Israel Promises 0% Income Tax for New Immigrants in Major Aliyah Drive

(ISRAEL) — Israel unveiled a tax reform on Thursday that offers new immigrants and certain returning residents a 0% income tax rate on Israeli-sourced income during their first two years of residency in 2026 and 2027, as part of the 2026 state budget and a broader push to encourage aliyah.

Finance Minister Bezalel Smotrich and Aliyah and Immigration Minister Ofir Sofer announced the measure at the offices of Nefesh B’Nefesh. It applies to annual Israeli income of up to NIS 1 million, about $305,000.

After the first two years, the plan shifts to a phased schedule. The tax rate on Israeli income up to NIS 1 million rises to 10% in 2028, 20% in 2029, and 30% in 2030.

Sofer called the reform a “major and meaningful component” of Israel’s aliyah effort. He tied it to infrastructure built over the past three years for immigrant absorption, social integration and economic growth.

The benefit targets two groups. One is new immigrants making aliyah in 2026. The other is returning residents who lived abroad for 10 or more years.

An eligibility window cited for the plan runs from November 5, 2025 through December 31, 2026. That timetable places unusual weight on arrival dates and the formal start of residency, because the 0% income tax period is tied to the first two years in the country.

The announcement came as Israeli officials pressed a wider campaign to attract skilled professionals, entrepreneurs and investors. Officials presented the tax break as one part of a national effort that has gained urgency amid global antisemitism and shifting tax policies in Western countries.

That broader pitch matters because the new measure does not replace Israel’s existing tax benefits for olim. It sits on top of a separate 10-year exemption on foreign-sourced income, a long-standing incentive that has made Israel more attractive to immigrants with assets, businesses or investments outside the country.

The distinction between Israeli-sourced and foreign-sourced income sits at the center of the package. Under the new budget measure, Israeli income up to NIS 1 million would be taxed at 0% in 2026 and 2027 for eligible arrivals, while foreign-sourced income remains covered by the existing 10-year exemption.

At the same time, disclosure rules change on January 1, 2026. New residents arriving from that date lose a previous reporting exemption on foreign income and assets, even though the 10-year tax exemption on foreign-sourced income remains in place.

That means the plan combines relief with a new compliance obligation. Eligible immigrants may face no Israeli tax on local income up to NIS 1 million for two years, but they would no longer have the earlier shield from reporting foreign holdings once the new disclosure rule takes effect.

The measure also forms part of a budget process that had not fully settled by April 2026. One analysis of the budget said the zero-tax provision “may” get approval and “has not been finalized”, even as the reform had already been publicly unveiled by ministers.

That unresolved status leaves a gap between political announcement and final budget enactment. Immigrants, returnees and advisers can see the structure of the proposal, but the formal approval track still matters because the tax rates and eligibility rules sit inside the state budget framework.

The schedule itself is simple enough. Israeli income up to NIS 1 million carries a 0% rate in 2026-2027, then 10% in 2028, 20% in 2029 and 30% in 2030.

What the plan does not do is offer a permanent zero-tax regime. It gives eligible immigrants and long-absent returning residents a temporary runway, then moves them into a stepped tax path over the next three years.

Israel already offers another layer of support through income tax credit points for olim. For immigrants who arrived after January 1, 2022, those credits phase in over 4.5 years, and each point was worth NIS 242 as of January 2024.

Those credits serve a different purpose from the new budget measure. Credit points reduce tax liability under the ordinary tax system, while the new reform sets a special rate on Israeli-sourced income for a limited period and income band.

Taken together, the package offers three separate tax elements for eligible arrivals: the proposed 0% income tax rate on Israeli income up to NIS 1 million for 2026 and 2027, the existing 10-year exemption on foreign-sourced income, and the phased credit-point system for olim.

Each piece operates on a different timeline. The zero-rate period lasts two years, the foreign-income exemption runs for ten years, and the credit-point benefit extends over 4.5 years for qualifying immigrants who arrived after January 1, 2022.

That layered structure helps explain why the government presented the reform as an aliyah measure rather than a stand-alone tax cut. Officials are trying to influence the economics of relocation at the point of arrival, while still relying on older benefits that apply after settlement.

The plan also narrows the focus to a specific income ceiling. The headline 0% rate applies only to Israeli income up to NIS 1 million, which places a clear upper bound on the benefit even as ministers court professionals, entrepreneurs and investors.

For many in those groups, the timing of income matters as much as the amount. Income earned during the first two years of residency falls under the proposed zero-rate period, while the same income earned later would move into the phased rates of 10%, 20% and 30% over the following three years.

Arrival timing matters as well. People seeking to qualify under the plan would need to fall within the stated 2026 aliyah framework, or within the broader window cited from November 5, 2025 through December 31, 2026, and meet the returning-resident rule of having lived abroad for 10 or more years where applicable.

The disclosure change starting on January 1, 2026 adds another calculation. A new immigrant could keep the long tax exemption on foreign-sourced income while losing the earlier exemption from reporting foreign income and assets, creating a different compliance picture from the one many olim knew in previous years.

Smotrich and Sofer rolled out the measure at a moment when Israel has tried to turn aliyah policy into a broader economic strategy. By pairing tax relief with claims of improved absorption infrastructure, ministers signaled that they want new immigrants not only to arrive but to work, invest and remain in the country.

The politics of the package are also bound up with the budget calendar. Until the 2026 budget completes its approval path, the proposal stands as an unveiled reform with a detailed rate structure, a named target population and a public sales pitch from two cabinet ministers.

Even in that provisional state, the message to prospective olim is clear in numerical terms: 0% on Israeli income up to NIS 1 million in 2026 and 2027, then 10%, 20% and 30% over the next three years, alongside a 10-year exemption on foreign-sourced income and credit points worth NIS 242 each as of January 2024.

At Nefesh B’Nefesh, the government framed those numbers as part of a larger aliyah drive. Sofer’s description of the reform as a “major and meaningful component” captured how the government wants the measure seen: not as a technical tax change, but as a recruiting tool aimed at bringing people home in 2026.