Israel – Taxation

How does the tax system in Israel work?

Israel’s tax framework is entirely centralised — there are no separate regional or municipal levies on personal income. All income tax matters are handled at the national level by the Israel Tax Authority (ITA), which operates under the Ministry of Finance. This structure is comparable to France’s Direction Générale des Finances Publiques or Australia’s ATO, in that a single national authority bears complete responsibility for personal income tax administration.

Personal income tax in Israel follows a progressive structure, meaning that as an individual’s earnings grow, the applicable rate on each successive band rises. The system is intended to ensure that tax burdens are distributed equitably, with higher earners contributing proportionally more. Annual tax brackets are derived from the cumulative effect of the monthly brackets in effect during the year, and these are periodically revised to account for inflation.

The most fundamental concept for anyone relocating to Israel is that of tax residency. Under Israeli law, the relevant test for individual residents is the “centre of life” standard, which weighs an individual’s overall connections to Israel — encompassing family, financial, and social ties. Israeli residents are subject to tax on their global income, regardless of where it is earned, whereas non-residents are taxed only on income that originates within Israel.

Unlike the UK’s statutory residence test — which relies heavily on a structured day-count methodology — Israel’s approach places primary emphasis on a comprehensive assessment of life circumstances. Nonetheless, specific day-count presumptions exist: any person present in Israel for 183 days or more within a given tax year is presumed to have their centre of life there. A person present for at least 30 days in the current tax year, and for a cumulative total of 425 days or more across that year and the two preceding years, is similarly presumed to be resident.

The overarching test under the Income Tax Ordinance (ITO) remains the “centre of life” standard, with the day-count presumptions serving as aids rather than definitive conclusions. Even where the day thresholds are not reached, an individual may still be classified as an Israeli tax resident if their personal and financial connections to Israel are sufficiently strong. This means that newcomers who rapidly develop deep personal or economic ties in Israel could be treated as residents even after a relatively brief stay. Always consult the Israel Tax Authority for the current rules and any legislative updates.

The Israel Tax Authority permits an individual arriving in Israel to designate their first year as an “acclimation year.” During this initial period, the new arrival may be treated as a non-resident for Israeli tax purposes, providing an opportunity to assess whether permanent settlement is desirable before full residency obligations are triggered. Should the individual ultimately remain in Israel on a permanent basis, the acclimation year will count as the first year of the 10-year benefits period. Conversely, if the individual departs during the acclimation year, no Israeli tax consequences arise and the individual will be treated as though they had never acquired Israeli tax residency.

Does Israel have double taxation agreements, and how do they affect expats?

Tax treaties are bilateral agreements between two countries designed to prevent a resident of one state from being taxed twice on the same income — once in the country where the income is generated and again in the country of residence. These agreements are typically crafted to encourage foreign investment and cross-border trade, and to establish clear legal frameworks for international tax matters.

Israel has built an extensive network of double taxation treaties (DTTs) with partner countries across Europe, North America, Asia, and other regions. The authoritative and up-to-date list of Israel’s tax treaties is available on the Israel Ministry of Finance double taxation agreements page. Where Israel is party to a relevant double taxation treaty, the provisions of that treaty take precedence over domestic Israeli tax legislation.

In cases where no applicable DTT exists, double taxation is addressed through a unilateral foreign tax credit mechanism. This credit is capped at the amount of Israeli tax attributable to the same income. Foreign-sourced income is grouped into categories (baskets) according to its nature — such as dividends or business profits — and a distinct credit ceiling applies to each basket. Any foreign tax credits that cannot be utilised in the current year may be carried forward for use over the following five tax years.

Where an individual is regarded as a tax resident of both Israel and another country at the same time, the tie-breaker provisions within the relevant treaty will determine in which country that individual is treated as resident for tax purposes. Typically, such provisions consider where the individual maintains a permanent home, where their closest personal and financial ties lie, and the country of which they are a national.

Since January 2019, a significant number of bilateral tax treaties have been amended by the OECD’s Multilateral Instrument (MLI), which has been adopted by more than 90 countries as part of a coordinated international effort to curb tax avoidance and the abuse of treaty provisions. Expats should verify the current status of any relevant treaty with a qualified tax adviser, since the MLI may have altered specific provisions since the original treaty was concluded.

What taxes do expats need to pay in Israel?

