New Tax Incentives for New Immigrants and Veteran Returning Residents to Israel

On March 30, 2026, the Israeli Parliament (the Knesset) approved new legislation granting a significant income tax exemption to new immigrants and veteran returning residents on income derived from personal services performed in Israel (the "New Law”). The New Law also provides a tax exemption to foreign companies with respect to income generated in Israel as a result of the activities of eligible new immigrants employed by them.

This is groundbreaking legislation, as it marks the first time that new immigrants are exempt from tax on Israeli‑sourced income, while simultaneously extending tax relief to the foreign companies that benefit from their business activities in Israel.

Who Is Eligible?

The New Law applies to new immigrants holding an oleh visa who became Israeli tax resident for the first time between November 5, 2025 and December 31, 2026, as well as Veteran returning residents (individuals who resided outside Israel for at least ten consecutive years) who became Israeli tax residents during the same period and were issued a Veteran Returning Resident Certificate by the Ministry of Aliyah and Integration (collectively, the "Eligible Individuals”).

What Tax Benefit Is Granted to Eligible Individuals?

Eligible Individuals are entitled to a tax exemption on Israeli‑sourced income derived from personal services for a period of five years, subject to the following annual caps:

2026 – Tax‑exempt income up to NIS 600,000

2027 and 2028 – Tax‑exempt income up to NIS 1,000,000 per year

2029 – Tax‑exempt income up to NIS 350,000

2030 – Tax‑exempt income up to NIS 150,000

The exemption is subject to several important qualifications:

• For 2026, the annual cap will be calculated pro rata based on the individual’s actual period of Israeli residency during that year.
• The New Law will not apply retroactively to individuals who will leave Israel in the tax years 2028 or 2029 and resided in Israel for fewer than 75 days in each of those years.
• Where Israeli‑sourced income is received from a related party, the exemption cap will be reduced to NIS 140,000 per year through 2029 (the NIS 150,000 cap will still apply in 2030).

Tax Benefits for Foreign Companies

The New Law also introduces significant relief for foreign companies, with the aim of reducing their exposure to the creation of a permanent establishment in Israel arising from the activities of Eligible Individuals. Specifically, income generated in Israel during tax years 2026–2030 by a foreign company through the activities of an Eligible Individual will be exempt from Israeli tax.

Our Tax Department has extensive experience advising on immigration to Israel and relocation back to Israel, including the complex tax implications that such processes entail. We would be pleased to provide comprehensive and tailored advice regarding the application of the New Law and its potential tax consequences.