This article is not a case for leaving Israel, nor a recommendation against it. Relocation does not always pay off, and it is a personal decision each person makes on their own terms. But for anyone who has already decided, there is a set of tax points that are easy to miss, and they determine whether the move turns out as planned.

On the tax side, Europe presents a complicated map. In the north, countries are tightening their grip on capital. In the south, they are competing for it openly. The two extremes are not a menu of destinations to pick from. They are terrain you need to map before you move.

And the decision today is made on an entirely different field than a decade ago. Capital is more mobile, information is more transparent, and automatic exchange of information between countries has made where an asset is held visible to almost every tax authority.

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Picture an Israeli who lived in California for years, set up an American trust there, and is now immigrating or returning to Israel. That same person sits at the crossing point of two tax systems that pull in opposite directions. In California, the taxation of the trust turns on who sits in the trustee's chair and who the beneficiaries are, and there is real room to plan. In Israel, taxation turns instead on the Israeli residence of the settlor and the beneficiaries, and the legislature and the Tax Authority are building a regime designed to narrow exactly that kind of planning.

This situation touches more people than one might think. Many Israeli families have children, parents, or beneficiaries in California. New immigrants and returning residents arrive in Israel with an existing American trust in the background. Israeli business owners hold assets connected to the state. In each of these cases the two logics meet, and sometimes collide, and the difference between clean planning and double taxation and reporting surprises is understanding both sides. This article, written for practitioners and business owners, first explains California trust tax planning in depth, then sets the current Israeli perspective against it, and shows why that planning cannot sim

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Israel taxes partnerships on the aggregate, or look-through, approach. The partnership is a conduit. Where two or more persons carry on a business jointly, each partner's share of the partnership's income is treated as the partner's own income and reported in the partner's return. Section 63 of the Income Tax Ordinance is the core provision, and the duty to report arises when income is generated at the partnership level, not when profits are distributed.

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US citizens living in Israel are exposed to the NIIT, a 3.8% tax on investment income under Section 1411, on top of regular income tax. US domestic law does not allow a foreign tax credit against the NIIT, so genuine double taxation arises on the same income. Two trial-level decisions, Christensen on France and Bruyea on Canada, held that the treaty may supply an independent basis for the credit. Both are on appeal and undecided. The Israel-US treaty carries the same language and both mechanisms at the center of the dispute, yet the Israeli application has never been tested in court, and it depends on the appeal and on a set of threshold questions. If the appeal is affirmed, the result is real refunds for many American-Israelis. That is precisely why the right course is to preserve the right with discipline, not to chase it with a favorable opinion that has not mapped the risk.

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Starting 1 January 2026, Israel's tax regime for new immigrants (olim chadashim) and veteran returning residents has undergone a profound structural change. Three new layers have been added on top of Section 14 of the Income Tax Ordinance. First, Amendment 272 to the Ordinance abolished the reporting exemption that had been in place since 2008. The tax exemption itself remains, but every Beneficiary Individual who becomes an Israeli tax resident on or after 1 January 2026 is now required to report all foreign-source income and assets during the benefit period. Second, the Law for the Encouragement of Aliyah to Israel and Return to Israel (Temporary Order), 5786-2026, for the first time grants an exemption on active income sourced in Israel up to declining annual ceilings (NIS 600,000 in 2026 (approx. $160,000), NIS 1 million in 2027 and 2028, dropping to NIS 150,000 in 2030). Third, a foreign company that establishes operations in Israel solely because of the Beneficiary Individual's relocation benefits from a new income tax exemption, subject to two important exceptions. This article explains what has actually changed, who is affected, and what should be considered before timing one's aliyah or return.

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The government’s initiative to open the banking market to competition is stepping up a gear. While in the past the state sufficed with declarations of intent, a combined action plan is now on the table, tackling entry barriers from two directions simultaneously. A new Memorandum of Law published this month proposes a dramatic amendment to the VAT Law, allowing new banks to offset setup losses against future profits—a move that dovetails perfectly with the inter-ministerial team's recommendations for regulatory and ownership structure easing. The combination of the two changes the economic feasibility equation for establishing a bank in Israel and turns the difficult early years of the venture into a business springboard for the future.
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Introduction: The Banking Market's Hidden Barrier

For decades, the Israeli banking market has been characterized by high concentration. Despite repeated attempts to encourage the entry of new players, the number of new banks established has remained negligible. The reasons are varied, but one of the most significant—and often overlooked—is the unique tax regime applied to financial institutions in Israel.

While high-tech companies and startups enjoy a supportive tax environment during setup stages (including VAT refunds on inputs), entrepreneurs seeking to establish a bank encounter a fiscal "glass ceiling" that turns the first few years into an unbearable cash flow burden. The Memorandum of Law published in December 2025 seeks to correct this historic distortion.

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