Once you are a tax resident in Israel, you will encounter several categories of tax. The principal taxes that individuals face are described below. All rates and thresholds are subject to annual inflation adjustments; always verify the current figures with the Israel Tax Authority.

Income Tax

Income tax on individuals in Israel — whether salaried employees, self-employed persons, or those receiving other types of income — is calculated according to a graduated set of income bands. The taxation method is progressive: the larger the income, the greater the rate applied to each successive portion. As of 2025, the highest marginal rate of 47% applies to annual income exceeding ILS 663,240, with the lowest band taxed at 10%. Individuals whose annual income surpasses ILS 721,560 are subject to an additional “high income” surtax of 3%, pushing the effective top rate to 50%.

Income tax bands are revised each year in line with movements in the consumer price index — a positive change results in upward adjustments to the thresholds, meaning that the tax burden at any given wage level is generally expected to decrease. The official bands for the current year should always be confirmed via the ITA website.

Capital Gains Tax

Dividend income is generally taxed at 25% for an individual who does not qualify as a significant shareholder, while a significant shareholder faces a rate of 30%. Capital gains, real estate appreciation, dividends, interest, and rental income exceeding ILS 721,560 (in 2025) are subject to a further surtax of 2%. No capital gains tax applies to the disposal of an asset held for personal use.

Foreign nationals and Israeli individuals who own multiple residential properties are required to pay capital gains tax on investment property disposals. Where an individual disposes of property situated in Israel, land appreciation tax — which is the Israeli equivalent of capital gains tax — will apply.

Inheritance and Gift Tax

Israel does not currently impose a dedicated inheritance or estate tax on assets passing at death. However, gifted assets are not entirely free of tax consequences. No tax arises until a gift is subsequently sold to a third party, provided the recipient is either a relative of the donor or a person who can demonstrate the gift was made in good faith. Transferring a gift to a non-resident, however, triggers a taxable event at the point of transfer.

Property and Acquisition Tax

Anyone purchasing property in Israel is generally liable for acquisition tax. The applicable rates differ depending on the category of buyer: Israeli residents purchasing their sole home, individuals making Aliyah (within two years) as a sole homeowner, Israeli residents who own multiple properties, or foreign residents acquiring property. Foreign residents typically face higher acquisition tax brackets than Israeli residents buying a first home. Always confirm the current brackets with the ITA before committing to any property purchase.

VAT (Value Added Tax)

VAT in Israel is levied on most goods and services, including imports. With effect from 1 January 2025, the standard rate rose to 18%. Certain categories are zero-rated, including exported goods and specified services provided to non-residents. Most expats in employment will not need to register for VAT, but those operating a business in Israel will generally be required to do so.

National Insurance (Bituach Leumi) and Health Insurance

Beyond income tax, Israeli residents are required to pay National Insurance (Bituach Leumi) and health insurance contributions, which together fund the country’s social welfare and public healthcare systems. National Insurance contributions apply to all categories of income, including salaries and self-employment earnings. The structure is broadly analogous to National Insurance in the UK or social contributions in France, in that it simultaneously finances both social security entitlements and access to public healthcare.

Health insurance contributions are calculated as a percentage of income. For employees, the rate is approximately 3%–5%, depending on whether income exceeds a threshold of ILS 6,331. Self-employed individuals pay rates ranging from 5.97% to 17.83%. These rates are as of 2024 and are subject to change; verify current figures with the ITA or the National Insurance Institute.

Rental Income

Rental income is subject to progressive tax rates. Residential rental income benefits from specific reliefs, including an exemption where the monthly rental income falls below ILS 5,654 (for 2025). Where income exceeds this threshold, the exempt portion is reduced by the amount of the excess. Alternatively, an individual may elect to pay a flat rate of 10% on rental income.

Are there any tax breaks or special regimes for expats in Israel?

Israel offers one of the most generous new-arrival tax regimes anywhere in the world. Unlike Portugal’s former NHR scheme — which provided a flat 20% rate on certain categories of income — or Italy’s flat-tax arrangement for new residents, Israel’s central benefit is a sweeping exemption from tax on all foreign-sourced income for an entire decade.

The 10-Year Foreign Income Exemption

Both returning residents and new immigrants are fully exempt from Israeli tax for 10 years on income generated outside Israel. The exemption encompasses all forms of income, whether active or passive, including interest, dividends, pensions, royalties, and income derived from assets held abroad. Income from the disposal of overseas assets and investments, as well as regular income earned abroad, falls entirely within the scope of the exemption.

