Israel: A Tax Overview

The Israeli Tax Regime for New Immigrants: Incentives and Challenges

The Israeli tax law offers a unique tax regime for new immigrants as part of its efforts to encourage immigration and attract skilled and valuable investors to the country. This regime includes extensive exemptions and tax relief on foreign-sourced income and assets, designed to ease the financial and administrative challenges of immigration.

However, recent global shifts aimed at reducing tax benefits for immigrants, influenced by organisations like the OECD that emphasise balanced tax policies and transparency, have begun shaping Israeli policies.

This article reviews the Israeli tax framework for new immigrants, the purposes behind it, and policy challenges, using trusts as a case study.

The Israeli tax regime for new immigrants

New immigrants are entitled to a ten-year tax exemption on foreign-sourced income and gains, including salaries, dividends, interest, royalties, capital gains, rental income, etc. Furthermore, individuals who immigrate before 1 January 2026, are additionally entitled to a ten-year exemption from reporting such foreign-sourced income and gains.

The exemption does not apply to Israeli-sourced income or capital gains, nor does it apply to assets received by new immigrants as a tax-free gift from an Israeli resident.

These tax benefits also apply to “long absent returning residents”, defined as individuals who have resided outside Israel for at least ten years. In contrast, “short absent returning residents”, who have resided outside Israel for less than ten years, but longer than six years, are only eligible for a limited set of tax benefits.

Purposes of the Israeli tax regime for new immigrants

The tax benefits aim to fulfil several key purposes:

• they encourage immigration by neutralising the tax consideration in the decision whether to move to Israel. This purpose also helps strengthen the connection between the Jewish diaspora and the state of Israel;
• they provide economic relief to immigrants, especially when they are already navigating changes in the business and economic environment; and
• they maintain Israel’s attractiveness in international competition against many countries that offer economic incentives to attract affluent populations.

Trusts as a case study

A trust is a notable tool for individuals’ wealth planning. Generally, the taxation of a trust is based on its classification for Israeli tax purposes, which follows the tax residency of the settlors and beneficiaries. The residency of the trustee is irrelevant for this purpose.

In general, an Israeli Resident Trust is subject to tax in Israel on its entire worldwide income and capital gains. An Israeli Resident Trust is a trust that meets one of the following conditions:

• in its year of establishment, the trust had at least one Israeli resident settlor and beneficiary, and in the current tax year, at least one Israeli resident settlor or beneficiary;
• all its settlors have died, and it has at least one Israeli beneficiary; or
• it is a trust that does not qualify as another type of trust and is therefore also defined as an Israeli Resident Trust. 

However, if all of the trust’s settlors and beneficiaries are entitled to new immigrant tax benefits, then the trust should also be entitled to these benefits. Accordingly, the trust will be tax exempt on foreign-sourced income and gains during the settlor’s exemption period, provided all the beneficiaries remain entitled within their exemption period or are foreign residents. Additionally, such a trust will be exempt from reporting obligations on foreign-sourced income and assets outside of Israel, provided the settlor arrived in Israel before 1 January 2026, and the trust does not hold any Israeli assets.

As can be seen from the above, the tax regime applicable to trusts reflects the global shift towards limiting new immigrant tax benefits. For example, it strictly requires both the settlor and beneficiaries to be new immigrants. If even one beneficiary is an Israeli resident, the exemption for the entire trust is revoked.

Accordingly, as the shift toward limiting new immigrant tax benefits grows, the tax regime that applies to trusts is also subject to review, and each case should be considered individually.

Limiting benefits – the global trend and its impact on Israel

In recent years, there has been a global shift to reduce tax benefits for new immigrants. The following are some examples.

• United Kingdom – the UK government abolished the Non-Domiciled Resident regime, which allows non-domiciled residents to benefit from tax advantages on income generated outside of England and replaced it with a shortened exemption for new immigrants, for a period of only four years.
• Portugal – the Non-Habitual Resident (NHR) tax regime, which provided a ten-year tax exemption on foreign income and a reduced tax rate on local employment income, has been abolished in Portugal since 1 January 2024.
• Italy – constantly increases the annual payment which is required in order to be entitled to the exemption regime provided to new immigrants from EUR100,000 to EUR200,000 and as of 2026, to EUR300,000.

This global shift is also influencing Israeli tax policy. Currently, new immigrants are not only exempt from taxes on foreign-sourced income, but also from reporting it. However, due to the OECD’s demand from Israel, starting 1 January 2026, the reporting exemption will be eliminated for new immigrants who arrive in Israel after this date. These individuals will be required to report their foreign income and assets while maintaining the tax exemption on them.

There are no substantial changes to the core tax benefits under the Israeli tax regime for new immigrants. The only adjustment is to enhance transparency regarding income and assets sourced outside Israel, which will continue to be exempt from Israeli taxation. Currently, there is no indication of any intention to amend the Israeli tax regime further.

Conclusion

The Israeli tax regime for new immigrants is a significant tool for strengthening the Israeli economy by encouraging immigration and supporting the integration of skilled individuals into the country. However, according to recent global shifts toward reducing tax benefits, Israel is required to balance the incentives it offers with the need to adapt to global changes, such as those discussed in the United Kingdom and Portugal.

Considering these evolving challenges and global shifts, it is crucial for policymakers and new immigrants alike to stay informed and adapt to the changing landscape of Israeli tax law. As we look ahead to 2026, continued assessment and potential adjustments to the Israeli tax regime for new immigrants will be essential to ensure it remains competitive and supportive of those choosing to become Israeli residents.