Israeli tax for new olim: the ten-year exemption

The ten-year exemption is the reason a lot of people can afford to make aliyah, and it is also the thing most often misunderstood before they arrive. It is genuinely generous. It is also narrower than the version people describe to each other, and it does nothing at all about the tax system you may already be inside.

What the exemption actually is

A new oleh - and a veteran returning resident, meaning someone who was a foreign resident for at least ten consecutive years - is exempt from Israeli tax for ten years on all foreign-source income. Not just passive income: both passive and active. In practice that covers employment income earned abroad, business income, interest, dividends, rent, and capital gains on assets held outside Israel.

That is a real benefit and it is worth planning around. The questions worth asking early are which of your assets actually produce foreign-source income, and whether the structures you already hold - an LLC, a trust, a pension - are treated the way you assume once Israel starts looking at them.

It does not help you with the IRS

This is the single most common misconception, and it is worth being blunt about.

The United States taxes its citizens on worldwide income, wherever they live. Moving to Israel does not change that. A US citizen who makes aliyah remains fully inside the US system, keeps filing US returns, and keeps reporting foreign accounts. The Israeli exemption removes the Israeli charge. It does not touch the American one.

There is a second-order effect that catches people. Where you would otherwise have paid Israeli tax and claimed a foreign tax credit against your US liability, the exemption means there is no Israeli tax to credit. The income is exempt in Israel and taxable in the US - so the benefit can end up accruing to the US Treasury rather than to you. Whether that happens depends on the income type and your circumstances, and it is worth modelling before you move rather than discovering it on your first post-aliyah return.

The same logic applies in softer form to other citizenship- or domicile-based systems. If you are arriving from the UK, the question is what your domicile position looks like after the move, not just your residence.

Which status applies to you

• New oleh - entitled to benefits similar to a veteran returning resident.
• Veteran returning resident - a foreign resident for at least ten consecutive years. Gets the full ten-year exemption on all foreign-source income.
• Ordinary returning resident - a foreign resident for at least six years. Gets considerably less: five years of exemption on passive foreign income from assets acquired after leaving, and ten years on capital gains from selling them.

The gap between six years and ten years abroad is therefore not a technicality - it is the difference between a limited exemption and a comprehensive one. If you are close to the line, the exact date you resume Israeli residency can be worth a great deal of money.

One trap: the Israel Tax Authority, the National Insurance Institute and the Ministry of Aliyah each use their own definitions. Qualifying with one does not mean qualifying with another. Check the status you actually have before filing anything or asserting a residency position.

You must now report (Amendment 272)

This changed recently and the older guidance still circulating has not caught up.

Historically the ten-year exemption came with a matching exemption from reporting: exempt income did not have to be declared. Amendment 272, enacted in April 2024, abolished that. For anyone who became an Israeli resident on or after 1 January 2026, the position is now:

• The ten-year exemption from Israeli tax on foreign income still applies.
• The foreign income and assets must nonetheless be reported on an ongoing basis.

So if you are arriving now, plan for annual Israeli filings from the start, even though you expect to owe nothing. The exemption survived; the quiet life did not.

The window closing 31 December 2026

A temporary order published in March 2026 does something the ordinary rules never did: it exempts Israeli-source personal-exertion income - your salary or business income earned here - and not only foreign income.

It applies to individuals who become Israeli residents for the first time, or veteran returning residents, between 5 November 2025 and 31 December 2026. The shape of it:

• Capped at declining annual thresholds - up to NIS 600,000 in 2026, and up to NIS 1 million in 2027-2028, tapering through to 2030.
• You must remain an Israeli resident in 2028 and 2029.
• You must spend at least 75 days in Israel in each of those years.

The adjustment year

A new oleh or veteran returning resident may elect an adjustment year: a year in which they continue to be treated as a foreign resident for Israeli tax purposes, at the end of which they decide definitively whether to settle here.

It sounds like a free option and it is not. It can help, and in some circumstances it actively hurts - it postpones the start of the ten-year clock, and it interacts with your other country's rules in ways that depend entirely on which country that is. Worth weighing deliberately, not electing by reflex.

National Insurance is a separate system

Israeli National Insurance (Bituach Leumi) is not part of the income tax system, and your tax status does not carry across. Residency has to be re-established separately using Form 628 - it is not automatic, and neither is health coverage. There is a waiting period for medical entitlement, which can run from roughly two to six months and can in some cases be bought out.

Foreign advisors in particular tend to miss this, because most countries do not split the two systems the way Israel does. You can get the tax answer completely right and still leave your client without health cover for their first months in the country.

Related: Section 102 - how Israel taxes employee equity, and what happens to a foreign grant when you arrive »