Tax & Finance

Does the Israeli 10-year new immigrant tax exemption apply to salary paid by a foreign employer?

Q: Does the Israeli 10-year new immigrant tax exemption apply to salary paid by a foreign employer?

The 10-year exemption under Section 14(a) of the Income Tax Ordinance 5721-1961 applies to income derived from sources outside Israel, not to income based on the employer's location. Salary paid by a foreign employer for work physically performed outside Israel — such as during business trips abroad — is generally exempt. However, salary for work performed from inside Israel, including remote work done from an Israeli home office, is Israeli-source income under Section 4A of the Ordinance and is fully taxable at the Oleh's marginal rate, regardless of the exemption.

      The 10-year exemption under Section 14(a) of the Income Tax Ordinance 5721-1961 applies to income derived from sources outside Israel, not to income based on the employer's location. Salary paid by a foreign employer for work physically performed outside Israel — such as during business trips abroad — is generally exempt. However, salary for work performed from inside Israel, including remote work done from an Israeli home office, is Israeli-source income under Section 4A of the Ordinance and is fully taxable at the Oleh's marginal rate, regardless of the exemption.
    

Section 14(a) of the Income Tax Ordinance (New Version) 5721-1961 grants a new immigrant (oleh chadash) or qualifying returning resident (toshav chozer vatik) a 10-year exemption from Israeli tax on income produced outside Israel. The critical legal question is the source of the income, not the identity or location of the employer. Under Section 4A of the Ordinance, employment income is sourced in the country where the work is physically performed. The Oleh tax exemption therefore applies to salary only when the actual work — the services rendered — took place outside Israel, regardless of whether the employer is Israeli or foreign.

Many new immigrants assume that employment by a non-Israeli company immunizes their entire salary from Israeli tax throughout the exemption period. The Israel Tax Authority (Rashut HaMisim) does not accept this position. An Oleh who works remotely from an Israeli address for a foreign employer is earning income sourced in Israel — that salary must be reported and is taxed at marginal rates up to 47%, plus National Insurance contributions. The exemption does remain fully applicable to passive foreign income (dividends, interest, and rental income from abroad) and to salary for days physically worked outside Israel. New immigrants who split their time between Israel and another country should maintain contemporaneous records — travel logs, payroll allocation agreements with their employer — to support the proportional exemption claimed on their annual return.

⚖ In Practice

Governing law: Section 14(a), Income Tax Ordinance (New Version) 5721-1961 (Oleh exemption); Section 4A (income source rules)
Competent authority: Israel Tax Authority (Rashut HaMisim), Individuals Tax Branch; annual self-assessment filing required
Exemption period: 10 years from the date of first becoming an Israeli resident; 20 years for qualifying long-term returning residents
Filing threshold: Olim with Israeli-source income exceeding approximately NIS 92,850 (2026) must file an annual tax return even during the exemption period
Common mistake: treating all pay from a foreign employer as exempt — only the portion for work physically performed outside Israel qualifies; work-from-Israel pay is fully taxable

From the full guide: Oleh Tax Benefits and Exemptions: A Complete Guide

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Does the Israeli 10-year new immigrant tax exemption apply to salary paid by a foreign employer?

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