Israel’s 10-year foreign income tax exemption is available to two groups: new immigrants (olim chadashim) and senior returning residents who lived outside Israel for at least ten consecutive years. Both get a full decade of exemption from Israeli tax on foreign-sourced income, counted from the date they become Israeli tax residents. The exemption covers passive income like dividends and rent, active income like foreign business profits and salaries for work performed abroad, and capital gains on assets located outside Israel. Anyone who becomes an Israeli tax resident on or after January 1, 2026 still gets the tax exemption, but must now report the foreign income and assets to the Israel Tax Authority.
Who Qualifies
Eligibility turns on your prior residency history, not on your income, profession, or wealth. Section 14 of the Income Tax Ordinance, as expanded by Amendment 168 in 2008, sets out the categories.
New immigrants (olim chadashim) are individuals becoming Israeli tax residents for the first time. If you have never been an Israeli tax resident before, you qualify once you establish residency.
Senior returning residents (toshavim chozrim vatikim) are Israeli citizens or former residents who lived abroad for at least ten consecutive years before returning. The clock runs from when they ceased being Israeli tax residents, not simply from when they physically left. The statute defines a veteran returning resident as someone who “returned and became an Israel resident after he stayed abroad during at least ten consecutive years.”1ICNL. Income Tax Ordinance New Version 5721-1961 – Section 14
A third, narrower category exists. Regular returning residents (toshavim chozrim ragilim) lived abroad for at least six consecutive years but fewer than ten. They receive some tax relief on foreign income but not the full ten-year package the other two groups get.
When the Ten-Year Clock Starts
Because the exemption runs from the day you become an Israeli tax resident, it matters how Israel decides you are one. Israel applies a “center of life” test that weighs where your family lives, where you work, your economic interests, social ties, and where you keep a permanent home. It is a qualitative assessment.
Physical presence creates rebuttable presumptions. You are presumed to have your center of life in Israel if you spent 183 days or more in the country during a tax year, or if you spent at least 30 days in the current year and 425 days or more across the current year plus the two preceding ones. Either presumption can be rebutted with evidence that your center of life is elsewhere.
The Adaptation Year
Section 14(b) lets new immigrants and senior returning residents elect not to be treated as Israeli tax residents during their first year in the country. You must file the election within 90 days of arriving.1ICNL. Income Tax Ordinance New Version 5721-1961 – Section 14 The adaptation year counts toward the ten-year exemption period, so the election gives you a year of full non-residency status without extending the total window past ten years.
What Foreign Income the Exemption Covers
The exemption reaches essentially all income produced or earned outside Israel’s borders, in three broad buckets.
Passive foreign income is fully exempt for the entire ten years: dividends, interest, rent, royalties, pensions, and annuities from assets located outside Israel.2PwC Worldwide Tax Summaries. Israel – Individual – Other Tax Credits and Incentives
Active foreign income is also exempt. Foreign business profits and salaries for work performed outside Israel are covered.2PwC Worldwide Tax Summaries. Israel – Individual – Other Tax Credits and Incentives
Capital gains on the sale of assets located outside Israel are not taxed during the ten-year window. This includes foreign assets you buy after arriving in Israel, not only assets you brought with you. You can actively invest in overseas markets during the period and still sell tax-free before the decade ends.2PwC Worldwide Tax Summaries. Israel – Individual – Other Tax Credits and Incentives
The boundary is geography, not who signs your paycheck. Income from work you physically perform while sitting in Israel is Israeli-source income and is taxable at ordinary rates, whoever pays you and wherever they are based.
The Remote Work Trap
This is where most people misread the exemption. If you move to Israel and keep working remotely for a company in New York, London, or Berlin, your salary for that work is not foreign-sourced. The labor is performed in Israel, so the income is produced in Israel, and the exemption does not apply.
The problem extends past your personal tax bill. A foreign employer whose employee works from Israel may be found to have a permanent establishment there. If so, the company can face Israeli corporate tax on branch profits, VAT obligations, and payroll tax requirements. Israel has signaled a strict approach, particularly when the employee holds a senior role or performs core business functions from Israel.
Some tax treaties provide a 182-day safe harbor for short-term arrangements, but anyone planning ongoing remote work from Israel should assume the employment income is taxable locally. The exemption works cleanly for genuinely foreign activities: a rental property abroad, dividends from a foreign portfolio, or a business whose operations do not depend on your physical presence in Israel.
The 2026 Reporting Change
For decades, the ten-year exemption came paired with a reporting exemption: no tax owed on foreign income and no obligation to disclose it to the Israel Tax Authority. That pairing ended for anyone who becomes an Israeli tax resident on or after January 1, 2026.
An amendment to the Income Tax Ordinance, passed on April 2, 2024, removed the reporting exemption while leaving the tax exemption intact. If you arrive in 2026 or later, your foreign income and capital gains stay tax-free for ten years, but you must disclose them on your Israeli tax returns. You will also need to report foreign assets, trusts where you are a settlor or beneficiary, and beneficial ownership details for foreign companies. The Tax Authority can request information about foreign companies managed from Israel by qualifying individuals. In many cases, new residents will need to file annual tax returns and capital declarations.
The compliance burden changes meaningfully. You will need organized records from day one, even though no Israeli tax is due.
