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 The “new immigrant” tax regime, with its exemptions from taxation, makes Israel a jurisdiction 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 as of 1 January 2026. 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. Recently, to encourage immigration into Israel, a tem - porary law was enacted to provide new immigrants a tax exemption on their Israeli-sourced income from employment and/or Israeli business, provided immi - grated and became Israeli tax-resident between 5 November 2025 and 31 December 2026. The tax exemption is available until the end of 2030, subject to following annual income ceilings: • up to ILS600,000 (approximately USD200,000) in 2026; • up to ILS1,000,000 (approximately USD333,333) in 2027; • up to ILS1,000,000 (approximately USD333,333) in 2028; • up to ILS350,000 (approximately USD117,000) in 2029; and • up to ILS150,000 (approximately USD50,000) in 2030. As per a recent amendment to the Israeli Tax Ordi - nance, the widely known ten-year exemption from reporting tax-exempted foreign-source income to the Israel Tax Authority was limited to new immigrants
who arrived in Israel up to 31 December 2025. This tax- and reporting-exempted foreign-source income includes business income, salaries, dividends, inter - est, rent, royalties and pensions generated by assets and/or activities held or conducted overseas, regard - less of whether these were acquired or started before or after becoming an Israeli tax resident. Hence, new immigrants arriving in Israel as of 1 January 2026 will be obliged to report their worldwide income (includ - ing 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. The imposition of a full reporting obligation starting in 2026 is expected to place a heavier burden on new immigrants. In addition to the requirement to file annual returns and capital declarations, the Tax Authority is authorised to demand detailed information regarding foreign assets and income, and to examine their substantive classification. As a result, the Israeli Tax Authority will now be able to conduct an in-depth examination of their income sources, and to challenge the income reported as exempt under the “new immi - grant” tax regime. In this context, there is a specific risk that certain passive income may be regarded as income generated in Israel, particularly where the business activity is effectively managed from Israel. In addition to the above, the attraction of Israel is enhanced by the fact that Israel is an OECD member, as well as a party to numerous double taxation trea - ties (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 coun - try creates a unique planning opportunity. 1.4 Pre-Immigration and Exit Planning Israeli tax law presents planning opportunities for indi - viduals who are about to become Israeli tax residents primarily focused on choosing the correct timing for becoming an Israeli tax resident to maximise the ben - efits available under the “new immigrants” tax regime for immigrants and returning residents. Such oppor - tunities include the ability to elect an adaptation year, which defers the onset of the individual’s Israeli tax residency (subject to certain legal conditions), and to
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