IsraelLaw
For decades, Israel's primary tax incentive for new immigrants was a 10-year exemption on income and gains from foreign sources: foreign salary, foreign rental income, foreign dividends and capital gains. Israeli-source income was always fully taxable from day one, making Israel a less attractive destination for high earners whose new employer was in Israel itself. The March 2026 amendment closes that gap. A software engineer relocating to work for a Tel Aviv startup, a physician joining an Israeli hospital, or a consultant advising Israeli clients can now earn up to NIS 1 million per year from Israeli sources at a zero rate in their first two years.
There is one catch, though: a parallel 2026 amendment abolished the old reporting exemption. You now have to file an annual Israeli tax return and disclose foreign assets even if you owe nothing. More on that below.
1. What the 2026 Law Actually Does
The March 2026 amendment inserts a new graduated tax schedule into the Income Tax Ordinance [New Version] 5721-1961, applicable specifically to "qualifying individuals" as defined therein. It creates a five-year window during which Israeli-source earned income is taxed at rates far below the standard progressive scale, starting at zero.
Standard Israeli income tax rates begin at 10% on the first bracket (up to approximately NIS 84,000 annually), rise through 14%, 20%, 31%, 35%, and 47% brackets, and reach a top marginal rate of 50% on income above approximately NIS 720,000, with an additional 3% surtax on income above that level. The 2026 amendment replaces those brackets entirely — for eligible income up to NIS 1 million — with the reduced schedule below. Income above NIS 1 million from Israeli sources remains subject to standard rates.
The law does not alter the standard brackets for National Insurance Institute (*Bituach Leumi*) contributions, health insurance premiums (*dmi briut*), or employer-side social charges. These remain due on Israeli-source income in the usual way. The benefit is purely an income tax reduction; a new immigrant earning NIS 400,000 per year in Israel in 2026 owes no income tax but still pays employee-side NII and health contributions on that salary.
Before March 2026, a new immigrant who took a job at an Israeli company paid standard income tax from the first shekel of salary — potentially 31–47% depending on their total income. The only tax advantage in working in Israel was the oleh points credit (*nekudat zikui*), worth a flat annual credit of approximately NIS 2,600 for several years. The 2026 amendment replaces that thin credit with a zero rate on the first NIS 1 million for the first two years, making the effective Israeli tax burden for a qualifying mid-career hire essentially nil. The Israel Tax Authority issued an administrative circular in April 2026 clarifying that employers should apply for a zero-withholding confirmation (*ishur nikui efes*) for qualifying employees through the ITA's online employer portal — a process that typically takes 10–21 business days.
2. Who Qualifies
The 2026 exemption is available to two categories of person, both of whom must have become Israeli tax residents for the first time (or the relevant qualifying time) during the 2026 calendar year.
New immigrants (*olim chadashim*): Any person who received their first Israeli immigration visa (*aliyah visa*) and became an Israeli resident for the first time during 2026. The qualifying date is the date of first Israeli residency as determined by the Ministry of Interior and the Israel Tax Authority, not the date of Knesset enactment. A person who made aliyah on January 5, 2026 qualifies. A person who made aliyah on December 30, 2026 also qualifies — and their five-year window begins that year.
Veteran returning residents (*toshavim chozrim vatikkim*): Israeli citizens or prior residents who left Israel and lived abroad continuously for at least 10 years, then returned during 2026. The 10-year continuous absence is calculated from the date of departure to the date of return; brief visits to Israel during that period do not restart the clock if the individual's primary residence and "center of life" remained abroad.
Two categories do not qualify: ordinary returning residents (*toshavim chozrim*) who were abroad for less than 10 years, and Israeli residents who never left. Those categories are not covered by the March 2026 amendment, though ordinary returning residents may have access to a separate shorter exemption period under earlier legislation.
The ITA does not automatically know when you became an Israeli resident — that determination depends on the "center of life" test under Section 1 of the Income Tax Ordinance, which considers where you live, where your family resides, where your bank accounts and assets are, and where you habitually work. For new immigrants, the aliyah date stamped in your teudat oleh (immigrant identity document) by the Ministry of Aliyah and Integration (*Misrad HaAliyah VeHaKlita*) is strong prima facie evidence of the qualifying date. For veteran returning residents, you should file a qualifying declaration form (Form 1014 or the equivalent issued by the ITA following the 2026 amendment) within 90 days of return. Do not rely on your employer to make this determination — the tax benefit is personal to the employee, and an incorrect or missing declaration will result in standard withholding, which you then must reclaim by filing an annual return.