Among the most significant advantages available to new immigrants (olim hadashim) is this decade-long exemption on foreign income, which extends to employment income, investment returns, and pension receipts from abroad. New immigrants are also shielded from Israeli tax on their foreign pension income during this period. These provisions make Israel particularly attractive to individuals with substantial passive income streams or pension entitlements from overseas.

Important Reporting Changes from 2026

A significant amendment to the Income Tax Ordinance, enacted on 2 April 2024, eliminated the reporting exemption for new immigrants and veteran returning residents who become Israeli tax residents on or after 1 January 2026. Although such individuals continue to enjoy the 10-year tax exemption on foreign-sourced income, they will no longer be exempt from the obligation to disclose that income and any foreign assets to the Israel Tax Authority.

The pivotal date is 1 January 2026. Individuals who establish Israeli tax residency on or after this date will be subject to the new reporting requirements. Those who became residents before this date retain the older reporting exemption for the full duration of their 10-year benefit period under the pre-existing rules. Anyone planning a relocation to Israel should seek specialist advice without delay, given the material implications of this change.

New Immigrant Tax Credits

New immigrants are entitled to special tax credits during their first three and a half years in Israel. These credits operate by directly reducing the amount of tax otherwise due. They are expressed in points, with each point valued at approximately NIS 2,796 annually in 2024. These credits are available alongside the foreign income exemption and can meaningfully reduce an immigrant’s Israeli tax liability on Israeli-source income.

Approved Expert Status

A non-resident recruited to work within an Israeli approved enterprise in a specialist capacity, where the required expertise is not readily available domestically, may apply to the Israeli Government’s Investment Center for “approved expert” designation. This limits the rate of Israeli income tax to a maximum of 25% for a period of three years (extendable to a maximum of five years) on a specified maximum monthly income as determined periodically by the Investment Center.

Acclimation Year Option

As described above, new arrivals may elect to have their first year in Israel treated as an “acclimation year,” thereby deferring full tax residency status. This can be a valuable planning option for those who have not yet decided whether to settle in Israel permanently. If the individual does ultimately remain, the acclimation year is counted as year one of the 10-year exemption period, leaving nine years of benefits intact.

How and when do expats file a tax return in Israel?

Israel’s tax year is the calendar year. Subject to specific exceptions, every individual who qualifies as an Israeli tax resident is required to submit an annual tax return. Where a return is required, the standard filing deadline is 30 April following the end of the relevant tax year, subject to any extensions that may be granted. Taxpayers who file electronically or who maintain accounts on a double-entry bookkeeping basis have until 31 May.

A resident taxpayer whose primary income consists of employment earnings is not generally obliged to submit an annual personal tax return, provided that the combined employment and other income of each spouse does not exceed defined thresholds and tax was withheld at source. However, expats who have multiple income sources, foreign earnings, or significant investment income will almost always be required to file. A non-Israeli tax resident employee is generally not required to lodge an Israeli income tax return if appropriate withholding has been remitted to the authorities, the employee’s annual income did not exceed ILS 721,560 (as of 2025), and no other Israeli-source income was received.

The following steps outline the process for expats registering and filing with the Israel Tax Authority:

1. Obtain a tax identification number. When you arrive in Israel, you will typically receive an Israeli ID number (teudat zehut) if making aliyah, or you can register with the ITA as a foreign resident or self-employed person. Contact the Israel Tax Authority at gov.il to open a file.
2. Register your employment or self-employment status. Employers withhold tax on income from employment in accordance with tables issued by the Commissioner of Taxes and updated from time to time. Foreign employers are not exempt from the obligation to open and operate an Israeli payroll withholding tax file, on a monthly basis, in respect of personnel in Israel.
3. Register for National Insurance (Bituach Leumi). Upon registration with the VAT authorities, if you are not an “exempt dealer”, you need to register with the tax authorities as a self-employed individual or as a corporation, as well as with Bituach Leumi.
4. Make advance tax payments if self-employed. Self-employed individuals are generally required to make monthly or bimonthly advance tax payments, usually based on a percentage of turnover.
5. Gather your documents and complete your annual return. Collect details of all Israeli-sourced income, and for tax residents, all worldwide income. New immigrants arriving from 1 January 2026 must also report foreign income and assets even if exempt from tax on them.
6. File your return by the deadline. The standard deadline is 30 April (or 31 May for online filers). The Israeli tax authorities may grant extension deadlines to taxpayers — check the ITA website each year for any announced extensions.
7. Pay any outstanding tax. Tax advances are required to be paid by an individual for interest, dividends, capital gains, and rental income in amounts and according to specific deadlines set out in detailed Israeli tax rules.

