Note an important distinction: The Temporary Order of 5786-2026, discussed below, narrows these definitions for the purposes of the benefits it grants. For purposes of the Temporary Order, an "Oleh" is a person holding an immigrant visa or immigrant certificate under the Law of Return, 5710-1950, or a person belonging to a category of persons entitled to absorption basket benefits under the Absorption Basket Law, 5755-1994. A "Veteran Returning Resident" for purposes of the Temporary Order — beyond meeting the ten-year foreign residency condition — must hold an official Veteran Returning Resident certificate issued by the Israeli Ministry of Aliyah and Integration. This is a separate administrative document and is not a precondition for enjoying the classic Section 14(a) benefits, but it is required for the additional benefits granted by the Temporary Order.

In 2008, as part of Israel's 60th anniversary celebrations, the Knesset enacted Amendment 168 to the Ordinance. This amendment created the framework that still governs today: a ten-year tax exemption on income and assets sourced outside Israel; a ten-year exemption from the obligation to report foreign income; and a rule under which a foreign company managed and controlled in Israel by a Beneficiary Individual is not treated as an Israeli tax resident during the ten-year period. This reform established Israel as an attractive destination for aliyah and return from high-tax jurisdictions.

Until 31 December 2025, this regime operated in full. On 1 January 2026, the picture changed.

Background: Why the Regime Was Reformed

The change did not emerge in a vacuum. In the Peer Review report adopted by the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD in July 2024, Israel received an overall rating of "Largely Compliant" — but with deterioration in five of the rating's component elements compared to the previous round. The core of the criticism focused on the Beneficiary Individual regime. The report notes that in 2021 alone, Israel absorbed approximately 25,000 first-time residents on a long-term or permanent basis (73% under the Law of Return, 27% as family members), making this a significant population from a fiscal perspective.

The Global Forum stated explicitly that Beneficiary Individuals in Israel were "entitled by law to decline to supply information on capital and assets abroad during the duration of the tax exemption." The reporting exemption, originally designed in Amendment 168 as a benefit for the immigrant, was viewed by the Global Forum as a breach of the international standard for information exchange — a situation in which Israel's Tax Authority simply could not provide information to foreign tax authorities requesting it under a bilateral or multilateral agreement.

The message was clear: either Israel updates its regime, or its rating loses its value and triggers more severe consequences.

Amendment 272 to the Ordinance, which entered into force on 7 April 2024 and applies to tax events from 1 January 2026, was the direct response. In parallel, during the same period, the Knesset enacted the Law for the Encouragement of Aliyah to Israel and Return to Israel (Temporary Order), 5786-2026, which expanded the immigrant benefits in an entirely different dimension — granting exemption on Israeli-source active income. The combination of these two moves is the heart of the change.
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The Three Changes Effective 1 January 2026

1. Abolition of the Reporting Exemption (Amendment 272 to the Income Tax Ordinance)

Amendment 272 repealed Section 134A1 of the Ordinance and Section 135(1)(b) of the Ordinance. Until 2025, a Beneficiary Individual was exempt from filing an annual return in respect of foreign-source income and was not required to include foreign assets in any capital declaration. Both provisions have been deleted.

What this means in practice. A new immigrant who becomes an Israeli tax resident on or after 1 January 2026 will be required to file a comprehensive annual return with the Tax Authority. The return will include all income, including income that remains tax-exempt under Section 14(a) of the Ordinance. The individual will need to report the source of income, the country in which it was earned, the resulting profit or loss, and the method of calculating the income. The obligation also extends to capital declarations regarding foreign assets, to the extent such a declaration is required by the tax assessor.

It is important to emphasize: the tax exemption itself remains intact. Amendment 272 changes the reporting obligation, not the tax liability. Foreign income of an immigrant will continue to be tax-exempt for ten years. The change is that the Tax Authority will now know precisely what it is exempting, and for whom.

Draft Income Tax Circular 2025/XX of the Tax Authority (issued October 2025) provides the operational guidance. Calculation of foreign income will follow the rules of the Israeli Ordinance and Regulations. Amounts will be translated to NIS. Where the income was reported in a "treaty country" (Contracting State), reliance on the foreign reporting will be possible. Appendix D1 to Form 1301, and the new Form 1324A, are the technical instruments that will enable reporting.

