New olim and veteran returning residents (10 or more consecutive years abroad) pay zero Israeli tax on all foreign-source income for 10 years from the day they become Israeli tax residents: foreign pensions, Social Security, IRA and 401(k) withdrawals, dividends, interest, rent, royalties, and capital gains on foreign assets, with no cap. US Social Security stays exempt in both countries permanently under the US-Israel treaty. Two things changed for 2026 arrivals: worldwide income and foreign assets must now be reported from year one (the tax exemption itself is unchanged), and a new Temporary Order adds 0% Israeli tax on Israeli-source salary, up to ₪600,000 in 2026 and ₪1,000,000 a year in 2027 and 2028. Our estimate: a retiree drawing $30,000 a year from a 401(k) plus $20,000 in dividends saves about ₪17,700 a year, roughly ₪177,000 over the full decade.
Here is the problem this page solves. You built your savings in one country and you are about to retire in another, and the two tax systems do not read each other’s mail. Get the residency date wrong and your 10-year clock starts before you meant it to. Assume remote work is “foreign income” and you owe Israeli tax from day one. Arrive in 2026 without knowing about the new reporting law and your first Israeli return is already late. This guide covers the whole cross-border picture in one place; the wider money context sits in our overview of pensions, taxes, and financial planning for retirees in Israel, which is part of our complete guide to retiring in Israel.
Who gets the 10 years, and what the clock covers
The 10-year new Oleh tax exemption (Sections 14 and 97 of the Income Tax Ordinance) belongs to two groups: an Oleh Hadash, meaning anyone who immigrates under the Law of Return, and a Toshav Hozer Vatik, an Israeli who lived abroad as a foreign tax resident for at least 10 consecutive years before returning. Both get the identical package: 10 years of full exemption on every category of foreign-source income, starting on the date of Israeli tax residency, not the date on the Oleh visa. The clock cannot be paused, split, or extended.
| Income in years 1 to 10 | Israeli tax |
|---|---|
| Foreign pensions, Social Security, IRA and 401(k) withdrawals | 0% |
| Foreign dividends, interest, rent, and royalties | 0% |
| Salary or business income for work performed physically abroad | 0% |
| Capital gains on foreign assets and securities | 0% |
| Remote work done from Israel for a foreign employer | Taxable from day 1 (the 2026 Temporary Order can zero it, see below) |
| Israeli rent, Israeli dividends, Israeli bank interest | Taxable from day 1 |
Five terms you need, one line each
- Oleh Hadash: a new immigrant to Israel under the Law of Return.
- Toshav Hozer Vatik: a veteran returning resident, an Israeli citizen returning after 10+ consecutive years as a foreign tax resident.
- Center of life (merkaz chayim): the test Israel uses to decide tax residency, based on where your home, family, work, money, and social life actually are.
- Savings clause: the US-Israel treaty clause (Article 6(3)) that lets the US keep taxing its citizens as if the treaty did not exist.
- Foreign tax credit: a credit for tax already paid in one country against tax owed on the same income in the other.
Your foreign pension: a decade at zero, then a choice
Pension treatment under Oleh tax benefits is simple for the first 10 years: every foreign pension is exempt, with no ceiling. US Social Security, the UK State Pension, private occupational pensions, IRA and 401(k) distributions, and annuities all arrive free of Israeli tax. US Social Security is the standout: under Article 21 of the US-Israel treaty it is exempt in both countries, and that exemption is permanent, surviving year 10. US citizens should note the savings clause, though: the US still taxes your other US pension income throughout the Israeli holiday; you simply pay nothing extra to Israel. Our full breakdown of how each type of foreign pension income is treated in Israel goes plan by plan.
When year 11 arrives, you elect one of two permanent reliefs, separately for each pension source:
| Year-11 option | How it works | Wins when |
|---|---|---|
| 35% statutory exemption | 35% of every distribution is permanently tax-free in Israel; the other 65% is taxed at your marginal rate | Your pension is modest, so the taxable 65% lands in Israel’s low brackets |
| Home-country rate cap | Israel taxes the pension at no more than the rate you would have paid in the country it comes from | The source country taxes that pension lightly or not at all |
Our estimate: on a $36,000-a-year foreign pension (₪108,000 at ₪3.00 to the dollar), the 35% route leaves ₪70,200 taxable, which is about ₪7,020 of tax in the 10% bracket, and standard credit points (₪6,534 a year) cut the bill to roughly ₪490 a year. A modest pension stays nearly tax-free even after the holiday ends. Basis: 2026 brackets, 65% taxable share, 2.25 credit points at ₪242 a month. The paperwork behind that election lives in our guide to pension tax and the retirement tax forms Israel actually uses.
Two extras worth knowing: interest on foreign-currency deposits you brought at aliyah is exempt for 20 years, double the standard window, and olim who became residents from 2022 onward receive extra income tax credit points over their first 54 months, each worth ₪242 a month in 2026 against Israeli-source income.
