Tax Exemption for New Immigrants and Veteran Returning Residents: Draft Bill to Encourage Immigration and Return to Israel
What happened?
The Ministry of Finance circulated a draft bill implementing the Government’s decision regarding the economic program, aimed at encouraging immigration to Israel and return to Israel through tax incentives. The purpose of the bill is to encourage new immigrants and veteran returning residents to immigrate to, or return to Israel from January 2026 onwards.
It is important to emphasize that this is a draft bill only, which has not yet been enacted into law, and therefore it may not be adopted, or may be adopted with changes from those reflected in the draft.
Who is it relevant to?
Individuals planning to immigrate to Israel in 2026, and their advisors.
Legislative background
According to the explanatory notes accompanying the draft, the proposed legislation is based on the growing manifestations of antisemitism worldwide, particularly following the outbreak of the "Swords of Iron" war, which may lead Jews to emigrate from their countries of residence. The purpose of the bill is to encourage potential immigrants and returning residents, particularly those belonging to higher socio-economic groups, to choose Israel as their destination.
Current legal framework
Under the current law, individuals who become Israeli residents for the first time, or veteran returning residents (individuals who have been foreign residents for ten consecutive years or more), are entitled to a tax exemption on income derived outside Israel from any source, or income derived from assets located outside Israel, as well as on capital gains from the sale of assets located outside Israel, for a period of ten years from the date they become Israeli residents. The current law does not provide an exemption for income generated in Israel, including income from personal exertion (active income from business, profession, or employment).
Substance of the proposed legislation
According to the draft, it is proposed to grant new immigrants and veteran returning residents a tax exemption on a portion of taxable income from personal exertion generated or derived in Israel, for a period of five years (2026–2030), subject to declining exemption caps over the years:
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