In March 2026, Israel enacted the Encouragement of Aliyah and Return temporary law (חוק עידוד עלייה לישראל וחזרה אליה) as part of the 2026 budget package. It is the most generous tax incentive Israel has ever offered new immigrants — and almost everything written about it is in Hebrew. Here is what it actually says.
If you become an Israeli resident as a new oleh or veteran returning resident between November 5, 2025 and December 31, 2026, your Israeli earned income — salary and income from personal effort produced in Israel — is exempt from income tax up to a cap of ₪1,000,000 per year, for the program's benefit years running through 2030.
Two groups: new immigrants (olim hadashim) making aliyah in the window, and veteran returning residents (toshavim hozrim vatikim) — broadly, Israelis returning after a long period abroad (the classic threshold is ten years; returning residents should verify their personal count carefully, as this is where eligibility cases are won and lost). In both cases what matters is when Israeli tax residency begins, which is a facts-and-circumstances test, not just a flight date.
The exemption covers income from personal effort produced in Israel: employment salary, self-employment and business income you actively work in. It does not cover passive income (rent, dividends, interest, capital gains) — though much passive foreign income is separately exempt under the classic 10-year rule described below. Three fine-print items matter:
The cap prorates in year one. Arrive mid-2026 and the ₪1M cap applies proportionally to your months of residency that year.
The relative trap. If the income is paid to you by a close relative (e.g., you work for a family member's company), the exempt ceiling drops from ₪1,000,000 to ₪140,000 — an anti-abuse rule that surprises family businesses.
Later years taper. The full exemption applies in the flagship years; toward 2028–2030 the benefit reduces on a declining schedule. Professional analyses describe the taper slightly differently, which is itself a signal: model the early years confidently and treat the tail as smaller.
Since 2008, every new oleh and veteran returning resident receives a 10-year exemption on foreign-source income and capital gains. The 2026 law does not touch that — it adds an Israeli-income layer on top. What the 2026 budget did change: arrivals from 2026 onward are no longer exempt from reporting foreign income and assets. The tax exemption on foreign income remains; the privacy of not filing about it is gone. For most working olim this is paperwork; for the independently wealthy it is the single most important change to weigh — our timing guide walks through exactly that decision.
For a salaried oleh earning ₪600,000/year, the exemption is worth roughly ₪160,000 per year. At ₪750,000, roughly ₪230,000. Above the cap, only the excess is taxed — a ₪1.2M earner pays tax on ₪200,000 instead of ₪1.2M. Run your own number in the benefit calculator.
First, nail down your residency start date strategy — the arrival window has a hard end (December 31, 2026), and residency is determined by your life's center of gravity, not intent. Second, if any of your income will come from a relative's business, price the ₪140K ceiling into your plan. Third, if you hold substantial foreign assets, get a professional opinion on the reporting change before you commit — it's the one factor that occasionally flips the whole decision. And keep records from day one: benefit claims are settled in paperwork.
This guide summarizes a temporary law enacted March 2026 and reflects publicly available professional analyses at time of writing. It simplifies deliberately and omits edge cases. It is not tax or legal advice, and the law's implementing details may be refined by the Tax Authority — verify current rules before acting.