If You Arrived Before 2026
Anyone who became an Israeli tax resident before January 1, 2026 keeps the old reporting exemption for the rest of their ten-year period.3Association of Americans and Canadians in Israel. New Disclosure Rules for Olim and Returning Israelis Effective 1/1/2026 Someone who arrived in 2024, for instance, continues with both the tax exemption and the reporting exemption through 2034. The new disclosure rules only apply to residency established from January 1, 2026 forward.
US Citizens Still Owe the IRS
The Israeli exemption does nothing for your US tax obligations. The United States taxes its citizens and green card holders on worldwide income regardless of where they live, so a US citizen who makes aliyah must keep filing US returns reporting all income, including income Israel exempts.4Internal Revenue Service. US Citizens and Resident Aliens Abroad
During the ten-year window this produces an awkward result. Because Israel is not taxing the foreign income, no Israeli tax exists to claim as a foreign tax credit on your US return. Depending on the type and amount of income, you may owe the IRS more than you would if Israel were actually taxing you.
Two US reporting obligations catch many new arrivals off guard. FBAR (FinCEN Form 114) is required if the combined value of your foreign financial accounts exceeds $10,000 at any point during the year; your new Israeli bank accounts count as foreign for this purpose. FATCA (Form 8938) requires reporting of specified foreign financial assets above $200,000 on the last day of the tax year or $300,000 at any time during the year for single filers abroad, with thresholds of $400,000 and $600,000 for married couples filing jointly. FBAR goes to FinCEN; Form 8938 attaches to your annual return, and each has its own penalties.5Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements
US citizens living abroad get an automatic filing extension to June 15, with a further extension to October 15 available on Form 4868. Interest on any unpaid tax still runs from April 15.4Internal Revenue Service. US Citizens and Resident Aliens Abroad The US-Israel tax treaty helps avoid double taxation once Israel starts taxing your foreign income after the exemption ends, but during the exemption its credit mechanism offers limited relief.6Internal Revenue Service. United States – Israel Income Tax Convention
National Insurance Is Separate
The income tax exemption does not cover National Insurance (Bituach Leumi) contributions, which fund social security and health services. New immigrants get a 12-month exemption from contributions starting on their date of immigration.7National Insurance Institute of Israel. Who Is Exempt from Paying National Insurance Contributions After that year, contributions become due based on your income.
Returning residents face a waiting period for public health coverage: two months for each year of absence before October 31, 2008, one month for each year of absence after that date, capped at six months total. You can skip the waiting period by paying a one-time fee of 16,860 NIS (as of January 2026) to Bituach Leumi.8Nefesh B’Nefesh. Health Insurance for Returning Citizens Through Bituach Leumi
What Happens When the Ten Years End
Once the exemption expires, worldwide income becomes taxable in Israel at ordinary rates. Capital gains on foreign assets sold after the exemption period are taxed at 25% for most individuals, or 30% if you held at least 10% of the voting rights in the company at the time of sale or at any point in the preceding 12 months. Ordinary foreign income falls into Israel’s progressive brackets.
For assets you owned during the exemption period, the gain can be apportioned. The portion attributable to the exempt period stays untaxed; only the gain that accrued after the period ends is subject to Israeli tax.
Foreign tax credits become useful at this stage. Under Sections 200 through 207B of the Income Tax Ordinance, foreign taxes paid on income taxable in Israel are credited against your Israeli tax, capped at the Israeli tax due on that income. Excess credits carry forward for five years.9ICNL. Income Tax Ordinance New Version 5721-1961 – Section 205A Foreign taxes paid on income that Israel exempts during the ten-year window cannot be deducted or credited; the credit mechanism only applies once the income is actually taxable in Israel.
Leaving Israel After the Exemption
Section 100A imposes a deemed sale on departure: when you stop being an Israeli resident, your assets are treated as sold at fair market value the day before you left, and any resulting capital gain is potentially subject to Israeli tax. You can defer payment until you actually sell the asset, but the taxable gain is fixed at the departure-date value. The gain is calculated only for the period between acquisition and the end of Israeli residency.
People still inside the exemption window get a significant carve-out: if you leave Israel during your ten years, overseas assets remain covered by the exemption and the exit tax does not apply to them. The exit tax mainly affects those who stay past the exemption and then depart, and those with Israeli-located assets.
Documents and Filing
Establishing your status with the Israel Tax Authority requires a few documents.
- Teudat Oleh or Teudat Zakaut, the primary identification document for new immigrants and returning residents, issued by the Ministry of Immigrant Absorption.10Gov.il. Immigration and Absorption – First Steps in Israel
- Passports with entry and exit stamps, which establish your timeline of presence and absence. This matters most for senior returning residents proving the ten-year absence.
- Tax residency certificates from the country you lived in, which confirm your foreign taxpayer status during your time abroad.
The adaptation year election, if you want it, must be filed on the form prescribed by the Tax Authority Director within 90 days of arrival.1ICNL. Income Tax Ordinance New Version 5721-1961 – Section 14 Miss the deadline and you lose the option.
You submit your status request to the local tax assessment office, commonly called the Mahal, either in person or through an authorized representative such as a certified public accountant using the Tax Authority’s online system. If your documentation clearly supports eligibility, approval is routine. For anyone arriving from 2026 onward, getting the classification confirmed early matters more than it used to, because your annual filing obligations depend on having the right status on record from the start.