Despite the cost of the war, the Knesset managed to legislate some tax breaks for new immigrants (Olim) in the budget package passed on March 30, 2026
Olim already enjoy a 10 year Israeli tax holiday for foreign source income and capital gains. Starting January 1, 2026, Olim may also now be exempt from Israeli tax on Israeli source income – but with more strings attached.
This is thanks to Income the Law To Encourage Immigration and Return to Israel (Economic Efficiency Law, Book of Laws 3511, 31.3.26).
The new law is similar but not identical to previous proposals.
What is now exempt?
The exemption applies within monetary limits to Israeli source active income from a business or employment. There is no exemption for passive Israeli source income namely interest, exchange differences, dividends, rental income, asset sales, capital gains, real estate gains.
The exemption is only for the following years up to the following amounts of business/employment income:
2026 – NIS 600,000;
2027 – NIS 1 million;
2028 – NIS 1 million;
2029 – NIS 350,000;
2030 – NIS 150,000.
However, the annual limit for amounts received from a related party as defined in detail (other than a wholly owned company) is only NIS 140,000. Presumably this is to limit family tax planning.
Who is exempt?
The exemption for Israeli source income is applicable to Olim who shift their center of living and become new Israeli residents between November 5, 2025 and December 31, 2026. The exemption also applies to senior returning residents, who were resident abroad at least 10 years, who resumed Israeli residence in that period.
But the amounts of NIS 600,000 or NIS 140,000 are reduced pro rata to the time in 2026 before the individual took up Israeli residence. For example, if the individual takes up Israeli residence on July 1, 2026, the above 2026 exemption limits are halved, but the limits for 2027-2030 remain unchanged.
If the individual stops being an Israeli resident in 2028 or 2029 and spends under 75 days in Israel in one of those years, they forfeit the above exemption.
When checking when the individual took up Israeli residence, the one year “settling in” election (to stay foreign resident) is ignored, i.e. they may still get the exemption.
What about foreign companies?
The income of a foreign resident company derived from the work in Israel of an eligible individual is exempt from Israeli corporate taxation – unless the individual is a 10%-or-more shareholder, directly or indirectly, in the company. Israeli VAT would presumably still apply to such a company.
Comments:
The foreign tax situation should be checked in each country concerned.
The new law was originally proposed to attract Aliya (immigration) by Jewish people abroad affected by antisemitism. But the is no incentive to invest in Israel, only to work there and earn no more than the stipulated amounts. If you earn more, you should be exempt up to those caps.
The Israeli tax holiday for foreign source income and gains remains in place. But the exempt income must be disclosed by people taking up Israeli residence on or after January 1. 2026 under separate legislation.
People who took up Israeli residence between November 5 and December 31, 2025 get the best of both worlds – Israeli income exemption and foreign income disclosure exemption.
People who work online in Israel for foreign companies may enjoy the above new exemption up to the stated limits if they took up Israeli residence between November 5, 2025 and December 31, 2026. Otherwise they are taxable from day one.
Next steps:
Please contact us if you wish to discuss the above or any other matter
As always, consult experienced professional advisors in each country concerned at an early stage in specific cases.
Leon Harris, [email protected]
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