The Tax Benefits Most Olim Leave on the Table
Israel offers new immigrants one of the most generous tax benefit packages in the world. But the system is complex, poorly documented in English, and riddled with traps for the unwary. This guide walks you through every benefit, how to claim it, and crucially, when filing a tax return could actually hurt you.
Benefit 1: The 10-Year Foreign Income Exemption
Under Section 14(a) of the Income Tax Ordinance, new olim (and returning residents) are exempt from Israeli tax on foreign-sourced income for 10 years from the date of Aliyah. This is the single most valuable tax benefit for olim with overseas assets or income.
What qualifies as foreign income:
- Dividends from non-Israeli stocks or funds
- Interest from foreign bank accounts
- Rental income from property abroad
- Capital gains on assets acquired before Aliyah or foreign assets acquired after
- Foreign pension distributions
- Royalties from foreign sources
What does NOT qualify:
- Salary from an Israeli employer (even if work is done remotely)
- Income from a business registered in Israel
- Income from Israeli-listed securities
The 2026 change: Starting January 1, 2026, olim who become Israeli residents on or after that date must report all worldwide income and assets, regardless of amount, even though foreign-sourced income remains exempt from tax for the full 10 years. The April 2024 amendment removed the reporting carve-out that previously let new olim skip declaring exempt foreign income; there is no minimum threshold. Olim who became resident before 2026 keep the old carve-out with no reporting requirement. This reporting obligation is not a tax; it is purely informational. But it means the Tax Authority will see your worldwide financial picture.
Benefit 2: Olim Tax Credit Points (Nekudot Zikui)
Every oleh receives bonus נקודות זיכוי (Nekudot Zikui) (tax credit points) that directly reduce your מס הכנסה (Mas Hachnasa) (income tax). The schedule is:
| Period After Aliyah | Extra Credit Points | Annual Tax Savings (approx.) |
|---|---|---|
| Months 1-12 | 1 point | ~2,904 NIS |
| Months 13-30 | 3 points | ~8,712 NIS |
| Months 31-42 | 2 points | ~5,808 NIS |
| Months 43-54 | 1 point | ~2,904 NIS |
This back-loaded 54-month schedule applies to anyone who made aliyah on or after 1 January 2022. Olim who arrived before that date fall under the older 42-month front-loaded schedule. Each credit point is worth 242 NIS/month (2,904 NIS/year) as of 2026. Over the full 54 months, the total benefit is approximately 24,700 NIS in tax savings.
How to claim: Your employer should apply these automatically when you provide your Teudat Oleh and fill out Form 101 (employee tax declaration). If the credits were not applied during the year, you can reclaim the overpaid tax by filing an annual return.
How do you file your annual tax return (Doch Shenati)?
A דוח שנתי (Doch Shenati) is an annual income tax return. Most salaried employees in Israel are not required to file one, because tax is deducted at source through ניכוי במקור (Nikui BaMakor) (withholding). However, filing voluntarily is often how olim reclaim overpaid taxes.
When filing gets you a refund:
- Your employer did not apply olim credit points correctly
- You worked only part of the year (your marginal rate was lower than what was withheld)
- You made charitable donations (Section 46 deduction)
- You had tax withheld on bank interest or investments above what you actually owe
- You paid for private disability insurance or approved pension above the employer share
When should you NOT file a tax return?
This is perhaps the most important section of this article. Filing a voluntary tax return is not always beneficial. Here is why:
- Reporting opens the door: Once you file a return, the Tax Authority sees all your income. If you have foreign income that is exempt under the 10-year rule, filing can draw attention to assets you would rather not discuss.
- Passive income traps: If you earned significant Israeli passive income (bank interest, stock gains) on which tax was over-withheld, the refund from filing might be small while the disclosure of your overall financial picture is large.
- Triggering the income threshold: If your combined income from all sources exceeds certain thresholds (currently around 721,560 NIS/year from salary, or you have income from multiple employers), you may become required to file. Filing voluntarily for a refund could establish a pattern that makes future non-filing harder to justify.
Rule of thumb: If your only issue is missed credit points on a straightforward Israeli salary with no foreign income complications, filing is usually safe and beneficial. If you have complex foreign income, consult an international tax advisor before filing anything.
Which documents do you need to file?
If you decide to file, gather these documents before meeting your accountant or starting the online filing:
| Document | What It Is | Where to Get It |
|---|---|---|
| Form 106 (Tofes 106) | Annual employer tax certificate | Your employer (issued by Feb-March) |
| Form 867 | Bank/brokerage annual tax statement | Your Israeli bank or broker |
| Teudat Oleh | Immigration certificate | Ministry of Aliyah and Integration |
| Bituach Leumi payment confirmation | NI contribution receipts | Bituach Leumi website or offices |
| Donation receipts (Section 46) | Receipts from approved charities | The organization you donated to |
| Pension/insurance statements | Annual summaries from pension/insurance | Your pension company or insurance agent |
What is the acclimation year (90-day window)?
