Quick Answer: Under Section 14 of Israel's Income Tax Ordinance, new immigrants (olim hadashim) and qualifying returning residents receive a full 10-year exemption from Israeli tax on foreign-source income — dividends, interest, rent, capital gains on foreign assets, and most foreign pension income. The exemption is elective and requires careful reporting even though no tax is due. Planning around the date the exemption expires is one of the most financially significant steps a new immigrant can take.

Moving to Israel triggers an obligation most newcomers do not anticipate: from the day you become an Israeli tax resident, the Israel Tax Authority (ITA, Rashut HaMisim) has the right to tax your worldwide income — including dividends arriving from New York, rent from a London flat, or capital gains on a Paris investment property. Like the United States and the United Kingdom, Israel taxes its residents on worldwide income, wherever that income is earned.

The Israeli legislature built in a significant buffer to encourage Aliyah and attract long-term emigrants back to the country. Section 14 of the Income Tax Ordinance grants a 10-year tax holiday on foreign-source income to qualifying new immigrants and veteran returning residents. That holiday is genuinely valuable, but it has conditions. It carries ongoing reporting obligations, and the day it ends creates exposure that most immigrants are not prepared for.

1. How Israel Taxes Its Residents

The foundational Israeli tax statute is the Income Tax Ordinance [New Version], 5721-1961 (Pekudat Mas Hachnasa). Under this law, Israeli tax residents are liable for income tax on all income, from any source, worldwide. Residency for tax purposes is determined primarily by the "center of life" (merkaz haim) test: where does the individual's family live, where is their home, where are their financial and professional connections concentrated? A person who moves to Israel, registers as a resident with the Ministry of Interior, and settles their family there will almost always be classified as an Israeli tax resident from the date of arrival.

For the 2025 tax year, Israeli income tax applies to employment and business income at the following marginal brackets (updated annually by the ITA — confirm current year rates at www.taxes.gov.il):

  • 10% on annual income up to approximately NIS 84,120
  • 14% on income from NIS 84,121 to NIS 120,720
  • 20% on income from NIS 120,721 to NIS 193,800
  • 31% on income from NIS 193,801 to NIS 269,280
  • 35% on income from NIS 269,281 to NIS 558,360
  • 47% on income above NIS 558,360

Passive income — dividends, interest, rental income, and capital gains — is generally taxed at flat rates of 25% (or 30% for "significant shareholders" holding 10% or more in a company), rather than at the progressive rates above. National Insurance contributions (Bituach Leumi, NII) and the health tax (mas briut) are separate levies on top of income tax and apply to Israeli-source income only in most circumstances.

In Practice: The ITA applies a legal presumption of Israeli tax residency under Section 1 of the Income Tax Ordinance if an individual spends at least 183 days in Israel during the tax year, OR at least 30 days in the tax year combined with a cumulative total of 425 days across the current and two preceding years. New arrivals who split the year between Israel and another country can rebut this presumption by demonstrating their center of life remains abroad — but the burden of proof falls on the taxpayer. Your local ITA assessment office (lishkat pkadat mas hachnasa) can issue a letter confirming your residency start date. This date is the anchor for your 10-year exemption clock. Offices are located in Tel Aviv (32 Menachem Begin Rd), Jerusalem (5 Kaplan St), Haifa, Be'er Sheva, and other major cities.

2. The Section 14 Exemption for New Immigrants and Returning Residents

Section 14 of the Income Tax Ordinance is the central provision protecting new arrivals from immediate worldwide taxation. It grants a 10-year exemption from Israeli tax on income earned outside Israel to two categories of people:

  • New immigrants (olim hadashim): anyone who immigrated to Israel for the first time and received an Aliyah visa or an immigrant absorption certificate from the Ministry of Interior / Jewish Agency.
  • Veteran returning residents (toshavim hozrim vatikiyim): Israeli citizens who lived abroad continuously for at least 10 years before returning to Israel, and who are classified by the ITA as having been non-residents during that period.

The 10-year clock starts on the date the individual becomes an Israeli tax resident — typically the date of Aliyah. During this period, the following categories of foreign-source income are exempt from Israeli income tax:

  • Dividends from companies incorporated and managed outside Israel
  • Interest on foreign bank accounts, foreign bonds, and foreign-law loans
  • Rental income from property physically located outside Israel
  • Royalties from intellectual property used or exploited outside Israel
  • Capital gains on assets located outside Israel — shares in foreign companies, foreign real estate, foreign businesses
  • Pension and annuity income from foreign pension plans (subject to applicable treaty rules)

One aspect of the exemption that regularly surprises new immigrants is that it is elective. You can choose not to claim it for a given tax year. This is relevant when the same income is subject to heavy foreign tax — for example, US withholding tax on dividends, or UK income tax on rental profits. Waiving the exemption converts the foreign income into taxable Israeli income, which can then be offset by the foreign tax paid via Israel's foreign tax credit rules under Section 200 of the Ordinance. In practice, when the foreign tax rate is close to or exceeds Israel's applicable rate, waiving the exemption for that income stream results in no net Israeli tax while preserving the ability to use the foreign tax credit — something you lose if the income is simply exempt.

