What happens to my foreign pension when the 10-year exemption expires?

Once the Section 14(a) exemption expires, foreign pension income becomes taxable in Israel. Section 9(gimel) of the Income Tax Ordinance provides significant relief: the Israel Tax Authority taxes your foreign pension at the lower of the applicable Israeli marginal rate or the rate that would apply in the pension's country of origin. If your home country has a 22% pension tax rate and your Israeli marginal rate is 35%, you pay 22% to the ITA. You must document what the foreign rate would have been, typically through a foreign tax return or a letter from a foreign accountant.