Background & residency:
Many Israeli citizens who left Israel to live abroad are starting to return to Israel. Some went abroad because of the war, others relocated abroad in the hitech sector. They are coming back for family reasons or because of antisemitism abroad. We review below some Israeli tax aspects, which partly depend on how long they resided abroad.
Who is a resident?
For Israeli tax purposes, according to Section 1 of the Income Tax Ordinance, an Israeli resident is defined as an individual whose center of living is in Israel, taking into account the person’s family, economic and social links. A rebuttable presumption of Israeli residency will apply if: (1) the individual is present in Israel at least 183 days in a tax year ending 31 December, or (2) the individual is present in Israel at least 30 days in the current tax year, and 425 days cumulative in the current and two preceding tax years (=142 days per year on average). Days of arrival and departure count as complete days, not partial days.
Potential Israeli tax breaks – away 10 years:
The main tax benefit for a “senior returning resident” – who resided abroad over 10 years – is a ten year “tax holiday” i.e. exemption from Israeli tax on foreign source income and gains arising after the return.
“Senior returning residents” may also enjoy a more limited exemption for Israeli source income and gains in 2026-2030 if they shift their center of living and become new Israeli residents between November 5, 2025 and December 31, 2026 (not discussed here).
All this assumes the individual was fiscally resident in another country – being resident nowhere is not enough (Bar Rafaeli Case).
But what happens if an individual was away from Israel for under 10 years before returning to Israel? If the individual was away at least 6 consecutive years, a different more limited, but still useful, tax break is possible. Such an individual is known as a “returning resident” (not a senior one)
Potential Israeli tax break – away 6 years:
A “returning resident” may enjoy an exemption for 6 years on non-business income accrued or derived abroad from pensions, royalties, rental income, interest and dividends derived from assets which the returning resident acquired abroad after leaving Israel.
The 6 year exemption also applies to income from interest and dividends derived from “privileged securities”.
Privileged securities are securities publicly traded on a foreign stock exchange which the returning resident acquired abroad after leaving Israel that are handled at an account at a banking institution OR acquired out of interest or dividends from privileged securities that were deposited in that account.
Capital gains:
As for capital gains, a “returning resident” who was away from Israel for 6 years may enjoy a 10 year exemption (instead of 6 years) on the sale of assets purchased abroad while resident abroad so long as the assets do not relate to assets in Israel.
The 10 years begin when the individual becomes an Israeli resident. The 10 year exemption can apply to any such foreign asset (e.g. real estate), not only privileged securities.
If such assets are sold more than 10 years after resuming Israeli fiscal residence, a pro rata exemption is available. The exempt amount is:inflation adjusted gain X Period owned up to the end of the 10 year exemption / Total period owned
Conclusion:
Returnees should consider opening a new securities account at a non-Israeli banking institution lawfully approved in foreign country concerned before returning to reside in Israel. The account must be in their personal name, not a company or business or account. This account would be used to channel all foreign privileged securities
The individual should keep all bank documentation showing that all foreign privileged securities were acquired after that person left Israel;
Nothing can be deposited in the above securities account, after the individual becomes a returning resident, except for interest, dividends or capital gains from privileged securities
One more tax break:
Another possible side-benefit of moving back to Israel relates to Israel’s exit tax. This is really capital gains tax of up to 35% payable when the individual first left Israel.
If an individual stops being fiscally resident in Israel, they are deemed to have sold their assets at market value. The exit tax is due one day before leaving Israel but the tax liability may be postponed to when the leaver actually sells assets. So an individual may effectively avoid any unpaid exit tax by resuming Israeli residency.
As always, consult experienced professional advisors in each country concerned at an early stage in specific cases.
NEXT STEP:
Contact us if you travel in and out of Israel in order to plan things well – residency, income sourcing, etc.
© Leon Harris, Sep 11, 2026