Dear Clients,

At the end of March 2026, a new temporary order (הוראת שעה) came into effect — the “Law for the Encouragement of Aliyah and Return to Israel” — granting a significant tax exemption on income from earned income (הכנסה מיגיעה אישית), such as employment or business, for New Immigrants and Veteran Returning Residents who arrived in Israel between November 2025 and the end of 2026.

This exemption can reach up to 600,000 ILS in 2026 and up to 1,000,000 ILS in the years 2027-2028. It supplements the already existing exemptions on foreign income under Sections 14 and 97 of the Income Tax Ordinance.

This is a generous but complex benefit, featuring precise threshold conditions (including a day-count test over the past ten years), limitations on income from relatives, and stipulations that could retroactively cancel the exemption. It is highly recommended to verify eligibility with a professional before submitting a request.

New Immigrants and Veteran Returning Residents Receive a New Tax Benefit on Employment and Business Income in Israel

In early July 2026, the Israel Tax Authority  published a professional circular (Income Tax Circular 07/2026) explaining how to implement this new temporary order. The order grants a tax exemption on income from employment and business generated in Israel, supplementing the current exemptions on foreign income.

The purpose of the law is clear: to encourage new Aliyah and the return of veteran Israelis who have lived abroad for many years by significantly easing the tax burden during their first years after arriving in Israel.

Who is Eligible for the Benefit?

The exemption applies to anyone who became a resident of Israel between November 5, 2025, and December 31, 2026 (the “Determining Period”), and meets one of the following two conditions:

• New Immigrant (עולה חדש): Holds an Oleh visa or Oleh certificate, or is eligible for an absorption basket (סל קליטה), who became an Israeli resident for the first time. (The benefit will not apply to someone who was an Israeli resident before the period and received an Oleh certificate at a later date).
• Veteran Returning Resident (תושב חוזר ותיק): Someone who was a foreign resident for at least 10 consecutive years prior to their return and holds a Returning Resident certificate issued by the Ministry of Aliyah and Integration.

Important Note: The determining date is the actual date when the center of lifewas transferred to Israel, not necessarily the date the official certificate was received. In cases where there is a discrepancy between these dates, the Assessing Officer will examine the entirety of ties to Israel — days of stay, permanent residence, location of family, business and social ties, and more — to determine when the center of life actually shifted.

What Does the Exemption Apply to, and in What Amount?

The exemption applies solely to “Qualifying Income”) — taxable income from personal exertion according to the Ordinance, meaning income from employment, a business, or an occupation. It does not apply to passive income such as interest, dividends, rent, or capital gains, which will continue to be taxed under standard rules.

The exemption ceilings are set for five tax years, as follows:

Tax Year	Exemption Ceiling
2026	600,000 ILS
2027	1,000,000 ILS
2028	1,000,000 ILS
2029	350,000 ILS
2030	150,000 ILS

Key Caveats Regarding the Ceiling:

• Proportional Calculation: In 2026, the ceiling will be calculated proportionally based on the number of days between the date of becoming an Israeli resident and the end of the year.
• Income from a Relative: Income received from a “Relative” (as defined in the Ordinance — a family member or a company held jointly by the individual and their relatives) is eligible for a limited benefit: up to 140,000 ILS annually between 2026 and 2029 (150,000 ILS in 2030). Conversely, income from a company 100% owned by the individual is not considered a “Relative” for this purpose and qualifies for the full exemption ceiling.
• Transparent Entities (תאגיד שקוף): Income attributed to an individual from a “Transparent Entity” (e.g., a partnership, house company) in which they are a substantial shareholder is not eligible for the exemption. However, a salary, management fees, or consulting fees received from that same entity are eligible, as is income from a transparent entity fully owned by the individual.

Tax Coordination During the Year – Do Not Wait for the Annual Report

Those who wish to enjoy the benefit during the tax year, rather than waiting for a tax refund at the end of the year, can submit an advance request:

• Employees: Submit a request for Tax Coordination (תיאום מס – Form 116ע) to the Assessing Officer.
• Self-Employed: Submit a request to reduce advance payments (מקדמות).

To obtain this advance approval, applicants must meet a strict criterion regarding the number of days spent in Israel during the ten years preceding 2026 (2016-2025) — applicable to both the individual and their spouse. Generally, the days of stay in any given year must not exceed 90 days, subject to limited exceptions.

Those who do not meet this condition can still claim the benefit in their annual report, but not through the expedited tax coordination process. Furthermore, the exemption ceiling available via tax coordination/reduction of advances is capped (at 300,000 ILS or 500,000 ILS, depending on the obligation to file an annual report), with the remainder to be claimed in the annual report.

Other Important Topics to Know

• Revocation Exception: Anyone who severs their Israeli residency during 2028 or 2029, and stays in Israel for less than 75 days in either of those years, risks retroactively losing the exemption for all preceding years.
• Gifted Income: Income received as a gift is not eligible for the benefit.
• Income Generated After Leaving: Income generated after severing residency — even if it originated from a business established in Israel while the individual was a resident — will not qualify for the exemption after departure.
• Obligation to File a Report: Receiving the exemption does not waive the obligation to file an annual report if such an obligation exists for other reasons (e.g., being self-employed, having income from a foreign employer).
• Permanent Establishment (מוסד קבע): The exemption applies only to the income of the immigrant/returning resident themselves. If they own a foreign company and operate it from Israel, they must consider whether the activity constitutes a “Permanent Establishment” of the foreign company in Israel (essentially a local branch). In such a case, the foreign company may be required to pay tax to the Israel Tax Authority on the portion of its income derived from this activity. Specialized consulting is recommended for relevant cases.
• Reporting Obligation (חובת דיווח): Note that new immigrants and veteran returning residents who made Aliyah starting January 1, 2026, are obligated to report their foreign assets and income to the Israeli income tax authorities, even though a tax exemption applies to foreign-sourced income for 10 years from the date of Aliyah.
• Additional Exemption on Top of Existing Ones: This temporary order supplements existing exemptions in Sections 14 and 97 (exemption from tax on income produced outside of Israel for 10 years). The innovation of this temporary order is that it now allows new immigrants to also receive an exemption on employment and/or self-employment income generated within Israel.

Why Seek Professional Guidance?

Making Aliyah or returning to Israel in 2026 presents a one-time opportunity to receive a massive tax benefit. However, eligibility hinges on a precise examination of the relocation date, income type, income source, corporate holding structures, and an analysis of days spent in Israel over the past decade. A mistake in classifying income or determining the defining date could result in the loss of the benefit, unnecessary tax payments, and even retroactive charges if conditions are not maintained.

Our firm has extensive experience guiding new immigrants and returning residents — including US citizens and Israelis returning from various countries. We assist both in verifying eligibility for this specific benefit and in maximizing all other exemptions applicable to new residents, including foreign income exemptions under Sections 14 and 97 of the Ordinance.

If you have recently made Aliyah or returned to Israel, you are welcome to contact us for an initial eligibility check.

Disclaimer: The information in this article is intended for general knowledge purposes only and does not constitute a substitute for individual professional advice.