Full Breakdown
New Tax Breaks for Olim in Israel's 2026 Budget
4/11/2026, 11:37:43 AM
Overview of the New Tax Legislation
On March 30, 2023, the Knesset passed a budget package that includes significant tax breaks aimed at individuals, particularly new immigrants (olim) to Israel. The Income Tax Amendment 288 expands the middle-income tax brackets of 20% and 31%, effective from January 1, 2026. This change is designed to benefit individuals earning up to NIS 300,000 annually, potentially reducing their tax burden from approximately NIS 62,303 to NIS 57,312 before credits and deductions.
Tax Benefits for New Immigrants
The new budget measures introduce additional tax incentives specifically for olim. Currently, olim enjoy a 10-year tax holiday on foreign-source income and capital gains. Starting January 1, 2026, they may also be exempt from Israeli taxes on Israeli-source income, subject to certain conditions. The exemption applies to active income from business or employment, with specific monetary limits set for each year: NIS 600,000 for 2026, NIS 1 million for 2027, NIS 1 million for 2028, NIS 350,000 for 2029, and NIS 150,000 for 2030. However, passive income types, such as dividends and capital gains, remain taxable.
Eligibility Criteria for Tax Exemptions
The exemption for Israeli-source income is available to olim who establish their residency in Israel between November 5, 2025, and December 31, 2026. Senior returning residents who have been abroad for at least ten years and return during this timeframe are also eligible. Notably, if an individual becomes a resident on July 1, 2026, the exemption limits will be halved for that year. Additionally, if an individual ceases to be an Israeli resident in subsequent years and spends fewer than 75 days in Israel, they will forfeit the exemption.
Implications for Foreign Companies
The law also stipulates that income generated by foreign-resident companies from the work of eligible individuals in Israel will be exempt from Israeli corporate taxation, unless the individual holds a significant stake in the company. However, Israeli VAT will still apply. The legislation was initially proposed to encourage aliyah among Jews facing antisemitism abroad, although critics argue it lacks incentives for investment in Israel.
Criticism and Opposition
Some analysts have pointed out that while the new tax breaks may attract new residents, they do not provide sufficient motivation for investment in the Israeli economy. The focus on employment income rather than broader economic engagement has raised concerns about the long-term impact of these measures.
Verbatim Quotes
- “The new law was originally proposed to attract aliyah by Jewish people abroad affected by antisemitism.” — Source
- “But there is no incentive to invest in Israel – only to work there and earn no more than the stipulated amounts.” — Source
This new tax legislation reflects Israel's ongoing efforts to attract new residents while navigating the complexities of its economic landscape amidst ongoing challenges.
