ISRAEL Law and Practice Contributed by: Yaron Mehulal, Nataly Davidai and Shalom Hershkovitz, FISCHER (FBC & Co.)
of the ordinary purchase tax provided they meet the criteria and conditions set by law. 1.3 Income Tax Planning New immigrants to Israel, as well as individuals who return to live in Israel after having lived continuously outside Israel for at least ten years, are only subject to income and capital gains taxes on their Israeli- sourced income during their first ten years of living in Israel. After the expiry of the said ten-year period, such persons continue to enjoy a reduced rate for capital gains tax, calculated on a linear basis accord - ing to the period of time that has elapsed before and after the expiry of the ten-year exemption. New immi - grants also benefit from a reduced purchase tax on real estate purchases as detailed below. As per a recent amendment to the Israeli Tax Ordi - nance, the ten-year exemption from reporting tax- exempted foreign-source income to the Israel Tax Authority will only apply to new immigrants who arrive in Israel up to 31 December 2025. This tax- and reporting-exempted foreign-source income includes business income, salaries, dividends, interest, rent, royalties and pensions generated by assets and/or activities held or conducted overseas, regardless of whether these were acquired or started before or after becoming an Israeli tax resident. Hence, new immi - grants arriving in Israel as of 1 January 2026 will be obliged to report their worldwide income (including their tax-exempted foreign-source income) in the same way as any other Israeli tax resident, but they will still be exempt from paying taxes on their non- Israeli-sourced income during their first ten years of living in Israel. This “new immigrant” regime, with its exemptions from taxation and reporting, makes Israel a jurisdic - tion worthy of consideration by wealthy foreign tax residents wishing to relocate as part of their foreign income tax planning, although special notice should be given to the new reporting obligation starting on 1 January 2026. Furthermore, the attraction is enhanced by the fact that Israel is an OECD member, as well as a party to numerous double taxation treaties (with as many as 57 countries) and additional tax protocols; the combination of the ten-year exemption plus a tax
treaty with the person’s original home country creates a unique planning opportunity. 1.4 Taxation of Real Estate Owned by Non- Residents In principle, the purchase of Israeli real estate is sub - ject to a progressive purchase tax that can be as high as 10% for expensive residential properties and 6% for commercial real estate purchased by an individual. However, certain tax reductions and exemptions are available to Israeli tax residents (regardless of their citizenship status) who purchase a home which will be their single home. The following are the applicable purchase tax rates for non-Israeli tax resident individuals purchasing resi - dential real estate in Israel: • 8% on the value of the real estate to approximately USD1.6 million; and • 10% on the value of the real estate above approxi - mately USD1.6 million. • As per Article 12 of the Real Estate Taxation (Appreciation and Purchase) (Purchase Tax) Regu - lations, 1974, a new immigrant who purchases residential real estate for their permanent use, as well as a business place for themselves, during the period starting one year before their immigration and ending seven years thereafter, enjoys special real estate purchasing tax rates, subject to the date of the purchase of the real estate. In certain cases, the above special rates for new immi - grants can also be applied to the purchase of land. 1.5 Stability of Tax Laws Israel had an estate tax regime until 1 April 1981, when it was abolished altogether and, currently, there are no official proposals to re-enact an estate tax regime. While levying an inheritance tax has sometimes been a campaign promise in Israeli national elections, no legislative changes have taken place. Nonetheless, due to the current war and regional con - flict, the Israeli government faces the inevitable task of financing its increasing expenditure. Consequently, the Israel Tax Authority is considering levying either inheritance tax or estate tax, as well as a limiting the
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