The Top Tip for Those Making Aliyah this Summer

AI image of a family at the airport with luggage and Israeli flags.

The Top Tip for Those Making Aliyah this Summer

For the past three years, the number of people making Aliyah and moving to Israel has increased. That doesn’t seem surprising in light of how world events have polarized people’s approach. For many coming soon, and even those coming in a couple of years, the reporting requirements in Israel are changing. As more and more make the exciting journey to live in Israel, behind the excitement and emotional journey lurks a daunting question that can temper even the most fervent enthusiasm: What about Israeli taxes?

Navigating a new country’s tax system can be overwhelming. Questions such as, “How should I structure my job?” “Do I need to maintain any business entities I own abroad?” and “What if I continue as a W-2 employee?” are common and complex. While we help hundreds of people each year, there is an easy step to take that makes the journey much less intimidating.

 

That relief comes in a simple yet powerful online form called shnat histaglut. By filing this form within 90 days of your arrival, you can enjoy your first year in Israel potentially tax-free, allowing you to settle in and plan your financial future without immediate pressure.

 

What is Shnat Histaglut?

 

Shnat Histaglut” translates roughly to “year of acclimatization” in Hebrew, a term beautifully capturing its purpose. It is a special provision in Israeli tax law designed to help new olim (immigrants) and certain returning residents ease into their financial obligations while adjusting to their new life in Israel. According to many top Israeli accountants, eligible individuals are granted a one-year exemption from paying taxes on their foreign-earned income.

 

This exemption is crucial as it allows new residents to settle down and set up their families correctly without worrying about taxes immediately upon arrival. To be eligible, one must be either a new immigrant or a returning citizen who has lived abroad for at least ten consecutive years. During this period, the Israeli Tax Authority does not consider the individual’s foreign income, giving them time to acclimatize without the burden of dual tax obligations.

 

Tax Benefits of Shnat Histaglut

 

The primary advantage of applying for shnat histaglut is the financial relief it provides during your first year in Israel. New olim are exempt on their passive income for the first ten years, and you can read more about that in our blog post here. However, earned income, such as salaries or LLC income from working in Israel, is not exempt under the 10-year holiday. However, it will be exempt for the first calendar year by filing shnat histaglut. By not being subject to Israeli taxes on foreign salary type income, new immigrants can significantly reduce their financial stress, allowing them to focus on settling into their new environment: finding housing, schools for their children and establishing their new social and professional lives.

 

How the form works

 

Unlike the U.S., Israel only taxes your earned income if you are a tax citizen or a resident. You become a citizen by making Aliyah.  You become a resident by being in the country for more than ~180 days in the year. If you arrive in July or later, there is a good chance you won’t hit that 180-day mark since you will be in the country less than half the year.  At the same time, while you are a citizen now that you made Aliyah, by filing the shnat histaglut form, you are telling the Israeli Tax Authority (ITA) that you want a year to think about it. This means you end up being neither a tax resident nor citizen and thereby exempt on your U.S. salary type income that first half-year of Aliyah.

 

Practical Steps to Filing for Shnat Histaglut

 

Navigating the bureaucratic process in a new country can be daunting, but filing for shnat histaglut is more straightforward than it might seem. Here’s how you can ensure your application is successful:

 

Timing is Crucial

You must apply within 90 days of your arrival in Israel. Missing this window can disqualify you from receiving the exemption for your first year, so it’s important to prioritize this task as soon as you land.

 

Gather Necessary Documents

Typically, you will need to provide proof of your new immigrant status, including your Teudat Oleh (immigration certificate), passport, and documentation of your arrival date. While this may seem daunting if you haven’t arrived in Israel yet, don’t worry.  It will seem super simple once you get here.  Your Teudat Zehut is the main item you need, the Israeli equivalent of your Social Security Number. You will receive it upon landing in Israel.

 

Filing the Form

The form for shnat histaglut is available online on the Israeli Tax Authority’s website here.

 

Common Questions and Misconceptions

 

As with any tax-related topic, several common questions and misconceptions about shnat histaglut need clarification:

1. Does Filing Affect Other Aliyah Benefits? A common concern is whether taking advantage of this tax exemption impacts other benefits provided to new olim, such as customs tax exemptions or healthcare. The answer is no; shnat histaglut solely relates to your income tax status and does not affect other entitlements.

2. Is the Exemption Automatic? Many new immigrants believe the exemption from Israeli taxes in their first year is automatic. However, you must actively apply for shnat histaglut to receive this benefit. Failing to file the form within the designated timeframe means you will be subject to the standard tax laws. If you apply correctly, though, it will be automatic.

3. Can I do it Myself, or Do I Need a Professional? You can file this form yourself. There is no need to get a tax advisor to fill it out.

3. What Happens After the First Year? Another point of confusion is what occurs after the exemption period ends. It’s important to understand that since you will likely be in Israel for more than 180 days and, therefore, considered a tax resident from the second year onward, you are liable for taxes on your global income as per Israeli tax laws. This makes financial planning essential at the end of your first year.  Contact us, and we will help you plan your structure for the best situation possible. Here is another article that may help you understand the types of taxes you may be subject to.

4. Are There Any Drawbacks? Since it has become a thing, we have encountered no direct drawbacks to filing for shnat histaglut. It is important to note that it may not help if you come within the first half of the year.

 

Need Help Planning Your Aliyah & Figuring Out the Best Structure?

Our office has over 40 years of experience helping people make the dream of Aliyah come true.  Be in touch to see how best we can help you make the move a success!

 

Here is how you can take additional steps to ensure zero U.S. and Israeli income taxes in three home-run scenarios.




Did you enjoy this post? Sign up to receive our latest News & Insights!

Field are marked with * are required.


By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact