Key Definitions

The Income Tax Regulations (Exemption from Filing a Return), 5748-1988, define key concepts such as "Rental Income," "Foreign Income," and "Salary."

• Rental Income: Defined as income upon which tax was paid under Section 122 of the Ordinance, and the amount of which does not exceed the limit set in Appendix B.
• Foreign Income: Income generated outside of Israel, up to the amount set in Appendix D, upon which a tax advance was paid.
• Salary: Income the amount of which does not exceed the limit set in Appendix A, and from which the full applicable tax was deducted at source.
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Exemption from Filing a Return

The regulations stipulate that an individual Israeli resident shall be exempt from filing an annual tax return if their entire income in the tax year was derived from the sources detailed in the regulations. These sources include salary, rental income, foreign income, foreign pension income, interest income, securities income, renewable energy income, or additional income, or a combination thereof.
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Exceptions to the Exemption

Despite the general exemption, there are several exceptions. For example, the exemption shall not apply to:

• Controlling shareholders in a company.
• Individuals whose income includes the income of a spouse without the possibility of separate calculation.
• Individuals holding rights in a foreign resident entity or foreign assets exceeding a certain amount.
• Individuals liable for Surtax (Additional Tax) under Section 121B of the Ordinance.
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Expected Changes Regarding Section 14

The latest amendment to the regulations focuses on significant changes concerning Section 14 of the Income Tax Ordinance, which deals with New Immigrants (Olim Chadashim) and Veteran Returning Residents.
Effective January 1, 2026, material changes are expected to come into force regarding the reliefs granted to these groups specifically concerning the exemption from filing a report.
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Background to the Change
Section 14 of the Ordinance grants significant tax benefits to New Immigrants and Veteran Returning Residents, including a tax exemption on certain income generated outside Israel for ten years (the "Aliyah Tax Holiday"). The amendment to the regulations reflects a trend of reducing these administrative reliefs.
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Details of the Change
The amendment repeals sub-regulations 3(c) and 3(d), which granted special exemptions from the duty to file a report to New Immigrants and Veteran Returning Residents. This means that from 2026 onwards, these groups will be subject to the same rules that apply to all Israeli residents regarding the obligation to file an annual report.
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Expected Implications
This change is likely to increase financial transparency and expand the Tax Authority's information base regarding the income of New Immigrants and Veteran Returning Residents. On the other hand, it may reduce Israel's attractiveness for foreign investors and individuals considering making Aliyah or returning to Israel.
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Importance of Preparation
In light of the expected changes, it is recommended that New Immigrants, Veteran Returning Residents, tax consultants, and accountants prepare for these changes in advance. This includes a deep understanding of the new requirements and adjusting tax strategies accordingly.
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Conclusion

This amendment to the Income Tax Regulations marks a significant shift in tax policy towards New Immigrants and Veteran Returning Residents. It reflects the global trend of increasing financial transparency and uniformity in reporting requirements. However, it is important to monitor further developments on this issue, as there may be changes or additional clarifications before the amendment enters into force in 2026.

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