Even where an expatriate is not strictly required to file a return, doing so in the years of arrival and/or departure may be advisable in order to formalise their tax position and to claim any available credits or exemptions. Engaging a qualified Israeli tax accountant (roa’h heshbon) is strongly recommended, particularly during the first year of residence.

What are the tax implications of leaving Israel?

Departing Israel does not automatically bring your Israeli tax obligations to an end. Any individual who has been an Israeli tax resident must take deliberate steps upon leaving the country, and there are significant financial considerations that warrant advance planning.

Exit Tax on Unrealised Gains

A critical consideration for departing Israeli tax residents is the exit tax. This tax crystallises on the final day of Israeli tax residency. However, it is possible to defer actual payment until the date on which the relevant asset is sold, with the tax calculated by reference to the asset’s value on the sale date, based on a linear attribution of appreciation accrued during the period of Israeli residence. This concept is broadly analogous to the exit tax rules in countries such as Canada and the Netherlands, which similarly treat assets as disposed of at market value upon a taxpayer’s departure.

The exit tax may apply to unrealised capital gains, and certain assets are treated as having been sold at fair market value on the date of departure. In practical terms, if you hold appreciated assets — such as stocks, real estate, or business interests — leaving Israel without obtaining specialist advice first could generate a substantial and unforeseen tax liability.

Filing a Final Return and Deregistering

Upon leaving Israel, you are expected to submit a final annual tax return covering the period from 1 January to your last day as an Israeli tax resident. You should also formally notify the Israel Tax Authority that you are ceasing to be resident. Neglecting to do so risks the ITA continuing to treat you as resident and seeking to tax your worldwide income accordingly.

Ongoing Obligations on Israeli Assets

Even following your departure from Israel, ongoing reporting and payment obligations may persist if you continue to receive Israeli-source income — for example, from a rental property, Israeli investments, or a business operating within the country. Non-residents are taxed solely on income arising in Israel, which means that former residents who retain Israeli assets will still be required to file Israeli returns disclosing any locally sourced income.

Impact on the 10-Year Exemption

Should you leave Israel before completing the full 10-year residency period and subsequently return, the rules governing whether your exemption continues or resets are intricate and depend heavily on the length of your absence. This is an area where specialist advice is indispensable before making any decision to leave Israel, whether on a temporary or permanent basis.

Practical tips for managing taxes as an expat in Israel

• Record your days in Israel meticulously from the outset. For those with internationally mobile lifestyles, keeping a careful log of your time in Israel is essential for demonstrating compliance with residency rules. A dedicated diary or tracking application to record all entry and exit dates throughout the year will prove invaluable.
• Understand when residency is triggered before you relocate. For Israeli tax purposes, an individual is considered resident when Israel constitutes their centre of life, taking into account family, financial, and social connections. The day-count presumptions are triggered by at least 183 days in Israel within a tax year, or a minimum of 30 days in the current year combined with a cumulative total of 425 days across the current year and the two preceding years.
• Plan the timing of your move with care. Where possible, consider scheduling your arrival to make optimal use of the acclimation year provision or to fall within the most advantageous reporting regime. As outlined above, reporting obligations changed substantially for those arriving from 1 January 2026.
• Take advice before disposing of overseas assets. Any sale of appreciated foreign assets after you become an Israeli tax resident — even if potentially shielded under the 10-year exemption — should be reviewed by a tax professional to confirm the correct treatment and any applicable reporting obligations.
• Make active use of your applicable DTA. If your country of origin has concluded a tax treaty with Israel, familiarise yourself with which country holds primary taxing rights over each category of income you receive. In the absence of an applicable treaty, double taxation is avoided through a unilateral foreign tax credit mechanism. Maintain thorough records of tax paid abroad so that credits can be claimed in Israel where appropriate.
• Appoint a specialist adviser at the earliest opportunity. Israel’s tax framework — particularly the new immigrant regime, exit tax provisions, and the interplay with the tax systems of other countries — is genuinely complex. Engage a CPA (roa’h heshbon) with specific expertise in cross-border and expat taxation in Israel, ideally before you arrive.
• Submit reports even when income is exempt. Those arriving from 1 January 2026 onwards are required to disclose worldwide income and foreign assets or trusts to the Israeli tax authority, even where that income or those assets are sheltered from tax under the 10-year exemption. Failure to comply with reporting requirements can attract substantial penalties.
• Maintain comprehensive financial records throughout. Keep clear documentation of when you acquired each asset, its value on the date you became an Israeli tax resident, and all income received. Accurate records are essential for computing any future gain correctly, including for the purposes of the exit tax.

