Israeli tax law gives new Olim one of the most generous immigration packages in the world — a 10-year exemption on foreign-sourced income and assets, no reporting requirement on overseas income during that period, and significant reductions on capital gains from foreign investments. Most Olim have heard about this. Fewer understand how it actually works, what it covers, and what it doesn’t. This guide explains the Israeli tax system for new Olim without the legalese, with the specific details you need to make decisions.
One important note upfront: Israeli tax law is complex and personal circumstances vary widely. This article is for orientation — not a substitute for advice from a qualified Israeli tax accountant (roa’eh cheshbon) or tax lawyer, particularly if you have significant foreign income, investments, or business interests.
How Israel Taxes Its Residents
Israel taxes residents on their worldwide income — meaning all income from Israeli and foreign sources combined. This is different from territorial tax systems (like the UAE or Singapore) where you only pay tax on locally sourced income, but similar to the US, UK, and most developed countries.
Tax residency in Israel is determined primarily by the “center of life” test — where you live, where your family is, where you work, where your social and economic ties are. If you’ve made Aliyah and are living in Israel, you are an Israeli tax resident from the day you arrive, regardless of whether you’ve formally deregistered from your home country’s tax system.
Israeli income tax (mas hachnasa) is progressive, running from 10% on the lowest bracket up to 50% on income above NIS 698,280/year (2026 figures). There is also a surtax of 3% on income above NIS 698,280, making the effective top rate 50%. On top of income tax, most residents pay National Insurance (Bituach Leumi) and health tax contributions, which together add roughly 12% on income up to a certain ceiling.
The 10-Year Foreign Income Exemption
This is the big one. Under Section 14 of the Israeli Income Tax Ordinance, new Olim (and returning residents who were abroad for at least 10 years) receive a 10-year exemption from Israeli tax on foreign-sourced income and capital gains. The exemption runs from your Aliyah date.
What this means in practice: if you have a rental property in the US, dividends from a UK investment portfolio, or business income from a company you run outside Israel, none of that income is taxable in Israel during your first 10 years. You also have no obligation to report that income to the Israeli Tax Authority during this period — which is unusual. Most countries with foreign income exemptions still require reporting even if the income is exempt. Israel doesn’t.
The exemption covers:
- Income from foreign employment or self-employment performed outside Israel
- Rental income from properties outside Israel
- Dividends from foreign companies
- Interest from foreign bank accounts
- Capital gains from selling foreign assets (shares, real estate, business interests)
- Pension income from a foreign pension fund
The exemption does not cover income earned in Israel, regardless of the source. If you work for a foreign company but you perform the work from Israel, that income is Israeli-sourced and is taxable in Israel from day one.
The “Work From Israel” Trap
This is where many Olim — particularly those working remotely for foreign companies — get caught. The tax exemption is based on where the income is sourced, not where the paying company is located. If you sit in your apartment in Tel Aviv and do work for your US employer, that income is sourced in Israel. It is taxable in Israel. The fact that your employer is American and pays you in dollars is irrelevant.
Some Olim mistakenly believe that because they’re being paid by a foreign company, they fall under the exemption. They don’t. If you’re physically in Israel doing the work, Israel taxes it. This is one of the most common and costly misunderstandings in the Olim tax world.
Israeli Income Tax Brackets (2026)
For Israeli-sourced income, these are the mas hachnasa brackets:
| Annual income (NIS) | Tax rate |
|---|---|
| Up to 84,120 | 10% |
| 84,121 – 120,720 | 14% |
| 120,721 – 193,800 | 20% |
| 193,801 – 269,280 | 31% |
| 269,281 – 560,280 | 35% |
| 560,281 – 698,280 | 47% |
| Above 698,280 | 50% (47% + 3% surtax) |
Most employed Olim have tax deducted at source by their employer (nikui mas bemkor), so they don’t need to file a tax return unless they have additional income sources or are self-employed.
National Insurance (Bituach Leumi) and Health Tax
On top of income tax, Israeli residents pay two additional contributions deducted from income:
Bituach Leumi (National Insurance Institute): Covers disability, maternity, child allowances, unemployment, and elderly pension. For employees, contributions are split between employer and employee. The employee rate is approximately 3.5% on income up to the ceiling (~NIS 47,465/month in 2026), and 12% above that, though the higher rate applies to a relatively small portion of the ceiling.
Health tax (mas briut): Funds your Kupat Cholim membership. Rate is approximately 3.1% on income up to half the average wage, and 5% above that. This is what actually pays for your basic healthcare — not a separate premium to the health fund.
New Olim receive a reduced rate on Bituach Leumi contributions for the first 12 months after Aliyah — the rate is significantly lower than the standard employee rate. Register at your nearest Bituach Leumi office within the first few weeks of arrival to ensure this discount is applied correctly from the start.
