Who Is This Update For?
New immigrants, veteran returning residents, employers, representatives and advisers assisting them.
Current Situation
As previously reported, on March 31, 2026, the Economic Efficiency Law (Legislative Amendments for Achieving the Budget Objectives for Fiscal Year 2026), 2026, was published in the Official Gazette. Among other measures, the law enacted the Encouragement of Immigration to and Return to Israel Law (Temporary Provision), 2026, which is intended to encourage immigration to and return to Israel by providing designated tax incentives for new immigrants and veteran returning residents.
Under the temporary provision, 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 statutory conditions are met. The principal benefit is an exemption from tax on qualifying income earned or accrued in Israel by an eligible individual while an Israeli resident. The exemption applies on a graduated basis for the 2026 through 2030 tax years, subject to annual caps and the distinctions prescribed by law.
What Happened?
On August 2, 2026, the Israel Tax Authority issued a letter to tax representatives providing practical guidance on claiming the benefit during the tax year.
Among other matters, the letter explains the procedures for obtaining the benefit in advance – through tax coordination for employees or a reduction of advance tax payments for self-employed individuals – and sets out the conditions, caps and supporting documents required when submitting an application. The letter therefore provides a clearer operational framework for implementing the temporary provision, while emphasizing that advance utilization of the benefit is subject to cumulative conditions and a case-by-case review of the relevant circumstances.
Why Is This Relevant to You?
This update is relevant to new immigrants and veteran returning residents who became, or expect to become, Israeli residents during the relevant period, as well as to the employers, representatives and advisers assisting them. The Israel Tax Authority’s letter provides practical clarification of the conditions that must be met to claim the benefit during the tax year, rather than only through the annual tax return.
How Could This Affect You?
The letter clarifies that eligibility is not determined solely by an individual’s formal status as a new immigrant or veteran returning resident. The individual must also satisfy a number of cumulative conditions, principally the relocation of the individual’s center of life to Israel during the relevant period and the receipt of earned income generated in Israel while the individual was an Israeli resident.
Accordingly, not all income will qualify for the benefit. As a general rule, the benefit is intended to apply to income from a business, profession or employment, and does not apply to passive income such as interest, dividends, rent or capital gains. In addition, income attributed from a transparent entity in which the individual is a substantial shareholder will not qualify, except where the entity is wholly owned by the individual.
The letter further clarifies that the benefit is limited where income is received from a “relative.” Under the advance-claim procedure available during the year, the exempt amount for such income is generally capped at NIS 140,000.
The Israel Tax Authority has also established specific operational caps for tax coordination in 2026: NIS 500,000 for individuals required to file an annual tax return and NIS 300,000 for individuals who are not required to do so. Individuals with higher income may claim the balance of the exemption through their annual tax return or an application for a tax refund.
Individuals who became Israeli residents during 2026 may be affected in an additional respect: the exempt-income cap will be calculated on a pro rata basis according to the date of arrival in Israel or the date on which the individual’s center of life was actually relocated to Israel. The timing of the move to Israel and the number of days spent in Israel may therefore directly affect the amount of the benefit that can be utilized.
How Should You Prepare?
Advance preparation is advisable rather than waiting until the annual tax return stage. Individuals seeking to utilize the benefit during the tax year should determine at an early stage whether they meet the threshold requirements, principally the date on which their center of life was relocated to Israel, the nature of their income and the number of days spent in Israel during the relevant years.
From a practical perspective, two principal procedures are available: employees may apply for tax coordination, while self-employed individuals may apply for a reduction in their advance tax payments. Under either procedure, approval of the benefit is subject to an individual review by the assessing officer and compliance with the applicable conditions.
The Israel Tax Authority places particular emphasis on the center-of-life analysis and compliance with the applicable day-count requirements. Applicants must therefore generate and attach the output of the Israel-presence day-count simulator. Applications submitted without the simulator output will not be processed.
Applicants should also be prepared to submit all supporting documents that may substantiate that their center of life is in Israel or establish entitlement to additional tax relief. It is therefore advisable, at the outset, to map the relevant income sources, collect the required documents and consider whether to use the advance-claim procedure during the year or claim the full benefit through the annual tax return.
How Can We Help?
Our firm advises new immigrants, veteran returning residents, employers and representatives on eligibility for the benefits, mapping income sources, preparing applications for tax coordination or reductions in advance tax payments, and engaging with the Israel Tax Authority. We would be pleased to assist with any questions concerning these matters.
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.
