Who Is This Update For?
New immigrants, veteran returning residents and their representatives.
Current Position
On March 31, 2026, the Economic Efficiency Law (Legislative Amendments for Achieving the 2026 Budget Objectives), 2026, was published in the Official Gazette. Among other things, the law enacted the Encouragement of Immigration to and Return to Israel Law (Temporary Order), 2026, which is set out in Sections 8-9 of the Economic Efficiency Law. The law is intended to encourage immigration to and return to Israel by establishing specific tax incentives for new immigrants and veteran returning residents.
Under the Temporary Order, the benefits apply to a new immigrant who became an Israeli resident for the first time, and to a veteran returning resident who resumed Israeli residency, during the period from November 5, 2025 through December 31, 2026, provided that the individual did not cease to be an Israeli resident during either the 2028 or 2029 tax year and was not present in Israel for fewer than 75 days in either of those years.
For this purpose, a “new immigrant” is an individual who holds an immigrant visa or immigrant certificate under the Law of Return, or who belongs to a category of persons determined to be eligible for an absorption package under the Absorption Package Law. A “veteran returning resident” is as defined in the Income Tax Ordinance, provided that the individual holds a returning resident certificate issued by the Ministry of Aliyah and Integration.
The principal provision grants an exemption from tax on the eligible individual’s “qualifying income” that was produced or accrued in Israel while the individual was an Israeli resident. The exemption is phased in over the 2026-2030 tax years, subject to the annual caps prescribed by law and to a distinction between income received from a relative and income not received from a relative. For the 2026 tax year, the exempt income cap is calculated pro rata for the period during which the eligible individual was an Israeli resident in that year.
The exempt income caps under the Temporary Order are as follows:
| Tax Year | Exemption Cap (NIS) |
|---|---|
| 2026 | 600,000 |
| 2027 | 1,000,000 |
| 2028 | 1,000,000 |
| 2029 | 350,000 |
| 2030 | 150,000 |
For the 2026 tax year, an individual who became an Israeli resident during the year will be entitled to a pro-rated exemption cap, calculated according to the proportion of the tax year remaining from the date on which the individual became an Israeli resident.
The Encouragement of Immigration to and Return to Israel Law took retroactive effect on January 1, 2026, with respect to qualifying income produced or accrued in Israel from the date on which the individual first became an Israeli resident, in the case of a new immigrant, or resumed Israeli residency, in the case of a veteran returning resident.
What Happened?
The Israel Tax Authority recently published Income Tax Circular 7/2026 to clarify how the above benefits may be claimed, the circumstances in which they apply and how the Temporary Order should be implemented.
Why Is This Relevant to You?
This update is relevant to new immigrants and veteran returning residents who became, or are expected to become, Israeli residents during the term of the Temporary Order, as well as to the employers, representatives and advisers assisting them, because the Circular sets out practical guidance for claiming the benefit for the first time.
How Could the Change Affect You?
As a general rule, the benefit applies to earned income produced in Israel, up to the caps prescribed by law. Income paid by a “relative,” however, is eligible only for a limited benefit, generally capped at NIS 140,000 per year, except in 2030.
The Circular does not amend the statutory provisions, but clarifies how they are to be implemented. Among other things, it provides that eligibility will be determined by the date on which the individual actually transferred their center of life to Israel, even if formal recognition was granted at a later date.
The Circular permits the benefit to be claimed during the tax year through a tax withholding adjustment for employees or a reduction of advance tax payments for self-employed individuals, subject to the submission of a designated form, supporting documents and the output of the days-of-presence simulator. The advance approval is limited to partial caps, and the balance may be claimed in the annual tax return.
The Circular further clarifies that only income reflecting the individual’s personal contribution will constitute qualifying income, and that income from a “relative” will not qualify for the benefit through a tax withholding adjustment during the year but, as a general rule, only through the annual tax return.
The Circular also clarifies that a temporary departure from Israel in 2028 or 2029 will not necessarily disqualify the individual from the benefit, provided that Israeli residency and the individual’s center of life remain in Israel. Where income is produced partly in Israel and partly outside Israel, only the portion attributable to Israel will qualify for the new exemption, subject to the applicable caps.
What Steps Should You Take?
It is advisable to prepare in advance rather than wait until the annual tax return stage. At the outset, the individual’s residency, center of life, types of income and the documents required to claim the benefit should be reviewed.
First, the date on which the individual transferred their center of life to Israel should be examined, rather than relying solely on the date of formal recognition as a new immigrant or veteran returning resident.
Second, the individual’s income sources should be mapped to determine whether they constitute earned income, income from a “relative,” or mixed income that also includes activities outside Israel.
Anyone seeking to claim the benefit during the tax year should prepare to submit an application for a tax withholding adjustment or a reduction of advance tax payments, together with the designated form, supporting documents and the simulator output for verifying days of presence in Israel.
It is advisable to maintain orderly records of days of presence in Israel, residency documents, employment or engagement agreements, and details of income sources.
How Can We Help?
Our firm advises new immigrants, veteran returning residents and employers on eligibility for the benefits, mapping income sources and preparing submissions to the Israel Tax Authority.
We would be pleased to assist with any questions regarding this matter.
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.
