Tax Benefits for New Immigrants and Veteran Returning Residents: The Window Closes on December 31, 2026

Tax benefits for new immigrants now apply from 2026 to salaries and business income earned in Israel as well, in addition to the existing exemption on foreign-source income. Under the Law for the Encouragement of Immigration to Israel and Return Thereto (Temporary Provision), 5786-2026, a new immigrant (oleh) or a veteran returning resident who became an Israeli tax resident between November 5, 2025 and December 31, 2026 is exempt from tax on earned income up to NIS 600,000 in 2026 and up to NIS 1,000,000 in each of the years 2027 and 2028. Anyone who moves to Israel after December 31, 2026 will not qualify under the current version of the temporary provision.

• Effective date: The law entered into force on March 31, 2026, and the exemption applies from the 2026 tax year.

• Who qualifies: An oleh (holder of an immigrant visa, immigrant certificate, or entitlement to an absorption basket) and a veteran returning resident holding a returning-resident certificate, who became Israeli tax residents between November 5, 2025 and December 31, 2026.

• Which income: Salary and income from a business or profession earned in Israel while you are a resident.

• Exemption ceilings: NIS 600,000 in 2026 (prorated for the portion of the year during which you were a resident), NIS 1,000,000 in 2027 and 2028, NIS 350,000 in 2029, and NIS 150,000 in 2030.

• Income from a related party: Capped at NIS 140,000 per year, claimable only through the annual tax return.

• Clawback: Anyone who ceases to be an Israeli resident in 2028 or 2029 and was present in Israel for fewer than 75 days in either of those years loses the exemption retroactively.

• Source: Income Tax Circular 7/2026 dated July 5, 2026.

Before the temporary provision, the exemption for new immigrants and veteran returning residents applied only to income sourced outside Israel, under Sections 14 and 97 of the Income Tax Ordinance. The new law adds an exemption for employment and business income in Israel; the existing exemptions on foreign-source income remain unchanged.

1. November 5, 2025: Start of the qualifying period. Anyone who became a resident from this date onward may qualify for the benefit.

2. March 31, 2026: The law entered into force as part of the Economic Efficiency Law for 2026.

3. July 5, 2026: The Israel Tax Authority published Income Tax Circular 7/2026, detailing the conditions and the procedure for claiming the exemption.

4. December 31, 2026: End of the qualifying period.

5. 2027–2030: The ceilings continue to apply to those who qualified in time, decreasing to NIS 350,000 in 2029 and NIS 150,000 in 2030.

In 2026, the ceiling is calculated according to the number of days you were a resident. In the example given in the Circular, a person who became a resident on July 1, 2026 and is not required to file an annual return receives a ceiling of NIS 150,000 through payroll tax coordination (NIS 300,000 × 183 ÷ 365).

The test is the date on which your center of life actually moved to Israel, not the date on which you received a certificate from the Ministry of Immigration and Absorption. The Circular provides two examples: a person who relocated their center of life to Israel in 2021 but was recognized as an oleh only in 2026 does not qualify, while a person who received an immigrant certificate in 2020 but actually settled in Israel only in 2026 may qualify if they can prove it. Electing an adjustment year does not shift the date of becoming a resident for purposes of this benefit.

A veteran returning resident is someone who was a foreign resident for at least 10 consecutive years. Anyone who returned after a shorter period does not qualify under the temporary provision. The other benefits available to them, and the planning of the return date, are detailed on our page about taxation of new immigrants and returning residents.

The exemption does not apply to interest, dividends, rental income, or capital gains, which the Ordinance classifies as "other income." It also does not apply to income attributed to you from a partnership or a transparent company in which you are a material shareholder, unless you hold it in its entirety. Salary or management fees you receive from the same entity may still be exempt.

A foreign company that employs you in Israel

also receives an exemption. In the years 2026–2030, a foreign-resident company is exempt from Israeli tax on income generated here solely by virtue of your work, even if your work creates a permanent establishment for it. The exemption does not apply if you are a material shareholder in the company.

1. If you are planning to make Aliyah or return to Israel, make sure your center of life actually moves here by December 31, 2026. A plane ticket or a certificate alone does not prove this.

2. Obtain a "Traveler Information Inquiry" from the Population and Immigration Authority for the years 2016–2025, for yourself and your spouse. Anyone who does not meet the days-of-stay test set out in the Circular will not receive the benefit through payroll tax coordination and will need to claim it in the annual tax return.

3. Employees submit Form 116A for tax coordination, and self-employed individuals request a reduction of advance payments. The ceiling at this stage is NIS 300,000 per year, or NIS 500,000 for those required to file an annual return. The balance is claimed in the annual tax return (Form 1301).

4. If the payer is a related party—for example, a company in which your sibling holds half the shares—the exemption is limited to NIS 140,000 per year and may only be claimed in the annual tax return.

5. Plan ahead for 2028 and 2029. Severing your residency in either of those years, combined with fewer than 75 days of presence in Israel in that year, cancels the exemption from its inception.

This area is handled at the office of Adv. & CPA Shlomi Vaknin, who spent 18 years as a senior partner at a tax firm before founding his own practice in 2024.