Israel's 2026 Aliyah Tax Reforms: What Changed

A US couple planning their move for late 2026 came to us convinced they had missed something, because two pieces of news about the same year seemed to contradict each other. One said Israel had just made a new immigrant's Israeli salary tax free. The other said Israel had just forced new immigrants to disclose every foreign account they own. Both are true. Two reforms landed on the aliyah tax regime within the same twelve months, pulling in opposite directions, and a family still sitting in New Jersey has to understand both before they pick a landing date. This is the most generous tax package Israel has ever offered arrivals, bundled together with the fullest disclosure duty it has ever imposed on them.

The starting point most people carry is out of date. For eighteen years the deal ran one way: your foreign income was exempt for ten years and invisible, while every shekel you earned working inside Israel was taxable from day one. Both halves of that sentence changed in 2026.

The two changes that landed in the same year

Keep them separate in your mind, because they come from different statutes and bite on different things.

The first is a new exemption on Israeli earned income, enacted on 31 March 2026 in the Economic Efficiency Law and published in Sefer HaHukim 3511. It rewards you for working in Israel. The second is the removal of the reporting exemption, made by Amendment No. 272 to the Income Tax Ordinance, published on 7 April 2024 and effective for anyone who became an Israeli resident on or after 1 January 2026. It has nothing to do with how much tax you pay and everything to do with what you must tell the Israel Tax Authority.

The one thing neither reform touched is the substantive core of the old regime. Section 14 of the Income Tax Ordinance still exempts your foreign-source income from Israeli tax for ten years from the date of aliyah, and the relief on capital gains from assets you held before arriving is unchanged. That survival matters, because it is the reason the two 2026 changes stack rather than cancel.

The new exemption on your Israeli salary

Eligibility turns on two questions: what you are, and when you arrive. The relief reaches a new Israeli resident and a veteran returning resident, meaning a person who lived outside Israel for more than ten consecutive years, provided they become an Israeli resident between 5 November 2025 and 31 December 2026. Miss that window at either end and the exemption is simply not available to you.

For those who qualify, the exemption covers Israeli-source earned income, which means employment salary and the business income of a self-employed person. It runs across five tax years on a declining scale:

| Tax year | Exempt ceiling on Israeli earned income | |----------|------------------------------------------| | 2026 | NIS 1,000,000 | | 2027 | NIS 1,000,000 | | 2028 | NIS 600,000 | | 2029 | NIS 350,000 | | 2030 | NIS 150,000 |

Income above the ceiling in any year is taxed normally at Israel's progressive rates, which climb to 47% before the Section 121B surtax of 3% on income above NIS 721,560 in 2026. So the exemption is a slice taken off the bottom of your earned income rather than a switch that turns Israeli tax off. Two carve-outs do most of the real work. Passive income sits entirely outside the scheme, so Israeli dividends, interest and rental income are taxed exactly as before. And a salary paid by a relative is capped at NIS 140,000 a year, which shuts down the family-company workaround before anyone tries it.

In Practice: The exemption on Israeli earned income was enacted on 31 March 2026 in the Economic Efficiency Law, published in Sefer HaHukim 3511, and reaches new immigrants and veteran returning residents who become Israeli residents between 5 November 2025 and 31 December 2026. The ceilings fall from NIS 1,000,000 in 2026 and 2027 to NIS 600,000, NIS 350,000 and NIS 150,000 across 2028 to 2030, with a reduced cap of NIS 140,000 where the employer is a relative. Passive income stays taxable by the Israel Tax Authority, and the Section 14 ten-year exemption on foreign income continues alongside it.

The end of the reporting exemption

Now the change that runs the other way. Amendment No. 272 deleted Section 134B of the Ordinance, the provision that carried the reporting exemption for a new Israeli resident and a veteran returning resident. The most valuable part of the old package for many families was never the tax relief at all. It was the silence: a decade during which a foreign brokerage account, a Florida rental and a family LLC never appeared on any Israeli filing. That silence is gone for anyone who became an Israeli resident on or after 1 January 2026.

What replaced it is the ordinary duty under Section 131 to file an annual return setting out income and assets, and it now applies to exempt foreign income and foreign assets in the same way as to anything taxable. The pressure behind the change came from outside Israel: the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes had flagged the carve-out as a gap. That origin tells you the direction of travel, and it is not toward leniency. Nobody should plan on the assumption that the obligation will be softened later.

The same Amendment created a matching duty for trustees. A foreign trustee whose beneficiary has moved to Israel now has an Israeli notification obligation of their own, addressed separately in our guide on the Israeli taxation of foreign trusts for non-residents. If your wealth sits in a family trust, that duty needs its own review rather than being folded into your personal return.