The exemption does not apply to employment income for work physically performed in Israel, income from Israeli real estate, Israeli-source dividends, or gains on assets listed on the Tel Aviv Stock Exchange (TASE) as their primary market.

In Practice: The operative provision is Section 14(c) of the Income Tax Ordinance, 5721-1961, as amended by the 2008 Tax Reform (Amendment No. 168). To formally claim the exemption, declare your exempt foreign income on Form 1301 (the Israeli individual annual tax return) in the designated "exempt income from foreign source" lines. For complex situations — multiple foreign income streams, offshore structures, or foreign trusts — the ITA offers a pre-ruling procedure (hakhlata mekudemes) under Section 158B of the Ordinance. A binding ruling costs approximately NIS 10,000–NIS 25,000 depending on complexity and is typically issued within 90–180 days of a complete application. Contact: ITA International Tax Division, 5 Kaplan Street, Jerusalem; ITA general call center: 1222 (Sunday–Thursday, 08:00–18:00).

3. What Counts as Foreign-Source Income?

Whether a particular payment qualifies as "foreign-source" income depends on where the underlying asset, activity, or obligation is located — not on which country's currency the payment is denominated in or which bank account receives it. Receiving a US dollar dividend into an Israeli bank account does not make it Israeli-source income. Equally, receiving income in NIS from a non-Israeli source does not make it Israeli-source.

Income that clearly qualifies for the Section 14 exemption:

  • Dividends from a company incorporated, managed, and primarily operating outside Israel
  • Interest credited by a foreign bank, a foreign government bond issuer, or a privately placed foreign-law loan
  • Rent from a tenant occupying a property in another country
  • Gain on the sale of shares in a foreign-incorporated company whose primary stock market listing is not TASE
  • Capital gain on the sale of foreign real estate
  • Pension distributions from a foreign pension plan funded by employment performed outside Israel before Aliyah

Income that needs a ruling before you file:

  • Dual-listed company dividends: A company traded on both NASDAQ and TASE may be treated as having Israeli-source dividends for residents under Section 4A of the Ordinance, depending on the company's place of management and control.
  • Foreign trust income: If an Israeli resident is the settlor, trustee, or beneficiary of a foreign trust, the trust may fall under the "relative trust" regime in Sections 75C–75N of the Ordinance, requiring full income transparency regardless of the Section 14 exemption.
  • Work partly performed in Israel: A foreign employer paying salary to a new immigrant for work partly done in Israel and partly done remotely for foreign clients requires a geographic allocation of the income. Only the non-Israeli portion is eligible for exemption.
  • US Social Security: The 1995 US-Israel Tax Treaty (Protocol amended 2006) contains specific provisions on Social Security under Article 20. US citizens resident in Israel typically pay US tax on their Social Security under the exclusive-residence rule. The interaction between the treaty and Section 14 requires analysis specific to your citizenship and residency status.
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4. Reporting Obligations During the Exemption Period

Many new immigrants assume that because their foreign income is exempt, they can ignore the ITA for a decade. Exempt from tax is not the same as exempt from reporting, and the penalties for failing to file can be substantial.

Israeli tax residents who have any taxable Israeli-source income must file an annual tax return (Form 1301) by April 30 of the following year (the ITA typically grants individual extensions to May 31, and accountants with power of attorney often obtain later extensions). This obligation applies regardless of whether the individual also has exempt foreign income.

Beyond the general filing obligation, the ITA sets a specific reporting threshold: individuals whose total gross income — including exempt foreign-source income — exceeds approximately NIS 688,000 in the tax year (2025 threshold; adjusted annually) are generally required to file even if all that income is exempt. The ITA uses this data to verify the consistency of declared asset positions over time.

Israel's participation in the OECD Common Reporting Standard (CRS) since 2017 means that foreign financial institutions in over 100 jurisdictions automatically report account balances, dividend payments, and interest income for Israeli-resident account holders to the ITA. The ITA receives this data annually. Filing no return on the assumption that exempt income is invisible is increasingly risky — the ITA may open an inquiry based on CRS data alone and ask why no return was filed.

