The 2026 Economic Arrangements Bill was recently submitted to the Knesset, introducing a temporary provision effective January 1, 2026 (the “Draft Bill”). This Draft Bill aims to significantly, though temporarily, encourage new immigrants and veteran returning residents to arrive in Israel in 2026 through tax benefits on their Israeli-sourced active income.
This new benefit applies only to new immigrants and veteran returning residents (i.e., people who spent more than ten years abroad) who become Israeli tax residents in 2026, as well as to those who have elected an Acclimation Year (שנת הסתגלות) in 2025. It will apply for a limited five-tax-year period, through 2030, after which exemptions will lapse, and Israeli source income will be taxed in accordance with current law.
The exemption applies to employment income and business income, provided that the work is performed in Israel (even if paid by a non-resident employer) or the business is in Israel. Please note that not all business income qualifies for this benefit, and professional legal advice is therefore recommended.
The tax exemption subject to progressively declining annual caps:
For the 2026 tax year, the exempt income cap will be prorated based on the individual’s period of Israeli tax residency during that year.
The exemption does not apply to passive income, such as dividends, rental income, or income from the sale of securities. It also does not apply to income derived from a “related party”.
It is important to emphasize that this proposed benefit is offered in addition to existing tax benefits for new immigrants and veteran returning residents.
Since the benefit applies only to people becoming residents in 2026, the accurate determination of when the taxpayer became resident is crucial.
Please note that this is a preliminary draft bill only which has not been enacted into law. It may be subject to changes from the version currently presented.
For further information, please contact Adv. Yair Benjamini or Adv. Rosa Peled of our firm.
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