A Growing Scenario for Olim
Many olim make aliyah while continuing to work for their pre-aliyah employer - a US tech company, a UK professional services firm, or any other foreign organization. This arrangement is increasingly common and fully legal, but it creates a specific tax and compliance situation that you need to handle actively. Israel does not ignore foreign salary.
Israel Taxes You on Where You Work, Not Just Where You Live
The key principle: Israeli מס הכנסה (Mas Hachnasa) applies to income from work physically performed in Israel. If you sit in your Tel Aviv apartment and do your job for a New York employer, Israel taxes that income. The fact that your salary arrives in a US bank account doesn't exempt it - Israel's tax is based on where the economic activity occurs, not where the payment arrives.
This means: once you complete aliyah and become an Israeli resident, your foreign salary becomes Israeli-taxable income. You are required to report it and pay Israeli income tax on it - coordinated with any foreign taxes paid via the relevant tax treaty.
What About the 10-Year Exemption?
The 10-year tax exemption for new olim is one of Israel's most significant incentives, but it has a specific scope. The exemption covers:
- Income from foreign businesses you continue to own
- Interest, dividends, and capital gains from foreign assets
- Passive foreign income (rental income abroad, etc.)
It generally does not exempt salary earned for work actively performed in Israel, even for a foreign employer. If you are physically in Israel doing your job, that income is Israeli- source income and taxable in Israel regardless of the exemption.
The exemption is complex enough that this is an area where professional advice from an olim-specialist accountant is worth the cost. The 10-year exemption rules have also been subject to the 2026 tax reform: Amendment 272 to the Income Tax Ordinance (effective 1 January 2026 for new arrivals) keeps the tax exemption itself but repeals the older reporting exemption, Olim who become Israeli residents from 2026 onward must disclose worldwide income and assets to the Israel Tax Authority annually, even where the income is still tax-exempt.
Do you owe ביטוח לאומי (Bituach Leumi) on foreign salary?
Beyond income tax, you also have Bituach Leumi obligations. If you work for a foreign employer who has no Israeli entity, you are typically classified as "self-employed" for Bituach Leumi purposes and must register and pay quarterly Bituach Leumi contributions yourself - even if you're technically an employee of the foreign company.
This is the most commonly overlooked obligation. Many remote workers pay their Israeli income tax correctly but neglect Bituach Leumi, accumulating a debt with interest plus losing years of contribution credit toward future benefits.
How should you structure remote work for a foreign employer?
If you're working remotely for a foreign employer from Israel, you have several paths:
- Register as Osek Patur or Osek Murshe and invoice your employer. You handle all Israeli taxes and Bituach Leumi as a self-employed person. Straightforward but requires self-discipline on quarterly payments.
- Use a billing company (Atzmai Sachir) - a third-party service that employs you on paper, handles all Israeli deductions, and pays you net salary. See the next article.
- If your employer has an Israeli entity, they can employ you directly through it and handle all deductions as a standard employee.
The right structure depends on your income level, your employer's flexibility, and your tolerance for compliance administration. An accountant consultation before you start working in Israel is a sensible investment.
If you live in Israel and work remotely for a foreign employer, Israel taxes that salary as Israeli-source income, because the tax follows where the work is physically performed, not where the money is paid. Once you are an Israeli tax resident, your foreign salary becomes Israeli-taxable and must be reported and paid, coordinated with any foreign taxes via the relevant tax treaty. The 10-year new-oleh exemption does not help here: it covers passive income and foreign-business income, not salary for work actively done in Israel. You also owe Bituach Leumi: when your foreign employer has no Israeli entity you are typically classified as self-employed and must register and pay quarterly contributions yourself. This is the most commonly overlooked obligation. You can structure the arrangement by registering as an Osek Patur or Osek Murshe and invoicing your employer, using a billing company (Atzmai Sachir) that handles all Israeli deductions, or having your employer engage or use an Israeli entity to employ you directly. Note that under Amendment 272 (effective 1 January 2026 for new arrivals), the tax exemption stays but the older reporting exemption is repealed, so olim who become residents from 2026 onward must disclose worldwide income and assets to the Israel Tax Authority annually.
Yes. Israeli income tax (Mas Hachnasa) applies to income from work physically performed in Israel. If you sit in your Israeli apartment and do your job for a foreign employer, Israel taxes that income, because the tax is based on where the economic activity occurs, not where the payment arrives. The fact that your salary lands in a foreign bank account does not exempt it. Once you complete aliyah and become an Israeli resident, your foreign salary becomes Israeli-taxable income that you must report and pay tax on, coordinated with any foreign taxes paid via the relevant tax treaty.
Generally no. The 10-year tax exemption is one of Israel's most significant incentives, but it has a specific scope: it covers income from foreign businesses you continue to own, interest, dividends and capital gains from foreign assets, and passive foreign income such as rental income abroad. It does not exempt salary earned for work actively performed in Israel, even for a foreign employer. If you are physically in Israel doing your job, that income is Israeli-source income and taxable in Israel regardless of the exemption.
Yes. Beyond income tax, you have Bituach Leumi obligations. If you work for a foreign employer that has no Israeli entity, you are typically classified as self-employed for Bituach Leumi purposes and must register and pay quarterly Bituach Leumi contributions yourself, even though you are technically an employee of the foreign company. This is the most commonly overlooked obligation. Many remote workers pay their Israeli income tax correctly but neglect Bituach Leumi, accumulating a debt with interest and losing years of contribution credit toward future benefits.
You have several paths. You can register as an Osek Patur or Osek Murshe and invoice your employer, handling all Israeli taxes and Bituach Leumi yourself as a self-employed person, which is straightforward but requires self-discipline on quarterly payments. You can use a billing company (Atzmai Sachir), a third-party service that employs you on paper, handles all Israeli deductions, and pays you a net salary. Or, if your employer has an Israeli entity, they can employ you directly through it and handle all deductions as for a standard employee. The right structure depends on your income level, your employer's flexibility, and your tolerance for compliance administration.
American olim face a double compliance challenge. Israel taxes your worldwide income as a resident (after any applicable exemption period), and the US taxes US citizens everywhere in the world. If you work for a US employer, your US salary will be subject to Israeli income tax and, crucially, Bituach Leumi, unless the 2026 exemption applies. You will also need to deal with FICA potentially still being withheld by your US employer.
UK olim who become Israeli tax residents, typically after 183 days in Israel, stop being UK tax residents in most cases. The Israel-UK tax treaty prevents double taxation on employment income. Your Israeli income tax obligations begin from the day you are considered an Israeli resident. Your UK employer will continue to operate PAYE until you notify HMRC of your departure, so make sure to do this.
The 10-year exemption rules have been affected by Amendment 272 to the Income Tax Ordinance, effective 1 January 2026 for new arrivals. The amendment keeps the tax exemption itself but repeals the older reporting exemption. As a result, olim who become Israeli residents from 2026 onward must disclose their worldwide income and assets to the Israel Tax Authority annually, even where that income is still tax-exempt.