The trust dimension. Amendment 272 also addresses a third aspect. Trusts whose settlor or beneficiary is a Beneficiary Individual — which until 2025 were exempt from reporting to the Tax Authority — are required, beginning 1 January 2026, to report their creation, any change in their status, and the existence of their beneficiaries. Form 147 for reporting trust creation has been updated, and an Israeli-resident trustee of a foreign trust created after 7 April 2024 must file a declaration of the beneficial owners within 90 days of creation. This reporting layer completes the picture and removes the "opacity" of foreign trust structures managed by Beneficiary Individuals.
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2. Ceilings of Exemption on Active Israeli-Source Income (Aliyah Encouragement Law — Temporary Order 5786-2026)

This is the most substantive change to the immigrant regime in nearly two decades. Until now, active income sourced in Israel by an oleh — salary from an Israeli employer, professional services rendered in Israel, profits from a business operated in Israel — was fully taxable. Only foreign-source income was exempt. The Temporary Order changes this.

The law creates a new category: "Qualifying Income" (Hachnasa Mezaka). This is the individual's active personal-effort income under Section 2(1) or Section 2(2) of the Ordinance (business, profession, or employment). Two categories are excluded from this definition: "Other Income" as defined in Section 62A(d) of the Ordinance, and income attributed to the oleh from a tax-transparent entity — except income from a transparent entity under Section 62A of the Ordinance (i.e., a Wallet Company). Qualifying Income that is produced or accrued in Israel is exempt from tax during the benefit period, up to the following annual ceilings:

• In 2026 — up to NIS 600,000 (approx. $160,000)
• In 2027 and 2028 — up to NIS 1,000,000 per year (approx. $270,000)
• In 2029 — up to NIS 350,000 (approx. $94,000)
• In 2030 — up to NIS 150,000 (approx. $40,000)

The declining step structure is no accident. The law incentivizes the immigrant to realize the bulk of his or her active income in the first years of aliyah, and gradually shrinks the benefit as time passes from the date of relocation. By 2030, the ceiling drops to a quarter of the 2027 peak.

Important exception for relatives. Section 2(b) of the Temporary Order establishes a significantly lower ceiling for a "Relative" of a controlling shareholder — as defined in Section 88 of the Ordinance — if the relative is themself an oleh or veteran returning resident. Such a relative receives a ceiling of only NIS 140,000 (approximately $38,000) for each of the years 2026 through 2029. The purpose of this provision is to prevent situations in which a controlling shareholder splits income among several immigrant relatives in order to multiply the available ceilings.

Anti-planning commencement limitation. Section 4 of the law provides that if the individual ceases to be an Israeli tax resident in either 2028 or 2029, and is physically present in Israel for fewer than 75 days during one of those years, the provisions of the law cease to apply entirely. This is an attempt to block exploitation of the benefit through "temporary aliyah" engineered solely for tax planning purposes.
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3. Regulating the Status of Foreign Companies Connected to a Beneficiary Individual

This third change complements the first two. Already in 2008, the definition of "Israeli Resident" for companies (Section 1 of the Ordinance) provided that a company managed and controlled in Israel by a Beneficiary Individual is not treated as an Israeli tax resident for the ten years following the individual's aliyah. Until 2025, all that the company needed was to avoid being treated as Israeli-resident. Now the change comes from two directions.

The new reporting obligation (new Section 135A1 of the Ordinance). A foreign company controlled by a Beneficiary Individual is required, from 1 January 2026, to maintain accounting records in accordance with generally accepted accounting principles, and to provide the Tax Authority with any information requested under an information exchange agreement, within 90 days of the request.

The new exemption (Section 3 of the Temporary Order). Income of a foreign corporation that is produced in Israel solely because of the personal arrival of the oleh in Israel is exempt from tax during 2026–2030. This is a positive exemption that complements the existing exception in the definition of "Israeli Resident." However, it is subject to two material limitations:

First, the exception does not apply if the oleh is a Material Shareholder in the foreign corporation — an individual holding, directly or indirectly, 10% or more of the company. In other words, the benefit is intended for an oleh who works as an employee or consultant for a foreign company, not for an oleh who owns the company. Second, with respect to a Tax-Transparent Entity, the exemption does not apply to that portion of income attributed within the entity to the oleh personally. That is, if the oleh is a partner in a tax-transparent entity operating in Israel, his or her share of the entity's income will be fully taxable.
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Who Is Affected and When: The 2026–2036 Transitional Duality

A critical point that every Beneficiary Individual must understand: the change is not retroactive. Amendment 272 applies only to those who become Israeli tax residents on or after 1 January 2026.

A person who immigrated to Israel by 31 December 2025 will continue, until the end of their benefit period, under the previous regime. They retain the full exemption from both tax and reporting on foreign income and foreign assets. The benefit period runs for ten years from the date of immigration. As a practical matter, therefore, Beneficiary Individuals who immigrated in 2024 or 2025 will continue under the old regime until 2034 or 2035.