3. The Rate Schedule: 0% to 30% Over Five Years
The 2026 amendment creates a five-year graduated rate that replaces standard income tax brackets on Israeli-source qualifying income up to NIS 1 million per year. The schedule is:
- 2026 and 2027: 0% — zero income tax on qualifying Israeli-source income
- 2028: 10% flat rate on qualifying Israeli-source income up to the NIS 1 million cap
- 2029: 20% flat rate on qualifying Israeli-source income up to the NIS 1 million cap
- 2030: 30% flat rate on qualifying Israeli-source income up to the NIS 1 million cap
- From 2031 onward: Standard progressive rates apply in full
For a qualifying individual who became a resident on January 1, 2026, the five-year clock covers tax years 2026 through 2030. For someone who arrived in December 2026, the clock also starts at year 2026 — the first year counts even if only days were spent as an Israeli resident. Anyone who is seriously considering aliyah and has not yet committed to a date should try to complete it before December 31, 2026. That locks in 2026 as year one and delivers the full 0% year of 2027, plus the graduated years through 2030.
A qualifying individual earning NIS 600,000 per year in Israeli salary would ordinarily face an Israeli income tax liability of approximately NIS 190,000–220,000 per year at standard progressive rates. Under the 2026 amendment: year one (2026) — NIS 0 tax; year two (2027) — NIS 0 tax; year three (2028) — NIS 60,000 tax (10% flat); year four (2029) — NIS 120,000 tax (20% flat); year five (2030) — NIS 180,000 tax (30% flat). Total five-year tax saving: approximately NIS 840,000–900,000 compared with a non-qualifying resident earning the same income. For an individual also benefiting from the 10-year foreign income exemption on a parallel stream of foreign investment income, the combined five-year saving can substantially exceed NIS 1 million.
4. What Income Is Covered — and What Is Not
The 2026 amendment covers income that is sourced in Israel from personal services or business activity. The ITA has indicated that this includes:
- Employment salary and wages from an Israeli employer or a foreign employer for work performed physically in Israel
- Self-employment income (*hachnasa meavoda atzma'it*) from services provided in Israel
- Business income from an Israeli business in which the qualifying individual is actively involved — including a sole proprietorship (*atzmai*) or a personal service company where the individual's work is the primary income-generating activity
- Certain director's fees and officer compensation from Israeli companies, subject to ITA guidance on the active/passive distinction
The exemption does not cover passive income sourced in Israel: Israeli rental income, Israeli dividends, Israeli bank interest, or Israeli capital gains from the sale of shares or real property. Those remain taxable at their standard rates (15%–30% depending on the asset type and the taxpayer's status as a "substantial shareholder"). Employees who receive Israeli company stock options or restricted stock units must also take care: the point at which the option benefit is taxed as Israeli-source employment income may or may not fall within the exempt window, depending on the option grant date and the applicable tax track (Section 102 tracks).
Israeli technology companies routinely grant employees options under Section 102 of the Income Tax Ordinance. Under the capital gains track (*maslul revachei hon*), the option benefit is taxed at 25% as a capital gain at the point of sale of the underlying shares — not as employment income. The 2026 exemption applies to employment income, not capital gains, so Section 102 capital gains track options granted by an Israeli company to a qualifying immigrant are generally not covered by the zero rate. The income track (*maslul hachnasa*) is taxed as employment income and may fall within the exemption on grant or vesting, but the tax timing rules are complex. Any new immigrant who is receiving or negotiating an Israeli equity package should model the options under both tracks with an Israeli tax advisor before accepting — the interaction between Section 102 and the 2026 exemption is nuanced enough that a mistake in election can cost several years of tax saving.
5. How the 2026 Law Interacts with the Existing 10-Year Foreign Income Exemption
Israel's pre-existing incentive for new immigrants — the 10-year exemption on foreign-source income — remains fully in force alongside the 2026 amendment. The two benefits cover different streams of income and can be enjoyed concurrently.
Under Section 14(a) of the Income Tax Ordinance, a new immigrant or veteran returning resident is exempt from Israeli income tax on income derived from sources outside Israel for 10 years from the date they become an Israeli tax resident. Covered income includes foreign salary, foreign rental income, foreign business income (where the business is managed and controlled outside Israel), foreign dividends, foreign interest, and foreign capital gains. No cap applies — the entire amount of qualifying foreign income can be exempt regardless of its size.