Passive income from abroad: the exemption is total, the border is sharp
The foreign-source passive income exemption covers everything your money earns outside Israel: dividends from foreign companies, interest on foreign accounts and bonds, rent from property abroad, royalties, and capital gains on foreign securities bought before you became a resident. A US retiree collecting $60,000 in dividends and interest, $30,000 from a 401(k), and $25,000 in Social Security owes Israel exactly nothing on all of it for a decade.
Our estimate: for a retiree drawing $30,000 a year from a 401(k) plus $20,000 in dividends, the exemption is worth about ₪17,700 a year, roughly ₪177,000 (about $59,000) over the full 10 years. Basis: 2026 brackets on the pension draw, the 25% rate on foreign dividends, 2.25 credit points, and ₪3.00 to the dollar.
The border is geography, not paperwork. Rent from a Tel Aviv apartment, Israeli dividends, and Israeli bank interest are taxable from day one, though Israeli residential rent up to ₪5,654 a month (2026) is exempt under the general rental exemption, or you can elect a flat 10% on the gross. If foreign property is a large share of your wealth, our guide to property and wealth planning for retirees in Israel covers the sell-versus-keep math.
Active income: the tax lives where the work is done
The foreign-source active income exemption uses one strict test: where your hands physically do the work. Salary, business income, or professional fees for work performed outside Israel are exempt for the full 10 years. But an oleh who works from an Israeli apartment for a New York employer is earning Israeli-source income, taxable from day one, even though the employer is American and pays in dollars. The Tax Authority looks at economic reality; routing the paycheck through a foreign company does not change where you sat when you earned it. If you earn any Israeli-source income, you must register with the Israel Tax Authority within 2 months of starting.
The 2026 Temporary Order (the Law for the Encouragement of Immigration to Israel and Return Thereto, 5786-2026) plugs exactly this gap. Anyone who establishes Israeli tax residency between 5 November 2025 and 31 December 2026 pays 0% Israeli income tax on Israeli-source earned income up to these annual caps:
| Tax year | Israeli-source earned income exempt up to |
|---|---|
| 2026 | ₪600,000 (pro-rated for a mid-year arrival) |
| 2027 | ₪1,000,000 |
| 2028 | ₪1,000,000 |
| 2029 | ₪350,000 |
| 2030 | ₪150,000 |
The fine print: income from family members’ companies is capped separately at ₪140,000 a year, passive income is excluded entirely, Bituach Leumi of about 18% is still due on the earnings, and the whole benefit claws back retroactively if you leave and spend fewer than 75 days in Israel in 2028 or 2029. Have your accountant confirm your eligibility against the final statutory text before you build a plan on it. And if you do take Israeli work, you start building an Israeli occupational pension too; here is how Israeli pension funds, contributions, and payouts work.
Our estimate: a 2026 arrival earning a ₪600,000 Israeli salary this year saves about ₪160,500 in income tax under the Temporary Order, since standard 2026 brackets minus single credit points would have charged ₪160,496 and the Order charges zero. Basis: 2026 bracket math on ₪600,000 with 2.25 credit points at ₪242 a month, before Bituach Leumi.
Tax treaties and the double taxation toolkit
Tax treaties are your second layer of protection, and Israel has them with roughly 60 countries, including the US, UK, Canada, Germany, France, the Netherlands, Switzerland, and Australia. They cut withholding on dividends, interest, and royalties, set tiebreaker rules for dual residents, and include pension provisions. The US-Israel treaty (in force since 1995) reduces dividend withholding from 25% to 12.5% in many cases and makes Social Security untouchable in both countries, but its savings clause strips most other benefits from US citizens. It also has no totalization agreement, so a self-employed US citizen in Israel pays both Bituach Leumi and the 15.3% US self-employment tax with no offset.
Where a treaty does not settle things, double taxation is handled by credits. Israel grants a unilateral foreign tax credit limited to the Israeli tax on that same income, calculated in separate baskets by income type, with unused credits carried forward 5 years. US citizens use Form 1116 (a dollar-for-dollar credit for Israeli tax paid) and Form 2555, the Foreign Earned Income Exclusion, which sheltered $126,500 of earned income in 2024 and is indexed annually. The trap: during the 10-year holiday you pay zero Israeli tax on foreign income, so there is nothing for the US to credit, and US citizens owe full US tax on that income throughout. That makes the years around year 10 the smart window for timing IRA drawdowns. Keeping the accounts themselves open is a separate fight; see keeping U.S., UK, and international accounts as an Israeli resident.
Israeli tax residency: how Israel decides you live here
Israeli tax residency turns on the center-of-life test: where your permanent home, spouse and children, work, money, and social life actually sit. Two day-count presumptions back it up, and both are rebuttable: 183 or more days in Israel in one tax year, or 30 days in the current year plus 425 cumulative days over three years. New arrivals can file an acclimation election within 90 days of arrival to be treated as a non-resident for one year while they settle. The date matters twice over: it starts your 10-year exemption clock, and it decides whether you fall under the pre-2026 or post-2026 reporting regime.