This creates a dual-tier legal regime that will persist for at least the coming decade. On the lower tier — immigrants who arrived by the end of 2025, under the old regime with full reporting exemption. On the upper tier — immigrants arriving from 1 January 2026 onwards, under the new regime with full reporting obligations. It should be noted that the Global Forum expressly recommended that Israel close this gap as well — that is, extend the reporting obligations to the first group. As of the time of writing, Israel has not adopted this recommendation.
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Practical Questions Every Beneficiary Individual Should Ask

Is timing of aliyah worth planning? Until now, the date of aliyah was meaningful mainly in connection with the adjustment year. Today, the difference between immigrating on 31 December 2025 versus 1 January 2026 is substantial. A 2025 immigrant enjoys a full ten more years of exemption from reporting. A 2026 immigrant will be required to report all foreign income. At the same time, only a 2026 immigrant enjoys the new ceilings on Israeli-source active income. The calculation is not straightforward and depends on each individual's expected income profile.

What counts as "active income" for the new ceilings? The ceilings apply only to "Qualifying Income" — active income under Section 2(1) (business or profession) or 2(2) (employment). Passive income — dividends, interest, capital gains, real estate rental income — is not Qualifying Income. With respect to such passive income, the classic Section 14(a) exemption continues to apply, but only to income sourced outside Israel. Israeli-source passive income remains fully taxable.

How is mixed income handled? An employee receiving a salary from an Israeli employer but spending some time abroad. A self-employed individual operating a business providing services both in Israel and abroad. A high-tech employee with foreign stock options whose vesting period straddles the date of aliyah. These are examples of "Mixed Income" — income partly Israeli, partly foreign. Income Tax Circular 1/2011 established that the split between them is based on the ratio of work days. Circular 9/2025 (published November 2025) added specific rules for stock options and RSUs whose vesting period straddles the aliyah date. The treatment of "Mixed Income" in the new era of statutory ceilings is an issue that will continue to develop through case law and additional guidance, and the new Form 1324A explicitly includes for the first time a dedicated column for Mixed Income.

What about a foreign Wallet Company? The Temporary Order explicitly refers to Section 62A of the Ordinance — the "Wallet Company" mechanism that attributes corporate income to the controlling individual as personal income. The definition of "Qualifying Income" includes income attributed to the oleh from a Section 62A transparent entity, but excludes both "Other Income" as defined in Section 62A(d) and income from a Section 64A transparent entity. The borderline between these three categories, along with the additional question of whether the lower "Relative" ceiling might apply to the immigrant, creates interpretive complexity that every immigrant holding a foreign Wallet Company or transparent partnership must examine on a case-by-case basis.

What happens at the end of the ten-year period? The statutory exemption under Section 14(a) lasts for ten years. At the end of that period, the individual becomes a "regular" Israeli tax resident in every respect, taxable on worldwide income. To the extent the foreign activity has not been planned properly before the end of the period, significant tax liability may arise. In this regard, the Trapped Profits Law (Chok Revachim Klu'im) is particularly relevant for olim who own foreign companies that have accumulated profits during the benefit period. Proper planning of dividend distributions and ownership structure in the final years of the benefit period is critical.
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Frequently Asked Questions

Am I still exempt from tax on foreign-source income?

Yes. The tax exemption under Section 14(a) of the Ordinance has not been abolished. It continues to apply for ten years from the date of aliyah. Amendment 272 affects only the reporting obligation, not the underlying tax liability.

When is it better to immigrate — 2025 or 2026?

There is no uniform answer. A 2025 immigrant enjoys complete exemption from reporting on foreign assets and income. A 2026 immigrant must report but benefits from the new ceiling on Israeli-source active income (up to NIS 600,000 in 2026, NIS 1,000,000 in 2027 and 2028). A person whose income will be predominantly foreign-sourced is better off completing aliyah by 31 December 2025. A person planning to operate a business in Israel and earn substantial active Israeli income is better off arriving from 1 January 2026 onwards.

What is "Qualifying Income" under the Temporary Order?

Qualifying Income is the individual's active personal-effort income under Section 2(1) or 2(2) of the Ordinance (business, profession, employment). It does not include passive income (dividends, interest, rent, capital gains), nor does it include "Other Income" under Section 62A(d) of the Ordinance. Income attributed to the oleh from a tax-transparent entity is generally excluded from the definition of Qualifying Income, except for income attributed from a Section 62A transparent entity (Wallet Company). Foreign-source passive income continues to enjoy the classic Section 14(a) exemption.

What is the difference between the regular immigrant ceiling and the "Relative" ceiling?