The 2026 amendment then adds a parallel benefit on the Israeli-source side: 0% for two years, then graduated rates through 2030, on up to NIS 1 million per year of Israeli earned income. A qualifying individual can therefore receive:
- Foreign salary from a foreign employer for work done remotely: exempt under Section 14(a), no cap
- Israeli salary from an Israeli employer for work done in Israel: exempt under the 2026 amendment, up to NIS 1 million
- Foreign investment portfolio income (dividends, interest, gains): exempt under Section 14(a), no cap
- Israeli real estate rental income: taxable at standard rates — not covered by either exemption
A qualifying immigrant arriving in mid-2026 earns NIS 700,000 in Israeli salary from their Tel Aviv employer and also receives NIS 500,000 in dividends from a US investment portfolio. The Israeli salary is fully exempt in 2026 under the new amendment. The US dividends are fully exempt under Section 14(a). Total Israeli income tax in 2026: NIS 0. Total NII and health contributions on the Israeli salary: approximately NIS 60,000–70,000 at standard employee-side rates — these are not affected by either exemption. The same individual's situation in 2028: the Israeli salary is taxed at 10% flat (NIS 70,000), and the US dividends remain exempt under Section 14(a) (which is still in years 1–10 of the foreign income clock). For high-earning dual-income immigrants, structuring the timing of income recognition — particularly year-end bonuses and consulting invoices — to fall within the optimal exemption year can yield meaningful additional savings. This kind of planning requires coordination with both an Israeli tax advisor and, for US-citizen immigrants, a US tax advisor familiar with the foreign tax credit rules.
6. The Mandatory Reporting Obligation: A Critical Change
The March 2026 amendment comes paired with an equally significant procedural change that many potential beneficiaries overlook: the abolition of the reporting exemption that previously allowed qualifying new immigrants to avoid filing Israeli tax returns.
Before January 1, 2026, new immigrants and veteran returning residents with income below certain thresholds often had no obligation to file an annual Israeli income tax return (*doch shnatit*), because their exempt income was simply outside the system. Effective January 1, 2026, this reporting exemption is gone. Every qualifying immigrant who becomes an Israeli resident on or after January 1, 2026 must file an annual income tax return with the Israel Tax Authority, regardless of how much tax they actually owe.
Additionally, qualifying immigrants must now report to the ITA:
- All worldwide income, even if exempt from Israeli tax
- Foreign assets whose total value exceeds the reporting threshold (the ITA threshold as updated is approximately NIS 1,925,000 in foreign assets)
- Interests in foreign trusts, companies, or partnerships
- Foreign bank accounts above reporting thresholds
The reporting obligation exists even if the underlying income and assets are fully tax-exempt. Failure to report carries administrative penalties under Section 191 of the Income Tax Ordinance, which include fines of NIS 1,000 per month of non-compliance plus potential interest charges on any understated amounts. Where the non-compliance is deemed to reflect intent to conceal, criminal exposure exists under Section 220 of the Ordinance.
New immigrants should register with the Israel Tax Authority within 90 days of arrival by submitting Form 5329 (registration for a tax file, *pitach tik*) to the relevant regional ITA office. The ITA's immigrant absorption unit (*yehidat klitat olim*) operates at several offices including Tel Aviv, Jerusalem, Haifa, and Be'er Sheva; its staff handle English-language inquiries. Upon registration, the ITA will assign a tax identification number linked to your *teudat zehut* (identity card). Your first annual return covers the year of arrival — even if you arrived in December. The return for tax year 2026 is due by April 30, 2027, or May 31, 2027 if filed through a licensed tax advisor (*roe heshbon* or *orech din*). Most new immigrants benefit from engaging a qualified Israeli tax advisor in their first year: the filing is not complex, but the first return requires disclosing the foreign asset portfolio for the first time, which involves valuation decisions and treatment elections that set a baseline for the remaining exemption years.
7. Employer and Payroll Considerations
The 2026 exemption is administered through the standard Israeli withholding tax (*nikui bemakur*) system. Employers do not automatically know a new employee is a qualifying immigrant — the employee must notify the employer and provide documentation, and the employer must then obtain written confirmation from the ITA before applying a reduced or zero withholding rate.
The process works as follows:
- The employee provides the employer with a copy of their *teudat oleh* or return documentation establishing the qualifying date, along with a written declaration of their exempt status.
- The employer applies to the ITA's employer portal for a withholding confirmation (*ishur nikui*) for the specific employee, specifying the applicable rate (0% for 2026–2027 years, 10% for 2028, etc.).
- The ITA issues the confirmation — typically within 10–21 business days — specifying the approved withholding rate for the tax year.
- The employer applies that rate in the monthly salary run (*tafkid*). Without the ITA confirmation, the employer must withhold at standard rates.
Employers who apply a zero rate without a valid ITA confirmation are personally liable for the withheld tax amounts. Israeli payroll software vendors have updated their systems following the March 2026 amendment to support the new exempt status codes, but employers should verify that their payroll provider has implemented the update correctly before the first salary run for a qualifying employee.