Self-Employed Olim
If you’re self-employed in Israel (osek murshe or osek patur), the tax picture is more complex. You need to:
- Register with the Israeli Tax Authority (Misrad Hachnasot) as self-employed
- Register with Bituach Leumi as self-employed (different rates than employees)
- File annual tax returns (annual filing is mandatory for self-employed regardless of income level)
- Make advance tax payments (maccot moshavemet) throughout the year based on the previous year’s income
- If your annual revenue exceeds the osek patur threshold (~NIS 120,000 in 2026), register as an osek murshe and charge VAT (ma’am) to clients
Self-employed Bituach Leumi contributions are considerably higher than employee contributions — the self-employed pay both the “employee” and a portion of the “employer” share. This surprises many Olim who come from countries where self-employment taxes are lower. A good accountant is not optional if you’re self-employed.
VAT in Israel
Israeli VAT (ma’am) is currently 17%. If you operate a business in Israel and your revenue exceeds the osek patur threshold, you must register as a VAT-registered business (osek murshe), charge 17% VAT on your invoices, file monthly or bimonthly VAT returns, and remit the collected VAT to the Tax Authority (net of input VAT you’ve paid to suppliers).
For most services sold to foreign clients, a zero rate applies — you charge 0% VAT on exports of services. This is important for Olim doing consulting or digital work for overseas clients. You still need to file the returns and document the zero-rating.
The US-Israel Tax Situation
American Olim face a layer of complexity that British, South African, and Australian Olim do not: the United States taxes its citizens on worldwide income regardless of where they live. Even after making Aliyah, US citizens remain subject to US federal tax filing requirements.
The US-Israel tax treaty and the Foreign Earned Income Exclusion (FEIE) provide some relief, but they don’t eliminate the US filing obligation. American Olim must file a US federal return every year, report foreign bank accounts above $10,000 (FBAR), and potentially file FATCA forms on foreign financial assets. The interaction between Israeli tax and US tax — which credits apply, how the 10-year exemption affects your US reporting, and what happens when Israeli taxes are lower than US rates on certain income — requires a specialist who understands both systems.
If you are an American making Aliyah, budget for a dual-country tax accountant. The cost is real but far less than the penalties for getting it wrong.
Capital Gains Tax on Investments
Israeli capital gains tax on financial assets (shares, bonds, mutual funds) is generally 25% for individuals, or 30% if you hold 10% or more of a company. For new Olim during the 10-year exemption period, gains on foreign-held investments are exempt as described above.
One practical consideration: if you have an investment portfolio in your home country and you’re considering selling during your 10-year window, the timing matters. Gains realised before you made Aliyah are generally not Israeli events at all. Gains realised after Aliyah on pre-Aliyah assets may have a special calculation that allocates part of the gain to the pre-Aliyah period — your accountant needs to run the numbers.
Do You Need to File a Tax Return in the Israeli Tax System?
Many Olim don’t. If you are employed by an Israeli employer and your only income is your salary with tax deducted at source, you generally don’t need to file an annual return — your employer’s payroll reporting to the Tax Authority is sufficient.
You are required to file if you are: self-employed, have income from multiple sources, have rental income from Israeli property above a certain threshold, have significant foreign income that is not exempt, or are a company director. When in doubt, ask an accountant — not filing when required is worse than filing unnecessarily.
Olim Taxation: Common Mistakes
Assuming remote work for a foreign employer is exempt. As covered above — if you’re doing the work from Israel, it’s Israeli income. Full stop.
Not registering with Bituach Leumi promptly. The reduced rate for new Olim applies from registration, not retroactively. Every month you delay costs you money in higher contributions.
Not getting tax advice before selling foreign assets. The 10-year exemption is valuable — but the way gains are calculated at the time of sale, and the interaction with your home country’s tax system, requires planning. Selling a US brokerage portfolio without advice from someone who understands both systems is a common and avoidable error.
Confusing the Aliyah date with the exemption start date. The 10-year clock starts from your official Aliyah date as recorded by the Ministry of Interior — the date on your Teudat Oleh. Not the date you started thinking about it, or the date you arrived on a scouting trip.
Assuming the exemption covers everything “foreign.” The exemption is on foreign-sourced income. A foreign company paying you for work you do in Israel is paying you for Israeli-sourced income. The exemption doesn’t apply.
Getting Professional Help
The Israeli tax system is not designed to be navigated without professional guidance if your financial situation has any complexity. The 10-year exemption alone — understanding what it covers, how to structure your income to make the most of it, and how it interacts with your home country’s system — is worth a consultation with a qualified Israeli tax accountant in your first month after Aliyah.
Look for an accountant with specific experience working with new Olim and, if you’re American, one who is dual-qualified or works in partnership with a US CPA. The Israel-US tax world is a niche — general Israeli accountants don’t always know the FBAR rules; general US accountants don’t always know the Israeli exemption mechanics.
How Olim Paveway Can Help
We work with new Olim on the practical side of absorption — including connecting you with tax professionals who specialise in Olim taxation and understand the interaction with your home country’s system. If you want a referral to a qualified accountant or just want to understand what questions to ask, get in touch.