runs January 1 to December 31, and Form 1301 for the prior year is due by April 30. Extensions to October 31 are available on request, and most tax advisors with international clients handle these routinely.

Finally, if your exemption is approaching expiry, start building the documentation for the Section 9(gimel) rate cap now rather than at the last minute. Retain foreign tax returns, any correspondence with foreign tax authorities, and professional calculations of the applicable rate in your home country. The ITA will ask for this evidence; having it prepared in advance avoids delays and disputes.

⚖ In Practice — Approaching Exemption Expiry

An oleh who made aliyah in mid-2020 has until mid-2030 before the Section 14(a) clock expires. Two years before expiry, the smart move is to consult both an Israeli tax advisor and a tax professional in the home country to model the post-exemption liability and consider whether to accelerate pension distributions while still exempt, restructure pension drawdown to spread income across lower marginal brackets, or apply for an advance ruling (shuma muqdemet) from the Israel Tax Authority confirming the applicable Section 9(gimel) rate. The ITA's Advance Ruling Division (Maamad Muqdam) at Hamassger 22, Tel Aviv processes written ruling applications; turnaround times range from several weeks to a few months depending on complexity.