Israeli high-tech companies and startups recruiting internationally should build the 2026 exemption into their offer letters as a quantified benefit: for a qualifying candidate, the zero withholding in 2026–2027 translates into a concrete net salary advantage that can be shown in NIS terms. HR and legal departments should update their employment agreement templates to include a clause requiring the employee to notify the employer of any change in exempt status and to cooperate in the ITA confirmation process. The employer's legal responsibility under the withholding rules does not shift to the employee even if the employee makes a false declaration — so the confirmation process is essential, not optional. Companies using a professional employer organization (PEO) or Employer of Record (EOR) model should verify that the PEO/EOR will handle the ITA confirmation process; some EOR providers as of mid-2026 were still updating their Israel procedures to comply with the March 2026 amendment.
8. Practical Tax Planning Steps
The sequencing and documentation decisions made in the first months of Israeli residency significantly affect how much of the five-year benefit you actually capture.
Arrive before December 31, 2026. The five-year window runs from the year of qualifying residency. Arriving in late December still counts as year one, giving you two full 0% years (2026 and 2027) and graduated rates through 2030.
Register with the ITA within 90 days. Submit Form 5329 to open your tax file. The qualifying date is set by when you became a resident, not when you register, but late registration creates friction that delays your employer's withholding confirmation.
Document the move from day one. Keep your apartment lease or purchase agreement, school enrollment for children, Israeli bank account opening records, and anything else that pins your center of life to Israel from arrival. These matter if the ITA ever disputes your qualifying date.
Hire an Israeli tax advisor for year one. The Section 14(a) election for foreign assets, the reporting threshold calculations, and option grant timing for equity compensation all set positions that are hard to unwind. The first annual return is the right moment to get them right, not a later amended filing.
US citizens need to run both tax systems in parallel. The Foreign Earned Income Exclusion, Foreign Tax Credit, FATCA, and FBAR rules all interact with the Israeli exemption. Because the 2026 amendment sets Israeli income tax at zero, the Foreign Tax Credit on Israeli salary is nil for 2026 and 2027 — US citizens who had been relying on that credit to shelter US tax on Israeli salary need to model the exposure with a US-qualified advisor before they arrive.
A qualifying immigrant who arrives in July 2026 and is entitled to an annual performance bonus from their Israeli employer has a planning opportunity at year end. If the bonus is paid in December 2026 or any time in 2027, it is taxed at 0% under the 2026 amendment (subject to the NIS 1 million annual cap, which resets each calendar year). If the bonus is deferred to January 2028, it falls in the 10% year. For a bonus of NIS 200,000, that timing difference is worth NIS 20,000 in Israeli income tax. The ITA's position is that the tax year of the bonus is the year of actual payment, not the year it was earned — so payroll timing decisions made by the employer, in coordination with the employee, can legitimately shift the tax year of a discretionary payment. This planning is clean and straightforward; it does not require any artificial arrangement or restructuring.
Frequently Asked Questions
No. The March 2026 amendment applies specifically to new immigrants who first became Israeli residents during the 2026 calendar year, and to veteran returning residents who returned in 2026 after at least 10 continuous years abroad. Immigrants who arrived before January 1, 2026 are not covered by the new law. They may still benefit from the pre-existing 10-year exemption on foreign-source income under Section 14(a) of the Income Tax Ordinance, and from oleh tax points credits, subject to the years remaining on their individual exemption clock.
Yes — for qualifying individuals, both benefits apply simultaneously. The 2026 law covers income from work or business activity inside Israel. The existing 10-year exemption under Section 14(a) covers income and gains from sources outside Israel — foreign salary, foreign rental income, foreign dividends and interest, foreign capital gains. A new immigrant who arrives in 2026 can pay 0% on both streams in the same year, subject to the NIS 1 million annual cap on the Israeli-source side and the full Section 14(a) regime on the foreign side.
The 2026 exemption applies to Israeli-source income up to a cap of NIS 1 million per calendar year. Income above that threshold is taxed at the standard Israeli marginal rates, which rise to a top rate of 50% plus a 3% surtax on the highest bracket. High earners should coordinate with an Israeli tax advisor and ensure their employer obtains an ITA withholding confirmation that reflects the correct split between the exempt and taxable portions of each monthly salary payment.
Yes. Effective January 1, 2026, the reporting exemption for new immigrants and veteran returning residents was abolished. Even if all of your income is tax-exempt, you must file an annual income tax return with the Israel Tax Authority if you meet the standard filing thresholds, and must report foreign assets and trusts above the prescribed disclosure thresholds. Failure to file carries penalties under Section 191 of the Income Tax Ordinance regardless of whether any tax is owed.
The exemption is the employee's benefit, not the employer's. Israeli employers must obtain a withholding tax confirmation from the Israel Tax Authority reflecting the applicable zero or reduced rate before applying it to payroll. The employer's National Insurance Institute contributions are not affected by the employee's income tax status — full employer-side NII contributions remain due. Employers who skip the ITA confirmation and zero-withhold without written approval risk employer-level penalties under Section 167 of the Ordinance.