For US citizens who have made Aliyah, Section 14 has zero effect on US tax obligations. US citizens remain subject to worldwide US income taxation, annual FBAR reporting (FinCEN Form 114, due April 15 with automatic extension to October 15), and FATCA reporting (Form 8938) for foreign financial assets. Israeli bank accounts, Israeli brokerage accounts, and Israeli pension funds are all potentially reportable to the IRS. These US obligations exist in parallel with Israeli obligations and neither cancels the other.

In Practice: The ITA's filing requirements for new immigrants with exempt foreign income are set out in ITA Circular 1/2011 and updated guidance from 2019. Immigrants who arrived mid-year may file a partial-year return in Israel covering only the period from their Aliyah date forward. To confirm whether you are required to file in a given year, contact your regional lishkat pkadat mas hachnasa (ITA local assessment office). The ITA operates an English-language information line for new immigrants at 1222, available Sunday through Thursday 08:00–18:00. Written queries addressed to your local assessment office typically receive a written response within 45–90 days. Keep a copy of every piece of correspondence with the ITA, including any letter confirming your exempt status.

5. When the 10-Year Exemption Ends

When year 10 ends, all the foreign-source income that was previously exempt falls into the Israeli tax net at once. Dividends and capital gains face 25%, interest 15%–25% depending on the instrument, and pension distributions are taxed at your marginal rate — potentially up to 47%.

For ongoing income streams — dividends, interest, rent — year 11 is simply the first year you declare them and pay the applicable rate. Double-taxation relief (treaty or domestic) will reduce or eliminate Israeli tax where a foreign country also taxes the same income.

Capital gains on assets held since before or during the exempt period are trickier. The Israeli taxable gain on a foreign asset is calculated from the original acquisition date, not from the date the exemption expires. An immigrant who purchased shares in 2015 and makes Aliyah in 2020 carries a 2015 cost basis. If the exemption ends in 2030 and the shares are sold in 2035, the entire gain from 2015 to 2035 is subject to Israeli capital gains tax at 25%. There is no Israeli equivalent of the US step-up in basis at the point of becoming a resident.

However, there is a pro-rata mechanism for shares and assets held during the exempt period. Under the ITA's application of Section 89 and the principles established in administrative rulings, the gain accrued during the exempt period (from acquisition to Aliyah date, or Aliyah date to end of exemption) may be exempt while only the post-exemption gain is taxable, provided the immigrant can document asset values at the relevant dates with sufficient precision.

In Practice: Section 100A of the Income Tax Ordinance governs "deemed realization" events when assets enter or leave the Israeli tax net. While Section 100A is most commonly discussed in the context of the exit tax (leaving Israel), its principles also inform how the ITA calculates the taxable portion of gains on assets that become taxable for the first time when the 10-year exemption expires. To protect yourself, obtain a certified appraisal (shuma) from a licensed appraiser for all significant foreign assets as of your Aliyah date and again as of the date your exemption ends. These documents establish the benchmark values the ITA will use. The ITA's standard audit window under Section 145 of the Ordinance is 3 years from the date of filing, extendable to 7 years in cases of material omission or non-disclosure. Records relating to foreign assets should be retained for at least 10 years from the relevant tax filing date.

6. Pre-Aliyah Tax Planning: What to Do Before You Move

The planning window most people squander is the one before arrival. Once you become an Israeli tax resident, several structuring options close permanently.

If you hold shares, real estate, or business interests that have gone up significantly, sell them before you arrive. Israel has no right to tax gains that accrued before you were a resident. The week before and the week after your Aliyah date can mean the difference between zero Israeli tax and a substantial capital gains bill on years of appreciation.

For everything you keep, document its value on the date you arrive. Get broker statements, certified appraisals, or notarized valuations for every significant foreign asset — property, brokerage holdings, private company shares. Store these permanently. They are the evidentiary anchor for every future Israeli capital gains calculation involving those assets.

Retirement accounts need specific attention before you move. US 401(k) and IRA accounts, UK SIPPs, Canadian RRSPs, and Australian Superannuation each interact with Israeli tax law in a different way. The ITA published binding guidance on US retirement accounts in Tax Circular 4/2008. Under that circular, a pre-Aliyah IRA or 401(k) is generally not taxed on contributions or growth during the exempt period, but distributions taken after the exemption ends are taxable in Israel at marginal rates. If you expect to start drawing retirement income within 10 years of Aliyah, get a specific ruling on each account type before you arrive.