A draft amendment published on 2 July 2025 would replace the rebuttable presumptions with conclusive ones (for example, 75+ days in Israel plus 183 weighted days over three years would make you an Israeli resident with no rebuttal allowed). It has not been enacted; the rebuttable framework above is the law in force. Snowbirds splitting the year between countries should plan their day counts with the draft in mind, because under it, lifestyle evidence would no longer override the arithmetic.
The 2026 trade: the tax break stays, the privacy goes
Anyone who becomes an Israeli tax resident on or after 1 January 2026 must report worldwide income and foreign assets to the Tax Authority from their first return, even though the income stays tax-exempt for 10 years. The Knesset passed the amendment on 2 April 2024, repealing the old reporting exemption in Sections 134b and 135(b). Residents who arrived by 31 December 2025 keep the old no-reporting regime for their full window. Post-2025 arrivals declare foreign bank and investment accounts, foreign real estate, foreign pension accounts, foreign companies and trusts, and beneficial ownership of foreign structures. Israeli banks already report under FATCA and CRS, so the ITA is closing its last information gap, and late or incomplete returns carry civil penalties, with criminal exposure for willful non-disclosure.
Finding an Israeli accountant who reads both tax codes
Finding an Israeli accountant is not optional under the 2026 rules; the new reporting schedules are largely Hebrew-only and the deadlines are unforgiving. Israel licenses two professions: a CPA (roeh cheshbon), who can audit, certify financial statements, and file returns, and a tax advisor (yoetz mas), who files returns at lower fees but cannot audit. If you file in the US or UK too, hire someone dual-credentialed: Israeli CPA plus US CPA or Enrolled Agent, or UK ACCA alongside Israeli licensure. Nefesh B’Nefesh and the AACI both keep referral lists of English-speaking practitioners. Budget ₪1,500 to ₪5,000 a year for an Israeli-only return and $1,500 to $5,000 and up for a combined US and Israeli filing. The Israeli tax year is the calendar year; returns are due 30 April, extended to 30 November when filed electronically or through a representative.
Your first-year moves, in order
- Pin down your tax residency start date; it sets the 10-year clock and your reporting regime.
- File the 90-day acclimation election if you want a one-year buffer before full residency.
- Register with the Tax Authority within 2 months of earning any Israeli-source income.
- Hire a dual-qualified accountant before your first return, not after.
- Inventory every foreign account, property, pension, company, and trust for the new reporting.
- Write your year-10 date on the calendar and plan pension drawdowns around it, alongside a plan for managing your pension accounts from Israel.
Confirm these five things before you act
- The exact residency start date the Tax Authority has on record for you.
- Whether your remote work counts as Israeli-source income (if you do it from Israel, it does).
- Which year-11 election, 35% or home-country cap, wins for each of your pensions.
- That your first post-2025 return includes every foreign account, property, and structure.
- Your Temporary Order eligibility, confirmed by your accountant against the statute.
Quick answers
Is my US Social Security taxed in Israel?
No. Article 21 of the US-Israel treaty exempts it in both countries, permanently, even after your 10-year exemption ends.
I work remotely from Israel for a foreign company. Is that exempt?
No. Work physically performed in Israel is Israeli-source income, taxable from day one. If you established residency between 5 November 2025 and 31 December 2026, the Temporary Order can zero the income tax on it up to the annual caps.
Can I pause or extend the 10 years?
No. The clock runs from your residency date without exception.
Do I still file a return if all my income is exempt?
If you became a resident on or after 1 January 2026, yes: worldwide income and foreign assets go on your return from year one. Pre-2026 residents keep the old reporting exemption.
What actually happens in year 11?
Foreign income becomes taxable at standard rates (10% to 50%). For each pension you elect the 35% exemption or the home-country rate cap. Social Security stays exempt, and interest on your original foreign-currency deposits stays exempt until year 20.
Sources worth reading
- Israel Tax Authority: residency rules, registration, and return deadlines.
- AACI: the new disclosure rules effective 1 January 2026.
- Gornitzky on the 2026 Temporary Order: caps and eligibility windows.
- Nefesh B’Nefesh on US tax compliance for olim, plus its accountant referral list.
- Bituach Leumi: national insurance contributions and benefits.
Tax figures on this page reflect the 2026 rules in force. Last verified: July 2026.
One next step
The same oleh status that shelters your foreign income also cuts the tax on your Israeli home: 0% purchase tax up to ₪1,978,745 and just 0.5% up to ₪6,055,070 on a sole residence, usable from 1 year before to 7 years after aliyah. The full bracket math is in our guide to mas rechisha, Israel’s purchase tax. If you want to put the benefit to work while the window is open, tell us what you are looking for and we will map homes that fit your budget and your oleh tax window.