Frequently asked questions: taxation in Israel for expats

When do I become a tax resident in Israel?

Israeli tax residency is established when Israel is the centre of your life, assessed by reference to your family, economic, and social connections to the country. Presumptions of residency arise where you are present in Israel for at least 183 days in a tax year, or for at least 30 days in the current tax year alongside a cumulative total of 425 days spanning the current and two preceding years. The centre of life test remains the primary criterion, and the day-count thresholds are rebuttable presumptions rather than absolute rules.

Is all of my worldwide income taxable in Israel?

Israeli tax residents are liable on their global income, encompassing earnings from both Israeli and foreign sources. Non-residents, by contrast, are taxed only on income that arises within Israel. That said, new immigrants and qualifying returning residents benefit from a 10-year exemption on all foreign-sourced income, effective from the date on which they acquire Israeli tax residency.

What is the 10-year tax exemption and who qualifies?

Israel has long extended tax incentives to new immigrants (olim) and veteran Israeli returning residents. Qualifying individuals are exempt from Israeli tax on all foreign-sourced income for a period of 10 years from the date they become tax resident. A “veteran returning resident” is broadly defined as someone who has lived outside Israel for at least 10 years. The exemption covers income from employment, passive income, pension receipts, and investment returns generated abroad. It is important to note that individuals arriving from 1 January 2026 are still required to report this exempt income to the ITA, even though it will not be taxed.

What is the deadline for filing a tax return in Israel?

The standard filing deadline is 30 April, subject to any extensions that may be granted. Taxpayers who file online or who maintain double-entry bookkeeping have until 31 May. The ITA sometimes announces extensions, so it is advisable to check the ITA website for the current year’s deadlines before filing.

Does Israel tax pension income from abroad?

New immigrants are sheltered from Israeli tax on foreign pension income throughout the 10-year exemption period. The exemption extends to all income produced outside Israel for the duration of that period, including passive income such as pension receipts. Once the exemption period expires, foreign pension income becomes subject to Israeli tax, although specific provisions may act to reduce the applicable rate. Given that the treatment depends on the nature of the pension and any relevant double taxation agreement, professional advice should always be sought.

What is Bituach Leumi and do expats have to pay it?

Israeli tax residents are required to pay National Insurance (Bituach Leumi) and health insurance contributions, which collectively finance the country’s social welfare and public healthcare systems. Contributions are levied on all categories of income, including salaries and self-employment earnings. The obligation generally extends to new immigrants as well as long-term residents. Current rates and contribution schedules are published by the National Insurance Institute on its website.

Is there an exit tax when leaving Israel?

Yes, an exit tax applies to Israeli tax residents on departure, crystallising on the final day of residency. Payment can, however, be deferred until the date of the actual disposal of the relevant asset, at which point the tax is calculated by reference to the sale proceeds, with gains attributed on a linear basis to the period of Israeli residency. Anyone holding appreciated assets — including foreign investments or real estate — should obtain specialist tax advice well in advance of any planned departure from Israel.

How do I find out whether my country has a tax treaty with Israel?

The comprehensive list of Israel’s double taxation treaties is maintained by the Israeli Ministry of Finance. Since January 2019, many bilateral treaties have been amended by the OECD’s Multilateral Instrument (MLI). Both the original treaty text and any MLI modifications should be reviewed to establish the current position. A qualified international tax adviser can clarify precisely how any applicable treaty bears on your individual circumstances.

Can I be tax resident in Israel and another country at the same time?

Dual tax residency — being treated as a tax resident of both Israel and another jurisdiction simultaneously — is possible. In such situations, the tie-breaker provisions contained in the applicable double taxation treaty will determine which country holds primary taxing rights. These provisions typically examine factors similar to those considered under Israel’s centre of life test. Dual residency scenarios are inherently complex and can produce unexpected tax liabilities in both countries, so professional advice is essential if you believe you may be resident in more than one jurisdiction at the same time.