The 10-year tax holiday is a long-standing Israeli tax incentive granted to new immigrants (olim) and veteran returning residents. It provides a 10-year exemption from Israeli tax on foreign-sourced income starting from the date the individual becomes an Israeli tax resident.
This benefit was designed to encourage Aliyah and return to Israel by allowing qualifying individuals to maintain foreign investments and income without Israeli taxation.
During the 10-year period, eligible individuals may receive an exemption from Israeli tax on foreign-sourced income and gains. This can include income generated outside Israel, provided it qualifies as foreign-sourced under Israeli tax law.
The exemption applies to tax liability, not residency status. Once an individual becomes an Israeli tax resident, Israeli tax law applies even if certain income is exempt.
While the tax exemption itself remains, a major legal change affects reporting obligations.
A 2024 amendment to Israel’s Income Tax Ordinance abolishes the reporting exemption for individuals who become Israeli tax residents on or after January 1, 2026.
This means that new immigrants and returning residents will still benefit from the 10-year tax exemption, but they will no longer be exempt from reporting foreign income and foreign assets to the Israeli Tax Authority.
The reporting obligation includes worldwide income, foreign bank accounts, trusts, and certain foreign companies.
For U.S. citizens, the 10-year Israeli tax exemption does not remove U.S. tax or reporting obligations. U.S. citizens must continue to report worldwide income to the IRS, including income exempt from Israeli tax.
The U.S.–Israel Tax Treaty helps coordinate how income is taxed between the two countries, but it does not eliminate U.S. filing requirements. With the removal of Israel’s reporting exemption, proper planning is essential to ensure accurate reporting in both jurisdictions and to avoid compliance risks.
Philip Stein & Associates assists clients with cross-border tax planning, including navigating Israel’s 10-year tax holiday. Contact our team to discuss these issues at any time.