Under certain circumstances, olim can elect to not be considered Israeli tax residents for their first year. This "acclimation year" is available if you arrived after a period of non-residency and want to maintain your foreign tax residency status for a transitional period. The key: you must make this election within 90 days of arrival by notifying the Tax Authority. Once the 90-day window passes, the option expires permanently.
This is particularly relevant if you have large capital gains events planned in your departure year, foreign stock vesting, or complex cross-border income timing issues.
How is deferred compensation taxed after Aliyah?
If you have deferred compensation from your pre-Aliyah employer (bonuses, commissions, or payments that arrive after you have become an Israeli resident), the tax treatment depends on when the income was earned, not when it was received. Income earned before Aliyah but paid after can potentially be treated as foreign-source income and covered by the 10-year exemption. Document the earning period carefully, as the Tax Authority may challenge this.
How do you find a tax accountant for olim?
For anything beyond a simple credit-points refund, you need a bilingual tax accountant (Roeh Cheshbon) who specializes in olim taxation. Key qualities to look for:
- Experience with olim and the 10-year exemption
- Familiarity with your country of origin's tax system
- Membership in the Israeli Institute of CPAs (Lishkat Roei Cheshbon)
- Transparent fee structure (typically 1,500-5,000 NIS for an annual return)
Tip: Ask for references from other olim. The Anglo olim community has established networks of recommended accountants in every major city.
US citizens have additional filing obligations:
- Form 1116 (Foreign Tax Credit): Since you pay Israeli tax on Israeli income, you can claim a credit on your US return to avoid double taxation. This is often dollar-for-dollar, meaning you owe little or no US tax on Israeli-sourced income.
- FBAR (FinCEN 114): If your combined foreign accounts exceed $10,000 at any point, you must file electronically by April 15. This includes Israeli bank accounts, pension funds, and Keren Hishtalmut.
- FATCA (Form 8938): Additional reporting for foreign financial assets exceeding $200,000 for overseas filers. This covers a broader range of assets than FBAR.
- The PFIC problem: Israeli mutual funds and non-US-listed ETFs are classified as PFICs. The tax treatment is harsh, and IRS Form 8621 is required for each PFIC. For this reason many American olim hold US-listed funds rather than local PFICs.
- Streamlined Filing: If you have not been filing US returns, the Streamlined Foreign Offshore Procedures allow you to catch up with 3 years of returns and 6 years of FBARs without penalties.
Your Action Plan
Based on your situation, here is a prioritized action plan:
- Immediately: Give your Teudat Oleh to HR and confirm credit points are applied on your payslip.
- Within 90 days: Decide on the acclimation year election if you have complex foreign income.
- By March of the following year: Collect Form 106, Form 867, and all relevant documents.
- By April 30: Decide whether to file a voluntary return (consult an accountant if you have foreign income).
- Ongoing: Keep records of all foreign income and assets for the duration of your 10-year exemption.
New olim in Israel get one of the most generous tax benefit packages in the world. The headline benefit is the 10-year exemption under Section 14(a) of the Income Tax Ordinance, which exempts foreign-sourced income (dividends, foreign interest, overseas rental, capital gains, foreign pensions, and royalties) from Israeli tax for 10 years from your aliyah date. Salary from an Israeli employer, Israeli business income, and Israeli-listed securities are not covered. Olim also receive bonus credit points (Nekudot Zikui): for anyone who made aliyah on or after 1 January 2022 the benefit runs 54 months and is back-loaded (1 point in months 1 to 12, 3 points in months 13 to 30, 2 points in months 31 to 42, and 1 point in months 43 to 54), each point worth 242 NIS/month (2,904 NIS/year), totalling roughly 24,700 NIS over 54 months. Your employer applies these automatically once you give HR your Teudat Oleh and complete Form 101. Filing a voluntary annual return (Doch Shenati) is how you reclaim overpaid tax if credits were missed, but it is not always beneficial: once you file, the Tax Authority sees your whole financial picture, so if you have only exempt foreign income, filing can create unnecessary exposure. When the only issue is missed credit points on a straightforward Israeli salary, filing is typically low-risk; with complex foreign income, the trade-off is harder and a bilingual international tax professional is the usual route.
Under Section 14(a) of the Income Tax Ordinance, new olim and returning residents are exempt from Israeli tax on foreign-sourced income for 10 years from the date of aliyah. It is the single most valuable tax benefit for olim with overseas assets or income. Qualifying foreign income includes dividends from non-Israeli stocks or funds, interest from foreign bank accounts, rental income from property abroad, capital gains on assets acquired before aliyah or foreign assets acquired after, foreign pension distributions, and royalties from foreign sources. It does NOT cover salary from an Israeli employer (even if the work is done remotely), income from a business registered in Israel, or income from Israeli-listed securities.
