Recently, amid complex economic headlines, the Knesset approved the Economic Efficiency Law for the 2026 budget year. Hidden among its many clauses and amendments is a dramatic development that could reshape aliyah and Israelis’ return home: Chapter D, “Encouraging Aliyah to Israel and Return to It (Temporary Provision).”
This chapter is not merely a technical amendment. It is a genuine shift, offering unprecedented tax incentives with a clear goal: to make Israel an especially attractive destination for Jews from the Diaspora and for Israeli residents living abroad.
The major change: Tax exemption on earned income of up to NIS 1 million a year
Until now, olim and returning residents enjoyed a 10-year tax exemption on foreign-sourced income, known as the “10-year law.” But what about income earned in Israel? That is where the most dramatic amendment comes in: a tax exemption on qualifying income, primarily earned income, generated or accrued in Israel.
A senior doctor, high-tech engineer or successful entrepreneur who chooses to make aliyah or return to Israel previously paid full tax on income from work in Israel, like any Israeli citizen. Under the new law, they may receive a significant exemption, amounting to as much as NIS 1 million annually.
How it works
The exemption will be granted to new olim and veteran returning residents who make aliyah or return to Israel between November 5, 2025, and the end of 2026. It applies to qualifying income generated in Israel and is phased in over several years:
2026: Exemption of up to NIS 600,000
2027-2028: Increased exemption of up to NIS 1 million annually
2029: Exemption of up to NIS 350,000
2030: Exemption of up to NIS 150,000
This is a major economic benefit that could directly affect the quality of life of thousands of families. It sends a clear message: Israel wants you here and is prepared to reward your contribution to the economy and society.
Beyond individual exemptions: Encouraging foreign companies to operate in Israel
The law does not focus only on individuals. It also offers a tax exemption to foreign companies whose business income in Israel stems exclusively from the personal work of new olim or veteran returning residents. This complementary measure is designed to encourage not only individuals, but also the businesses and companies they work for, to relocate operations to Israel. In doing so, Israel hopes to attract high-quality human capital, knowledge and technology, while strengthening its position as a global innovation hub.
However, it is important to understand the full implications of this benefit. The activity of an oleh or veteran returning resident in Israel for a foreign company may create a “permanent establishment” for that company in Israel. A permanent establishment is a term in international tax law describing a situation in which a foreign company’s business activity in another country reaches the level of a fixed business presence there. In simple terms, if a foreign company operates from Israel through an employee, asset or office, it may be considered to have a permanent establishment in Israel.
The implication is that part of the foreign company’s profits, attributed to its activity in Israel, may be subject to tax in Israel, even if the company is registered abroad. For olim and returning residents, working from Israel for a foreign company may create such a permanent establishment. It is critical to understand the related tax implications. For example, profits from the sale of a foreign company with a permanent establishment in Israel may be subject to Israeli tax, even if the oleh’s or returning resident’s ongoing activity is exempt. Careful tax planning and a deep understanding of the implications are therefore essential.
A dramatic change in reporting obligations
Alongside the attractive tax benefits on earned income in Israel, another significant change must be noted: As of January 1, 2026, the blanket exemption from reporting foreign-sourced income and assets, previously granted to new olim and veteran returning residents, has been canceled.
This means any eligible individual who becomes an Israeli resident from that date onward will be required to report all foreign-sourced income to the Tax Authority, even if it is tax-exempt. The report must include details on the amount of income, its classification, profit or loss, and the country where the income was generated.
The cancellation of the reporting exemption also applies to trust-related reporting obligations, with settlors and trustees required to submit detailed notices and reports. In addition, the assessing officer may request reports on foreign assets as part of a capital declaration, as well as reports from foreign companies whose control and management are exercised by a new oleh or veteran returning resident.
Adv. Amit Gottlieb Photo: Tomer YaakovsonA significant economic opportunity requiring careful tax planning
The new law places Israel among the countries offering significant tax incentives to olim and returning residents. It represents a major opportunity to attract talent, entrepreneurs and experts who can make a meaningful contribution to the country. At the same time, the changes in reporting obligations and the complexity surrounding permanent establishment require professional and comprehensive tax planning. All provisions and requirements must be examined carefully to fully use the benefits and comply with the law, while accounting for the risks tied to creating a permanent establishment, taxation on sale profits, and the new obligations to report foreign income and assets.
Will Israel succeed in realizing the potential of this law? Will thousands of Jews see it as a sign to make aliyah or return home? The answers will become clear in the coming years. But one thing is certain: Israel is now presenting olim and returning residents with an offer that is hard to refuse, though one that demands careful professional planning.
Adv. Amit Gottlieb is a senior partner at YETAX