Foreign trusts are a separate category of risk. If you established a trust, are named as a beneficiary, or have family members who are settlors of a trust holding foreign assets, the "relative trust" provisions in Sections 75C–75N of the Income Tax Ordinance can require full mandatory disclosure from year one of Israeli residency, regardless of Section 14. Trusts settled within five years before Aliyah get particular ITA scrutiny. Any restructuring should happen before you become a resident, not after.

One thing that regularly catches immigrants off guard is the currency calculation. Israeli capital gains are computed in NIS. A gain in USD, EUR, or GBP is converted at ITA-published exchange rates, which means NIS appreciation against your asset's currency creates a taxable gain in Israel even when your real economic gain is lower. That is structural. The only practical mitigation is timing disposals when the exchange rate is in your favor.

Finally, the Section 14 exemption covers passive income only, not employment. A new immigrant drawing salary from a foreign employer for work physically performed in Israel owes Israeli income tax from day one. If the employer pays gross with no Israeli withholding, the immigrant must make quarterly advance payments (mikdamot) directly to the ITA to avoid interest and late-payment penalties.

Frequently Asked Questions

Partially, and the answer depends on your citizenship. The 1995 US-Israel Tax Treaty grants the United States exclusive taxing rights over Social Security paid to its citizens and residents. Israeli residents who are US citizens generally pay US tax on their Social Security and owe nothing to Israel. However, non-US citizens receiving US Social Security based on a deceased spouse's record, or based on their own US work history after naturalization, may be treated differently. The interaction between Article 20 of the Treaty and Section 14 of the Ordinance is fact-specific. Confirm your position with a dual-qualified US-Israeli tax attorney before filing in either country.
Yes. The Section 14 exemption is elective — you can waive it for any income stream in any tax year. This is worth considering when foreign tax has already been withheld on the income at a rate close to or higher than Israel's applicable rate. Waiving the exemption converts the foreign income into taxable Israeli income, which you can offset with a foreign tax credit under Section 200 of the Ordinance or under an applicable tax treaty. In practice, this often results in no net Israeli tax while allowing you to avoid double-taxation without relying solely on the exemption. A qualified Israeli CPA should run the numbers for each income stream in the first year to determine the optimal approach.
It depends on your total income and your Israeli income sources. If you have any Israeli-source income — a salary from an Israeli employer, Israeli bank interest, Israeli rental income — you are required to file Form 1301 annually regardless of your exempt foreign income. If your only income is exempt foreign-source income below the NIS 688,000 annual threshold (2025 figure, adjusted yearly), you may not be technically required to file. That said, filing is prudent because Israel participates in the OECD Common Reporting Standard and the ITA receives foreign financial data automatically. Choosing not to file based on exempt status while holding significant foreign accounts creates a record that is harder to explain years later if the ITA queries why no returns were submitted.
Once the 10-year exemption expires, foreign pension distributions become subject to Israeli income tax at your marginal rate — potentially up to 47% — unless a tax treaty allocates exclusive or shared taxing rights to the source country. Under the US-Israel Tax Treaty (Article 18), pension income is generally taxable only in the country of residence, meaning Israeli tax applies to US 401(k) and IRA distributions taken by Israeli residents. For immigrants planning to retire in Israel, the timing of Aliyah relative to the expected start of pension distributions is a critical planning variable. Starting retirement distributions during the exempt period is one strategy, though it requires careful analysis of US tax consequences, Israeli reporting obligations, and the interaction of both.
Not automatically. If you own more than 50% of a foreign company that earns predominantly passive income — dividends, interest, rent — the ITA may apply the Controlled Foreign Corporation (CFC) rules under Section 75B of the Income Tax Ordinance, attributing the company's undistributed income directly to you as an Israeli resident, even without any actual dividend payment. In theory, the Section 14 exemption can shield attributed CFC income during the exempt period, but this requires an explicit ruling from the ITA because the interplay between the CFC rules and the Section 14 exemption is not straightforwardly clear from the statute alone. Seek advice before arriving if you own or plan to retain a foreign holding company.

Related Guides

Tax & Finance in Israel — Overview Tax Benefits for New Immigrants (Olim) in Israel Tax Residency in Israel: Rules and Determination Tests Exit Tax in Israel: What You Owe When You Leave Foreign Pension Taxation for New Immigrants in Israel Double Taxation Treaties: How Israel Avoids Taxing the Same Income Twice
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Adv. Eli Shimony

Licensed Israeli Attorney

Adv. Eli Shimony advises new immigrants, returning residents, and foreign investors on Israeli income tax planning, the Section 14 exemption, cross-border tax structures, and compliance with the Israel Tax Authority.

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