Starting January 1, 2026, olim who become Israeli residents on or after that date must report all their worldwide income and assets, regardless of amount, even though foreign-sourced income stays exempt from tax for the full 10 years. The April 2024 amendment removed the old reporting carve-out that let new olim skip declaring exempt foreign income; there is no minimum threshold such as the NIS 1 million figure sometimes cited. Olim who became resident before 2026 keep the old carve-out with no reporting requirement. This reporting obligation is not a tax and does not change what you owe; it is purely informational, but the practical effect is that the Tax Authority will see your worldwide financial picture.
Every oleh receives bonus tax credit points (Nekudot Zikui) that directly reduce your income tax. For anyone who made aliyah on or after 1 January 2022, the benefit runs 54 months and is back-loaded: 1 extra point in months 1 to 12 (about 2,904 NIS/year), 3 points in months 13 to 30 (about 8,712 NIS/year), 2 points in months 31 to 42 (about 5,808 NIS/year), and 1 point in months 43 to 54 (about 2,904 NIS/year). Olim who arrived before 2022 fall under the older 42-month front-loaded schedule. Each credit point is worth 242 NIS/month, or 2,904 NIS/year, as of 2026. Over the full 54 months the total benefit is approximately 24,700 NIS in tax savings. Your employer should apply these automatically once you provide your Teudat Oleh and fill out Form 101 (the employee tax declaration); if they were not applied during the year, you can reclaim the overpaid tax by filing an annual return.
Most salaried employees in Israel are not required to file a Doch Shenati because tax is deducted at source through withholding (Nikui BaMakor), but filing voluntarily is often how olim reclaim overpaid tax. Filing tends to produce a refund when your employer did not apply the olim credit points correctly, when you worked only part of the year so your marginal rate was lower than what was withheld, when you made charitable donations (Section 46 deduction), when tax was withheld on bank interest or investments above what you actually owe, or when you paid for private disability insurance or approved pension above the employer share.
Filing a voluntary return is not always beneficial. Once you file, the Tax Authority sees all your income, so if you have foreign income that is exempt under the 10-year rule, filing can draw attention to assets you would rather not discuss. If you earned significant Israeli passive income (bank interest, stock gains) on which tax was over-withheld, the refund might be small while the disclosure of your overall financial picture is large. And if your combined income exceeds certain thresholds (currently around 721,560 NIS/year from salary, or you have income from multiple employers), you may become required to file, and filing voluntarily could establish a pattern that makes future non-filing harder to justify. As a general pattern, when the only issue is missed credit points on a straightforward Israeli salary with no foreign income complications, filing is typically low-risk; cases with complex foreign income are where the trade-off is harder and a bilingual international tax professional is the usual route.
Before meeting your accountant or starting the online filing, gather Form 106 (Tofes 106), the annual employer tax certificate, issued by your employer around February to March; Form 867, the bank or brokerage annual tax statement, from your Israeli bank or broker; your Teudat Oleh (immigration certificate) from the Ministry of Aliyah and Integration; your Bituach Leumi payment confirmation (NI contribution receipts) from the Bituach Leumi website or offices; donation receipts (Section 46) from approved charities; and pension or insurance statements (annual summaries) from your pension company or insurance agent.
Under certain circumstances, olim can elect not to be considered Israeli tax residents for their first year. This acclimation year is available if you arrived after a period of non-residency and want to maintain your foreign tax residency status for a transitional period. The key requirement: you must make this election within 90 days of arrival by notifying the Tax Authority, and once the 90-day window passes the option expires permanently. It is particularly relevant if you have large capital gains events planned in your departure year, foreign stock vesting, or complex cross-border income timing issues.
US citizens keep filing US returns after aliyah. Form 1116 (Foreign Tax Credit) lets you claim a credit for Israeli tax paid on Israeli income to avoid double taxation, often dollar-for-dollar. FBAR (FinCEN 114) is required if your combined foreign accounts exceed $10,000 at any point, filed electronically by April 15, and includes Israeli bank accounts, pension funds, and Keren Hishtalmut. FATCA (Form 8938) adds reporting for foreign financial assets exceeding $200,000 for overseas filers. The PFIC problem is significant: Israeli mutual funds and non-US-listed ETFs are classified as PFICs with harsh tax treatment (Form 8621 per PFIC), which is why many American olim avoid PFICs by investing in US-listed funds. If you have not been filing, the Streamlined Foreign Offshore Procedures let you catch up with 3 years of returns and 6 years of FBARs without penalties.
For anything beyond a simple credit-points refund, look for a bilingual tax accountant (Roeh Cheshbon) who specializes in olim taxation. Key qualities are experience with olim and the 10-year exemption, familiarity with the tax system of your country of origin, membership in the Israeli Institute of CPAs (Lishkat Roei Cheshbon), and a transparent fee structure, typically 1,500 to 5,000 NIS for an annual return. Ask for references from other olim; the Anglo olim community has established networks of recommended accountants in every major city.
