What is the 10-year tax exemption for new immigrants to Israel?

Israel's 10-year tax exemption for new immigrants is one of the most generous fiscal incentives offered by any OECD member country to attract immigration. It was originally created for modest relief and dramatically expanded in the 2007 tax reform package, which transformed Israel from a country that taxed new arrivals on their worldwide income from day one into a destination where high-net-worth immigrants from the US, UK, and Europe could maintain significant foreign assets and income streams without Israeli tax reporting obligations for a full decade.

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Detailed Explanation

The Legal Basis

Section 14 of the Income Tax Ordinance 1961 (as amended substantially in 2007) creates the exemption. The relevant provisions apply to two groups:

1. Olim chadashim (new immigrants): a person who first becomes an Israeli resident upon making aliyah
2. Returning long-term residents (toshav chozer vatik): an Israeli citizen or prior resident who lived outside Israel for at least 10 consecutive years and then returns to Israeli tax residency

This guide focuses primarily on new immigrants (olim chadashim), though returning residents generally benefit from the same framework.

What the Exemption Covers

During the 10-year exemption period, the following are completely exempt from Israeli income tax:

Active foreign income:

• Salary or self-employment income earned from work performed outside Israel
• Business income generated by activities conducted outside Israel
• Professional fees for services provided to non-Israeli clients from outside Israel

Passive foreign income:

• Dividends from foreign companies
• Interest on foreign bank accounts and bonds
• Rental income from properties located outside Israel
• Royalties and licensing income from foreign sources

Capital gains:

• Gains from the sale of foreign assets — shares in foreign companies, foreign real estate, foreign funds
• Gains are exempt even if the asset was acquired before aliyah and sold during the exemption period

Reporting exemption:

• Crucially, exempt foreign assets and income do not need to be reported on the Israeli income tax return at all
• New immigrants do not need to disclose foreign bank accounts, foreign shareholdings, or foreign real estate to the Israel Tax Authority during the exemption period (in contrast to the US worldwide reporting system, where global assets must be reported regardless of residence)

In Practice: Section 14(a) of the Income Tax Ordinance 1961 creates the exemption; Section 135(2) suspends the reporting obligation for exempt income. A new immigrant who made aliyah on January 1, 2020 has a 10-year exemption window running through December 31, 2029. During this period, the immigrant's US brokerage account dividends, UK rental income, and Australian share portfolio gains are all exempt from Israeli tax and need not appear on any Israeli tax filing. The exemption applies automatically — no election or opt-in is required, though the new immigrant should register with the Israel Tax Authority as an Israeli resident and confirm their exemption status.

What Is NOT Covered by the Exemption

The exemption applies only to foreign-source income. Israeli-source income is fully taxable from day one:

• Salary from an Israeli employer is taxable in Israel at Israeli progressive income tax rates (10–50%) from the first day of employment
• Rental income from Israeli property is taxable in Israel throughout
• Capital gains from the sale of Israeli property or Israeli shares are subject to Israeli capital gains tax
• Dividends from Israeli companies are subject to Israeli withholding tax

This means a new immigrant who continues to earn primarily from foreign sources during the 10 years faces a low Israeli tax burden; a new immigrant who immediately starts working for an Israeli employer and earns in NIS faces normal Israeli taxation on that income from day one.

The 10-Year Clock

The exemption begins on the date of aliyah — specifically, the date recorded by the Ministry of Interior as the entry date for immigration purposes. It runs for exactly 10 years. There is no partial-year grace period at the end — the exemption expires on the 10th anniversary of the aliyah date.

There are no conditions that must be met during the exemption period to maintain eligibility (other than remaining an Israeli resident). The exemption cannot be extended, but it also is not reduced if the immigrant spends significant time outside Israel during the 10 years.

After the exemption expires:

• The immigrant becomes a full Israeli tax resident subject to worldwide income taxation
• Foreign assets and accounts must be reported on the Israeli tax return
• A CPA or tax attorney should be engaged 12 to 18 months before the exemption expires to plan the transition

Interaction with Double Tax Treaties

Israel's tax treaties with major immigrant-source countries — the US, UK, Canada, Australia, France — typically allocate taxing rights based on residence and source. During the 10-year exemption period:

• Israel waives its treaty-based right to tax exempt foreign income
• The immigrant's home country continues to have treaty rights, meaning foreign-source income may still be taxed in the source country
• For US citizens specifically: US taxes are assessed on worldwide income regardless of where the individual lives, but the Foreign Tax Credit and Foreign Earned Income Exclusion can significantly reduce or eliminate US tax on Israeli-source income earned by an Israeli resident

The 10-year exemption is an Israeli tax benefit — it does not release the immigrant from any tax obligations in their former home country. US citizens particularly need to plan carefully because making aliyah does not change their US worldwide tax filing obligations.

Can the Exemption Be Waived?

Yes. Under Section 14(c) of the Income Tax Ordinance, a new immigrant may elect to waive the exemption. This sounds counterintuitive, but there are circumstances where waiving the exemption is advantageous:

• The immigrant wants to claim foreign tax credits in Israel for taxes paid abroad, which requires including the foreign income on the Israeli return
• The immigrant has significant foreign losses they want to offset against Israeli income
• The immigrant's foreign income is very low and they have significant Israeli income that generates tax credits they cannot otherwise use

The waiver election is irrevocable once made. It should never be made without comprehensive advice from both an Israeli and a foreign tax advisor.

A Critical Planning Point for High-Net-Worth Immigrants

For immigrants with significant existing investment portfolios, business stakes, or real estate holdings outside Israel, the 10-year window represents a planning opportunity that should be analyzed before making aliyah.

Assets held at the time of aliyah and sold during the exemption period benefit from the full capital gains exemption — regardless of when the gain accrued. An Israeli-resident new immigrant who sold a major foreign business stake three years after aliyah would pay zero Israeli capital gains tax on that sale.

After the 10 years expire, those same gains would be subject to Israeli capital gains tax at 25% (for individuals) or higher corporate rates. Timing asset disposals within the exemption window is one of the most valuable tax-planning strategies available to high-net-worth olim.

See Israeli tax residency and the 183-day rule for how tax residency is determined and how it interacts with the exemption rules.

Key Considerations

• The exemption begins automatically on the aliyah date — no filing or election is needed, though registering with the ITA is advisable
• Foreign-source income is entirely exempt from Israeli income tax and reporting during the 10 years
• Israeli-source income (Israeli salary, Israeli property rental, Israeli capital gains) is fully taxable from day one
• The exemption may be waived by election, which is irrevocable — only do this with professional advice
• US citizens remain subject to worldwide US tax filing obligations regardless of the Israeli exemption
• High-net-worth immigrants should model asset sale timing to maximize the capital gains exemption window before aliyah

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You are considering aliyah and have significant foreign assets, a business sale pending, or investment income from multiple countries
• You made aliyah some years ago and are approaching the 10-year expiry — transition planning is essential 12–18 months before the window closes
• You are uncertain whether specific income (e.g., a deferred compensation payment, a trust distribution, a foreign pension) qualifies for the exemption
• You are a US citizen considering aliyah and need to understand how the Israeli exemption interacts with your US worldwide filing obligations

A qualified Israeli tax attorney should review your specific circumstances before you make aliyah and well before the exemption period expires.

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Speak With an Israeli Attorney

The 10-year tax exemption is one of Israel's most powerful immigration incentives — but realizing its full value requires careful pre-aliyah planning and proactive management as the exemption window approaches its end. An Israeli tax attorney can map your specific asset and income profile against the exemption rules and help you structure your affairs to maximize the benefit.

Contact us for a confidential initial consultation.