Recently, Israel enacted the Law for the Encouragement of Immigration to Israel and Return to Israel (Temporary Provision), 2026 (the “Encouragement of Immigration Law“), which grants new immigrants a tax exemption on active income generated in Israel. This is in addition to the existing exemption under law for income generated outside Israel.
Currently, a new immigrant and a veteran returning resident are entitled to a 10-year tax exemption on income generated outside Israel. The new exemption expands the range of tax benefits available to individuals who immigrated or returned to Israel during the period prescribed by the law. As a result, certain income generated in Israel may also be tax-exempt, subject to the caps and additional limitations set out in the law.
The New Tax Exemption in Israel: A Significant Expansion of the Benefits Available to New Immigrants
The Encouragement of Immigration Law applies to a new immigrant who became an Israeli resident for the first time, or to a veteran returning resident who became an Israeli resident, during the period from November 5, 2025, to December 31, 2026. The law itself entered into force on January 1, 2026, and applies to qualifying income generated or accrued in Israel from the date on which the individual first immigrated to Israel or returned to Israel after 10 years abroad. This means that it is not enough for a person to have received an immigrant certificate or to have prepared for immigration during the relevant period. It is also necessary to examine when that person actually became an Israeli resident under the ordinary residency tests.
To benefit from the new law, certain formal conditions set out in the law must also be met. In the case of a new immigrant, for example, an immigrant visa, an immigrant certificate, or eligibility for an absorption basket is required. In other words, not everyone who comes to Israel with the intention of relocating is automatically covered by the law. It is necessary to examine whether the person meets the definition of an “Israeli resident” under the statutory tests, primarily whether their center of life is indeed in Israel.
Which Types of Income Benefit from the Exemption, and What Remains Outside the Law?
The new exemption does not apply to all income, but only to “qualifying income.” This mainly refers to income from personal exertion under Sections 2(1) and 2(2) of the Income Tax Ordinance, such as employment income, business income, or income from a profession or vocation. In other words, the law is primarily aimed at employees and self-employed professionals who generate active income in Israel.
By contrast, passive income does not benefit from the incentive. Interest, dividends, rental income, and capital gains generally remain outside the exemption route. Certain structures involving transparent entities, substantial shareholdings, and certain income received from relatives may also reduce or deny the benefit.
Therefore, although the law creates significant opportunities, it is far from comprehensive, and each case requires an individual review of the type of income and the structure of the activity
The new exemption is subject to the caps set out in the law. The benefit will be granted up to the applicable cap, which varies by year and according to whether the income was received from a relative, as shown in the following table:
Year | Income Cap | Income Cap for Income Received from a Relative |
2026 | 600,000 ₪ | 140,000 ₪ |
2027 | 1,000,000 ₪ | 140,000 ₪ |
2028 | 1,000,000 ₪ | 140,000 ₪ |
2029 | 350,000 ₪ | 140,000 ₪ |
2030 | 150,000 ₪ | 150,000 ₪ |
In addition, for 2026, the cap is examined on a pro rata basis according to the period of Israeli residency during that year.
In practical terms, for anyone considering immigrating or returning to Israel after a long period abroad, this represents a significant opportunity to reassess their tax structure. In the appropriate circumstances, it may be possible to examine the application of the exemption to a substantial portion of active income generated in Israel. Various factors, such as the timing of immigration, the date on which residency begins, the type of income, the employment structure, and the distinction between salary and other types of income, may affect the Israeli tax liability and the ability to benefit from the new exemption.
New Immigrants Operating Through a Foreign Company
In addition to the exemption granted by the Encouragement of Immigration Law with respect to active income generated by a new immigrant, the law also exempts from tax the business income of a foreign company generated in Israel as a result of the personal exertion of a new immigrant or veteran returning resident. This provision may be particularly important in cases involving remote work from Israel, relocation, or the management of a foreign company’s activities from Israel.
In this context, the law includes several qualifications for the application of the exemption. For example, the exemption will be granted only if, without the personal exertion of that new immigrant or veteran returning resident, the foreign company would not have had business income generated in Israel. Another qualification provides that the exemption will not apply to a foreign company in which the new immigrant holds 10% or more of the shares. Therefore, new immigrants who operate through a foreign company should carefully examine the qualifications set out in the law to ensure that the exemption does in fact apply.
What About Individuals Who Immigrated to Israel Before the Legislative Changes?
With respect to the tax exemption granted by the Encouragement of Immigration Law, the exemption does not apply, as noted, to anyone who immigrated to Israel before November 5, 2025. However, the law provides that the date of immigration to Israel for this purpose is not determined by the date on which an immigrant visa or immigrant certificate was received, but rather according to the ordinary residency tests. Therefore, new immigrants who have recently immigrated to Israel should examine the exact date on which they became Israeli residents in order to assess their eligibility for the exemption.
Want to Check How to Plan Your Immigration Properly?
To Sum up, although these are temporary benefits, the new Israeli legislation creates a real opportunity for those who immigrate to Israel during the relevant period. Therefore, for those who have already immigrated to Israel or are considering immigrating in the coming year, now is the time to examine eligibility for the new tax benefits.
Nimrod Yaron & Co. specializes in Israeli and international taxation. Our team is made up of professionals with years of experience at the Israel Tax Authority, alongside experience at leading firms and law offices, bringing together both legal and economic perspectives. We advise private and public companies, Israeli and foreign companies, global venture capital funds, and clients seeking focused advice in clear and accessible language. We also work with a professional network of accounting firms and law firms around the world in order to provide comprehensive support in cross-border matters.
Whether you have already immigrated to Israel or are considering immigrating in the near future, this is precisely the time to examine whether you fall within the scope of the law and are eligible for the tax benefits, and what steps you should take in order to benefit from the tax benefits in an optimal manner, taking into account your employment model, the exact date of your immigration to Israel, and additional income you generate, in Israel and abroad
FAQ
Who may be eligible for the new tax exemption in Israel?
New immigrants and veteran returning residents who became Israeli residents during the period between November 5, 2025 and December 31, 2026, subject to compliance with the conditions of the law and the residency tests.
What types of income does the new exemption apply to?
The exemption applies primarily to active income from personal exertion, such as salary, business income, or income from a profession or vocation. It generally does not apply to passive income such as interest, dividends, rental income, and capital gains.
Can someone who has already immigrated to Israel also benefit from the changes?
Possibly. The new tax exemption depends, among other things, on the date on which the individual actually became an Israeli resident, as well as additional factors that should be reviewed with a professional specializing in international taxation.
