What Happened?
Further to our client update published on December 25, 2025, regarding the draft bill intended to grant new immigrants a tax exemption on income generated in Israel, the draft Economic Efficiency Bill was published last Sunday (January 19, 2026). This draft bill incorporates, inter alia, the main elements of the draft bill, as previously detailed at length in our prior client update.
Please note this update relates to a proposed bill, which was not passed yet.
Who Is This Relevant For?
Individuals planning to immigrate to Israel in 2026, individuals who immigrated to Israel in 2025 and elected an “adaptation year” that will end during 2026, and their advisors.
Election of an Adaptation Year for Those Who Immigrated in 2025
The proposed bill is largely identical to the draft bill previously published and reviewed in our earlier client update on the subject. However, this time, the explanatory notes to the proposed bill explicitly address new immigrants who immigrated to Israel during 2025 and elected an adaptation year.
The adaptation year mechanism allows new immigrants and veteran returning residents to request that, during their first year of Israeli residency, they will not be considered Israeli residents for tax purposes, but rather will continue to be treated as foreign residents. The election of an adaptation year does not extend the 10-year tax exemption period, which is calculated from the date on which the new immigrants or veteran returning residents immigrated to Israel.
The proposed bill aligns with the Israel Tax Authority’s interpretation of the adaptation year as a year in which the immigrant who elected it should be regarded as a foreign resident for all intents and purposes. Accordingly, an individual who immigrated to Israel during 2025 but elected an adaptation year will be considered to have become an Israeli resident only in 2026. If the proposed bill is enacted, such individual will also be eligible to benefit from the tax exemption on Israeli-source income, in accordance with the rules set out in the proposed bill.
An Additional Change Compared to the Original Draft Bill – Reference to Family Companies
We further note that, under the Economic Efficiency Bill, the issue of proportional income in relation to family companies, which appeared in the original draft bill, has been omitted.
How Can We Assist?
We would be pleased to assist foreign residents planning to immigrate to Israel in 2026, as well as individuals who immigrated to Israel during 2025 and elected an adaptation year, by providing advice to help them understand the tax implications arising from immigration to Israel and to assess compliance with the relevant conditions. Our firm will be happy to assist with any questions on this matter.
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The above content is a summary provided for informational purposes only and does not constitute legal advice. It should not be relied upon without obtaining further professional legal counsel.
