The world is full of problems. Israel has problems, but Israelis learn to cope.
As Steve Witkoff told a rally in Tel Aviv’s Hostage Square on Sunday, “When courage meets conviction, miracles can happen… You have carried the weight of hope on your shoulders for the entire world… You have shown peace is not weakness; it is the highest form of strength.”
So, is it time to make aliyah, i.e., immigrate to Israel?
<br><strong>On the tax side…</strong>
“New residents” and “senior returning residents” who lived abroad for 10 years are entitled to a package of income-tax benefits. There are also customs and purchase-tax breaks for personal possessions.
The most notable tax benefit for new residents and senior returning residents is a 10-year Israeli tax holiday (exemption) regarding all foreign-source income and gains, even if the foreign assets were acquired after moving to Israel.
Citizenship is not relevant for these purposes. Exempt income and related assets do not need to be reported to the Israel Tax Authority (ITA) during the 10-year tax holiday if the individual takes up Israeli residency before the end of 2025.
For new residents and senior returning residents who take up Israeli residency on or after January 1, 2026, the foreign exempt income will become reportable. But the 10-year tax exemption continues.
During the 10-year tax holiday, there is also immunity from anti-avoidance rules regarding “management and control,” “controlled foreign companies,” and “foreign professional companies.”
<br><strong>Who is a resident and when?</strong>
The 10-year benefit period begins when the individual becomes a new resident or a senior returning resident who resided abroad for at least 10 years. This means their center of living shifts to Israel, regarding family, economic, and social circumstances. This is not the same as aliyah, but new residents usually make aliyah, i.e., become Israeli citizens.
The law contains rebuttable presumptions of residency if an individual is present in Israel: (1) 183 days in one tax year (calendar year); or (2) 425 days over three tax years, including at least 30 days in the last year. Proposals exist to move to a five-year formula.
Foreign business income: The exemption does NOT apply to income for work physically done in Israel, even if it is for a foreign firm. Keep a monthly diary of where you worked day by day. In practice, an Israeli consulting company may be helpful.
‘Trapped profits’ law: Notwithstanding the above, from 2025, the income of “wallet companies” and “labor-intensive activities” of many closely held private companies (five or fewer shareholders) may be taxed as freelance business income or salaries of shareholders at rates ranging up to 50%.
Furthermore, retained profits derived in prior years may be subject to a 2% surtax unless dividends are paid at prescribed levels or the company is liquidated.
The term “trapped profits” refers to undistributed profits. Exceptions apply to many Israeli technology and industrial companies.
Apparently, there is no exception for foreign companies of olim (immigrants), but clarification is awaited on this from the ITA.
Other solutions may also exist, and olim should consult professional advisers about foreign companies.
Israeli-source income: Regarding Israeli-source income, Israeli tax applies from day one. However, new immigrants receive an extra one to three personal “credit points,” which reduce taxes by NIS 242-NIS 726 per month for four and a half years.
Olim also enjoy an exemption for five to 20 years regarding interest on Patach foreign-currency time deposits of three months or more at an Israeli bank.
Leaving Israel: Subject to any tax treaty, it takes four to five tax years to stop being an Israeli resident, whereupon an “exit tax” (really a capital-gains tax) may apply unless postponed to an actual sale. The 10-year clock does not stop while you are away.
After 10 years: If a foreign asset is sold more than 10 years after the individual arrived in Israel, a partial exemption is granted pro rata to: (1) the period from purchase to 10 years after arrival in Israel, divided by (2) the total period of ownership of the asset.
Consider restructuring assets and income in year nine.
Other possibilities: It is possible to postpone residency for a year (shanat histaglut), but the individual doesn’t get an 11-year tax holiday. It is also possible to study at least half a course for up to three years pre-aliyah and elect to be nonresident in those years.
Closing comments: Thanks to the 10-year tax holiday, Israeli taxation is not usually regarded as a deterrent to aliyah.
As always, consult experienced advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.