Dear Clients,
On 4 December 2025, the Government adopted a resolution within the framework of the Economic Plan for the 2026 budget year. Pursuant to this resolution, a Legislative Memorandum of the Economic Plan Bill (Legislative Amendments for the Implementation of Economic Policy for the 2026 Budget Year), 5786-2025, Chapter __: Encouraging Aliyah and Return to Israel Through a Tax Benefit (“draft of the Legislative Memorandum”), was published.
Please be advised that the deadline for submission of public comments was 17 December 2025. The draft of the Legislative Memorandum is anticipated to be submitted for deliberation before the Special Ministerial Committee for the Economic Plan and, subsequently, to advance through the legislative process in the Knesset. At present, the Legislative Memorandum remains in draft form and is subject to further amendments.
Pursuant to the current draft of the Legislative Memorandum, the proposed arrangement may become effective as of 1 January 2026 and would apply to income from personal exertion derived or accrued in Israel from the date of arrival in, or return to, Israel during the 2026 calendar year.
The objective of the proposed arrangement is to incentivize prospective new immigrants and long-term returning residents to relocate to Israel in 2026 by providing a limited exemption from income tax with respect to a portion of their Israeli-source income from personal exertion for a defined and limited period. This benefit is supplementary to the existing tax benefits available to new immigrants and long-term returning residents and is not intended to derogate from any such existing benefits.
The principal components of the proposed arrangement are summarized below:
- In accordance with the proposed arrangement, the benefit is intended for an individual immigrant who first becomes an Israeli tax resident in the 2026 tax year, as well as for a long-term returning resident who becomes an Israeli tax resident in 2026.
- The draft of the Legislative Memorandum proposes to grant an exemption from income tax in respect of “qualifying income,” defined as income from personal exertion that constitutes taxable income under section 2(1) or 2(2) of the Income Tax Ordinance, subject to certain exclusions.
- Under the proposed arrangement, a new immigrant or long-term returning resident who satisfies the requisite conditions will be entitled to an exemption from income tax on “qualifying income” derived or accrued in Israel, up to decreasing annual thresholds (unless the taxpayer elects otherwise with respect to all or part of such income), as follows:
- Tax years 2026 and 2027 – up to NIS 1,000,000 per annum
- Tax year 2028 – up to NIS 600,000.
- Tax year 2029 – up to NIS 350,000.
- Tax year 2030 – up to NIS 150,000.
- Income exceeding the applicable threshold will remain subject to taxation in accordance with the ordinary rules, subject to any other relevant tax benefits available under the Income Tax Ordinance.
- Under the proposed arrangement, for the 2026 tax year, the exemption threshold will be calculated on a pro rata basis to reflect the period of Israeli tax residency during that year (for example, if arrival occurs partway through the year, the threshold will be prorated accordingly).
- It should be noted that, under the proposed arrangement, an adjustment is contemplated with respect to a family company, such that where a new immigrant or long-term returning resident serves as the representative taxpayer, the benefit will be calculated on a pro rata basis in accordance with that individual’s share of the family company’s profits (consistent with the existing mechanism applicable to benefits under section 14 of the Ordinance).
- As indicated above, the proposed arrangement may enter into force on 1 January 2026 and is intended to apply to income from personal exertion derived or accrued in Israel from the date of the new immigrant’s or long-term returning resident’s arrival in, or return to, Israel.
We are monitoring the legislative process, including any proposed amendments to the language and scope of application, and remain available to provide legal advice regarding the tax implications, considering the facts and circumstances of each matter.
This memorandum is provided for general informational purposes only and does not constitute legal advice. In all cases, we recommend obtaining specific legal advice.
