New Tax Breaks for Olim and Returning Residents Take Effect
Translated & summarized from Bizportal by baba
A new Israeli law offers tax exemptions on income earned within Israel for new immigrants and returning residents who become residents by December 31, 2026. The exemption applies to salaries and business income, with annual caps starting at 600,000 shekels in 2026 and rising to 1 million shekels in 2027-2028 before declining. While foreign income reporting is now mandatory for new arrivals from 2026, existing benefits remain, and individuals are advised to plan strategically.
The story in 6 lines · by baba
- New Israeli tax law exempts income earned in Israel for new immigrants and returning residents until December 31, 2026.
- Annual tax-free income caps start at 600,000 shekels in 2026, rising to 1 million shekels in 2027-2028.
- The exemption applies to salaries and business income, but not dividends, interest, or rental income.
- Income from relatives or family-controlled companies is capped at 140,000 shekels annually.
- New arrivals from January 1, 2026, must now report foreign income and assets.
- The benefit is available to new immigrants and returning residents who became Israeli residents between November 5, 2025, and December 31, 2026.
A new tax incentive law, effective March 31, 2026, aims to encourage new immigrants (olim) and returning residents to settle in Israel by offering tax exemptions on income earned within the country. Previously, olim received a ten-year exemption on foreign income but paid full taxes on Israeli earnings. This new "hour of need" provision, part of the Economic Efficiency Law, reverses this, exempting income from salaries and businesses generated in Israel up to a gradually decreasing annual cap until 2030. The window for eligibility closes on December 31, 2026.
The benefit is divided into two groups: new immigrants who became Israeli residents between November 5, 2025, and the end of 2026, and long-term returning residents who lived abroad for at least ten consecutive years and returned during the same period. The exemption applies only to earned income, not dividends, interest, or rental income. The tax-free income ceilings are highest in the initial years: 600,000 shekels in 2026 (pro-rated), 1 million shekels in 2027 and 2028, then decreasing to 350,000 shekels in 2029 and 150,000 shekels in 2030. An individual becoming a resident in early 2026 could accumulate a total exemption of up to 3.1 million shekels over the period.
A specific clause limits income from relatives or family-controlled companies to 140,000 shekels annually from 2026 to 2029, to prevent inflated salaries designed to exploit the exemption. Income exceeding the cap is taxed at standard rates. Additionally, income earned by a foreign resident company in Israel, solely due to the personal work of an oleh or returning resident, is also exempt from 2026 to 2030, provided the company had no other business income in Israel. This is intended for entrepreneurs and freelancers working through foreign entities, though they must consult tax advisors regarding potential permanent establishment issues.
While the exemption on foreign income and other benefits like absorption points remain, a new reporting requirement has been introduced for those arriving from January 1, 2026. They must report foreign income and assets, unlike olim who arrived before the end of 2025 and were exempt from annual reporting and wealth declarations for ten years. The new law integrates these benefits, urging individuals to consider the foreign income exemption, absorption points, and the new Israeli income exemption together for optimal planning, especially given the decreasing tax-free income caps in later years.
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