In Practice: Amendment No. 272 to the Income Tax Ordinance, 5784-2024, published on 7 April 2024, deleted Section 134B and with it the reporting exemption for new immigrants and veteran returning residents who became Israeli residents on or after 1 January 2026. The Section 14 exemption on foreign income for ten years is unaffected, but the Section 131 annual return to the Israel Tax Authority must now disclose exempt foreign income and assets. A NIS 8,000,000 foreign portfolio remains untaxed in Israel yet still has to be listed every year, and a first return with substantial foreign holdings typically runs NIS 5,000 to NIS 15,000 in Israeli professional fees.

What this means specifically for a US oleh

An American does not stop being a US taxpayer on landing at Ben Gurion, which is where the two systems begin to grind against each other. Your FBAR filed with FinCEN and your Form 8938 statement of specified foreign financial assets continue on their own US thresholds and calendar, measured in dollars and filed with US authorities. Israel now wants a parallel picture, in Hebrew, on Israeli forms, against the Israeli tax year, with the first return covering 2026 due during 2027. You are running two disclosure regimes at once, and the assets they describe overlap but the forms, thresholds and currencies do not.

Three American features need handling before the first Israeli return rather than after it.

Currency and cost basis have to be restated on Israeli terms. Your US accountant computes basis in dollars for US purposes; the Israeli return needs its own conversion and evidence, and that is a separate exercise, not a translation of the American one.

US pass-through and hybrid structures do not carry their US character across the border. A revocable living trust, a single-member LLC holding a rental, an S-corporation: each has to be characterised for Israeli purposes, and the Israeli treatment may not match the American one. A mismatch declared badly in the first return is far harder to unwind than to get right once.

And the treaty gaps still matter. There is no US-Israel estate tax treaty, which is neutral while Israel levies no estate duty but leaves the US federal estate tax, exempt to $15 million per person in 2026, applying to a US citizen's worldwide estate including Israeli assets. PFIC exposure on non-US pooled funds is a US problem the Israeli exemption does nothing to solve. None of this is a reason to delay aliyah. It is a reason to map both systems before you land, because much of it is far cheaper to arrange from abroad than to correct from inside Israel.

Timing is the single most valuable decision

Both reforms hinge on the same fact: the date you became an Israeli resident. For the earned-income exemption, that date has to fall inside the 5 November 2025 to 31 December 2026 window, and a person arriving on 3 January 2027 is outside the scheme with no discretion available to fix it. For the reporting duty, the 1 January 2026 line decides whether you carry the old privacy for the rest of your ten years or step straight into full disclosure.

Residency is not a passport stamp. It is a centre-of-life test looking at where your home, family, work and economic interests actually sit, so a family that keeps a US house, a US employer and children in US schools while spending months in Tel Aviv has a genuinely mixed position that should be pinned down before the first Israeli payslip, not argued about afterward. For most non-residents planning the move, this is the item to settle first, because everything else, the exemption, the disclosure, the coordination with your US return, follows from it.

What often goes wrong

The recurring error is treating the two reforms as one and assuming that because the money is exempt, nothing needs to be filed. It does. The exemption and the disclosure now sit side by side, and a family that landed in 2026 and filed nothing has not used the old regime, it has simply defaulted on the new one.

Common Mistake: A 2026 oleh assumes that Section 14 exemption means no Israeli return is needed and files nothing for the 2026 tax year. Under Section 131 of the Income Tax Ordinance, the exempt foreign income and assets must still be reported to the Israel Tax Authority, with the 2026 return due during 2027. Discovering the omission through the automatic exchange of information rather than a voluntary filing turns a routine first return costing NIS 5,000 to NIS 15,000 into a disclosure problem, and correcting it after the assessing officer has raised it typically adds several months and materially higher professional fees.

Practical Checklist

• Fix your intended Israeli residency date precisely, and confirm it falls inside the 5 November 2025 to 31 December 2026 window if you want the earned-income exemption.
• Separate your income into earned and passive before you plan, because only earned income qualifies and passive income stays fully taxable.
• Check whether any Israeli employer would count as a relative, which drops your exempt ceiling to NIS 140,000.
• Inventory every foreign account, entity and trust now, because all of it must appear on the first Israeli Section 131 return even while exempt.
• Have US trusts and LLCs characterised for Israeli purposes before the first return, not after.
• Coordinate the Israeli filing with your US FBAR and Form 8938 obligations so the two systems are consistent.

Speak With an Israeli Attorney

The 2026 reforms reward precise timing and punish a missed filing, and the two effects run through the same residency date. We fix the date that qualifies you for the earned-income exemption, characterise your US trusts and entities for Israeli purposes before they reach a return, and build the first Section 131 disclosure so the Section 14 exemption is claimed cleanly rather than contested later.

Contact us for a confidential initial consultation.