The Temporary Order distinguishes between a regular Beneficiary Individual — whose annual ceiling ranges from NIS 600,000 to NIS 1 million — and a Beneficiary Individual who is a "Relative" of a controlling shareholder, whose ceiling is fixed at only NIS 140,000 for each of the years 2026 through 2029. The purpose is to prevent income-splitting within a family in order to multiply available ceilings.

Will my company that operates abroad be treated as Israeli-resident?

No. A foreign company managed and controlled in Israel by a Beneficiary Individual is not treated as an Israeli tax resident for the ten years following the individual's aliyah, under the exception in the definition of "Israeli Resident" in Section 1 of the Ordinance. The exception continues to apply under the new regime. However, starting 1 January 2026, the company is subject to an obligation to maintain accounting records and provide information upon request, under the new Section 135A1.

What is the adjustment year and is it still relevant?

The adjustment year is a mechanism that allows an individual immigrating to Israel to choose, within 90 days of arrival, not to be treated as an Israeli tax resident for a period of one year. It is a "trial year" that allows the individual to make a final decision regarding the relocation. The mechanism continues to exist. However, note that the new Temporary Order provides, in Section 2(e), that for purposes of determining the date on which the individual became an Israeli tax resident under the Temporary Order, Section 14(b)(1) of the Ordinance does not apply. That is, the adjustment year does not count toward the ten-year benefit period for purposes of the Temporary Order. This is an additional benefit in favor of the immigrant.

What happens after the ten-year benefit period ends?

At the end of ten years, the individual becomes a fully taxable Israeli resident, subject to tax on worldwide income. Advance planning of the ownership structure, dividend distributions, and timing of foreign asset realization is essential in the final years of the benefit period.
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Israel in the Global Arena — A View Beyond the Temporary Order

The Aliyah Encouragement Law is a significant step within its scope. It expands Israel's attractiveness to a defined group — Jews making aliyah under the Law of Return, and Jews returning after a decade abroad. Within this definition, the law does a good job: a generous ceiling in the first years, an exemption for foreign companies established because of the immigrant's arrival, and a measured balance against the new reporting obligation. It signals that the State of Israel continues to view aliyah as a national interest worth investing in.

But looking outward, a parallel discussion is taking place globally — a broader one that has nothing to do with the Law of Return. Italy, Spain, Greece, Portugal, and Cyprus have created over the past decade special regimes aimed at the internationally mobile taxpayer — the entrepreneur, the investor, the senior consultant, the high-end freelancer — who chooses between destinations on the basis of tax, quality of life, and security considerations. Italy today charges a flat amount of €200,000 per year on all foreign-source income, increasing to €300,000 in 2026. No reporting on foreign assets, no wealth tax on them. The regular top marginal tax rate in Italy is 43% — it is not a tax haven. Italy simply recognized that there is a type of taxpayer to whom one must offer something.

In Israel, that offer does not exist. Not before the Temporary Order, and not after. The Beneficiary Individual regime opens a door for the immigrant under the Law of Return. It does not open a door for the Chinese entrepreneur, the Hungarian, the Australian, the non-Jewish partner of a former Israeli, or the Indian investor choosing between Tel Aviv, Lisbon, Milan, and Dubai.

This is not a criticism of the Temporary Order. The Temporary Order serves its declared purpose. It is an observation about what was not on the table during the legislative discussion. The sovereign decision of whom to incentivize to enter and establish themselves in Israel is not in the hands of accountants or lawyers — it lies with the legislature. But recognizing that the state has tools that have not yet been deployed is a first step. The tools sit on the table waiting for a decision.

What is in our hands, as advisors, is to ensure that every Beneficiary Individual who arrives in Israel in 2026 knows how to maximize the benefits that have been granted: to choose the timing of aliyah wisely, to plan the ownership structure before aliyah rather than after, to understand the interaction between Section 14, Amendment 272, and the Temporary Order, and to prepare in advance for the end of the ten-year period. The changes that took effect on 1 January 2026 are complex — but for those who know them, they also represent an opportunity.
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About the Author

Roy Karib, Adv., is the founder of KLF, an Israeli law firm specializing in international taxation, and a lecturer at the MBA program of the College of Management Academic Studies. Roy previously served as a prosecutor in the Special Cases Unit of the Israel Tax Authority and has published academic articles in the Israeli tax journal Misim on international taxation, Israel's QDMTT mechanism, and transfer pricing issues.

Planning aliyah to Israel and need to assess the optimal timing in light of the changes effective 2026? Owner of a foreign company potentially affected by Amendment 272 and new Section 135A1? Approaching the end of your benefit period and need to plan the exit?

For an initial consultation: royk@klf.co.il

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