New Tax Relief Worth Knowing About – The New Temporary Order to Encourage Aliyah and Return to Israel

Dear Clients,

We would like to update you that, as part of the Economic Efficiency Law for 2026, a new temporary order was enacted (Please click here for the temporary order in Hebrew), granting new immigrants and senior returning residents an additional tax benefit – this time also with respect to certain income generated in Israel.

Anyone who immigrates to Israel or returns to it during the period from November 5, 2025, through the end of 2026 may be entitled to an exemption from tax on personal earned income in Israel, in addition to the existing benefits applicable to foreign-source income.

Who is eligible?

• New immigrants and senior returning residents only.
• The benefit does not apply to an ordinary returning resident.

Which income is covered by the exemption?

• Mainly personal earned income in Israel, for example: salary, business income, or income from an independent profession.
• The law defines ” qualifying income” as taxable personal earned income under Sections 2(1) or 2(2) of the Ordinance.

What is not included?

• Passive income such as interest, dividends, rental income and capital gains.
• Generally, certain income from tax transparent entities as well, subject to a specific exception under Section 62A of the Ordinance.

What is the amount of the exemption?

The exemption is subject to an annual cap and decreases gradually:

Important to remember: income above the cap in any given year will not be exempt and will be subject to regular income tax in accordance with the ordinary tax brackets.

What if the income is from a related party?

• In such case, a more limited track applies – the exemption cap is NIS 140,000 per year in the years 2026-2029.
• If, in the same year, there is both regular qualifying income and income from a related party, both tracks may be utilized, but the total exempt amount will not exceed the general annual cap.

Did you immigrate during 2026?

• The cap will be calculated on a pro rata basis according to the period during which you were an Israeli resident in that year.

What about a one-year adjustment period?

• For purposes of determining the date on which the individual will be considered an Israeli resident for the first time or a senior returning resident, the temporary order provides that the “one-year adjustment period” will not apply. In other words, it is not possible to rely on this mechanism to defer the commencement of residency for purposes of the benefit.

A further condition applies

• The exemption will not apply to a person who ceased to be an Israeli resident in 2028 or 2029 and stayed in Israel for fewer than 75 days in each of those years.

What about activity conducted through a foreign company?

• In certain cases, a unique exemption is also provided for business income of a foreign-resident company, if the Israeli-source income arises from the personal efforts of the new immigrant or senior returning resident, provided that the foreign company would not have had business income generated in Israel but for the personal efforts of that individual.
• However, the exemption will not apply if that individual is a substantial shareholder in the foreign company.
• In addition, in the case of a foreign-resident tax transparent entity, the exemption will not apply to the portion of the income attributable to an Israeli resident holder of rights.

Important points to note

Alongside the new benefit, as of January 1, 2026, the exemption from reporting foreign income and assets for new immigrants and senior returning residents has been repealed. In other words, on the one hand a new tax benefit has been added, but on the other hand the reporting obligation has become broader.

In addition, the temporary order does not derogate from the existing benefits under Sections 14 and 97 of the Income Tax Ordinance, and therefore it should be considered as part of the overall existing benefits framework rather than as a substitute arrangement.

Why is this important?

For anyone considering immigrating to Israel or returning to Israel in the near future, this represents a genuine window of opportunity. Proper planning of the timing of the relocation, the operating structure, and the type of income can make a significant difference. It is advisable to examine in advance the employment structure, the business activity, holdings in foreign companies, and the manner of reporting, in order to maximize the benefits and avoid unnecessary tax exposure. It is also worthwhile to verify at an early stage that the personal status and supporting documentation for eligibility are indeed aligned with the requirements of the law.

Our firm advises individuals, families, entrepreneurs, and business owners in connection with immigration to Israel and return to Israel, international tax planning, and preparation for reporting and implementation of the new tax provisions. We would be pleased to assist in a case-by-case review.

This update contains general information only and does not constitute legal advice or a substitute for legal advice. In any specific case, a separate discussion should be held based on the particular circumstances.