Repeal of the Reporting Exemption for New Immigrants – Draft Circular Issued by the Israel Tax Authority Following Amendment 272 to the Income Tax Ordinance
The Israel Tax Authority recently published a draft circular clarifying the implementation of Amendment 272 to the Income Tax Ordinance, which repeals the reporting exemption previously granted to new immigrants and veteran returning residents (“benefited individuals”). While the exemption from Israeli tax itself remains in place, the repeal of the reporting exemption represents a significant shift, expected to have substantial implications for many taxpayers.
Before the amendment took effect, benefited individuals enjoyed broad immunity from reporting their foreign income and assets. Following the amendment, full transparency will be required to the Tax Authority, even with respect to income that remains exempt from Israeli tax. Such disclosure may give rise to interpretative disputes and potential disagreements with the Tax Authority, particularly in cases involving substantial income or complex ownership structures.
Key points clarified in the draft circular:
Benefited individuals who immigrate to or return to Israel on or after January 1, 2026, will be required to report all foreign income and assets, even if such income is exempt from tax in Israel. For benefited individuals who report income in a treaty country, the draft circular provides that, during the exemption period, reporting in Israel may be based on the classifications and figures reported abroad, rather than in accordance with the definitions of the Israeli Income Tax Ordinance. This approach is expected to simplify reporting obligations during the ten-year exemption period.
The Tax Authority reserves the right to request financial statements from foreign companies controlled or managed by benefited individuals. This means that even if such a company is not considered an Israeli tax resident, the assessing officer may nonetheless demand information and reports regarding it, based solely on the fact that its management and control are exercised by a new immigrant or veteran returning resident.
The exemption from reporting in respect of trusts will also be abolished where the settlor or beneficiary is a benefited individual who immigrates to Israel after January 2026. Consequently, there will no longer be an exemption from reporting the creation of a trust, transfers of assets to it, distributions to beneficiaries, its foreign-source income, or changes in its classification triggered by the immigration of the settlor or beneficiary.
Starting with the 2025 tax year, companies and trusts must disclose the identity and tax residency of their controlling shareholders or beneficiaries in their annual tax returns.
A benefited individual who returns to Israel before the end of 2025 may elect to classify a foreign company under their ownership as a “family company” or an “Israeli holding company”, or to treat it as transparent in accordance with Circular 5/2004, even at a later stage — up to the end of their ten-year exemption period. Conversely, an individual returning after that date will be required to make the classification within three months of the company’s incorporation or in the first annual tax return filed for the company.
Benefited individuals holding interests in CFCs (Controlled Foreign Companies) or foreign professional companies will be required to submit Form 150 and report their holdings accordingly.
In conclusion, the repeal of the reporting exemption constitutes a major policy change that may expose taxpayers to closer scrutiny and potentially unfavorable positions by the Tax Authority, thereby worsening the position of benefited individuals compared with the current regime.
Individuals who are expected to immigrate or return to Israel are advised to review their asset and corporate structures, and to consider appropriate tax planning steps prior to immigration.
In certain cases, it may be prudent to consider advancing the return to Israel to 2025, in order to take advantage of the pre-amendment provisions.
Finally, according to the Tax Authority’s position, individuals who arrive in Israel during 2025 and elect the Acclimation Year (“shnat histaglut”) will be deemed to have become Israeli residents only in 2026 for purposes of this amendment and therefore will lose the reporting exemption. Accordingly, individuals who have chosen or are considering choosing the Acclimation Year in 2025 are strongly encouraged to seek professional advice and to assess the implications for their specific circumstances.
Despite the repeal of the reporting exemption for individuals arriving in Israel as of 2026, a new initiative was recently reported in the media by the Ministry of Finance and the Ministry of Aliyah and Integration. Under this proposal, new immigrants and veteran returning residents who move to Israel in 2026 would be entitled to a 0% tax rate on their Israeli-source income during their first two years of residence (up to an annual cap of NIS 1 million). Thereafter, the tax rates would gradually increase – up to 10% in 2028, 20% in 2029, and 30% in 2030 – after which the regular marginal tax rates would apply. The initiative aims to encourage immigration and strengthen the integration of new immigrants and Jewish high-net-worth individuals into the Israeli economy, against the backdrop of rising antisemitism worldwide and changes in tax policies in various Western countries. It should be emphasized that this is a new economic initiative that has not yet been enacted into law, and therefore, at this stage, it remains uncertain whether, when, and how it will be implemented in practice. Nevertheless, this proposed measure may influence the timing considerations of individuals planning to immigrate or return to Israel in 2026, and it is advisable to closely monitor further developments on this matter.
For more details, you can contact Adv (CPA) Doron Elmekiesse or Adv (CPA) Nofar Zigdon from our office.
The purpose of this memorandum is to provide you with general information on various topics. The laws themselves are more complex and include additional exceptions. Accordingly, the contents of this memorandum should not be applied without consulting the appropriate professional authority in our office
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