Client Update | Forthcoming Changes in Israeli Tax Regime – A Farewell to Some Welcome Benefits

On April 7th, 2024, an important amendment to the Israeli tax law was published, that effects new and returning residents to Israel and limits the current applicable benefits upon moving to Israel. The purpose of the amendment is to increase transparency in order to combat undeclared capital, and to prevent a negative assessment of Israel by the OECD. Among various changes which are listed below, the main change in the law is that the existing exemption from reporting on foreign assets and income by new immigrants and veteran returning residents was canceled.

Before the amendment, new immigrants and veteran returning residents (Israelis who have exited Israel and returned after being non-resident for over ten years) were entitled to a 10-year tax exemption from the date of their arrival in Israel on all their non-Israeli sourced income and were exempt from reporting on all their foreign assets and income.

Recently, on March 6, 2024, following some pressure from the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) operating under the OECD, a bill was published proposing not only the elimination of the 10-year reporting exemption, but also adding additional burdens on those who formerly enjoyed complete exemption from reporting on their non-Israeli activities. No changes to the existing 10-year tax exemption were contained in this the bill, which refers only to reporting requirements. Following this and with a few minor changes, the bill was accepted as binding legislation.

Although it did not introduce a new concept, the legislative amendment reflects a longstanding desire of the Israeli Tax Authorities (ITA) for more disclosure.

In summary, the amendment includes the following changes:

• Elimination the reporting exemption for new immigrants and veteran returning residents – effective for those who immigrate or return to Israel on or after January 1, 2026;
• Creation of a duty of reporting on the “beneficial owner” of a “Body of Persons” (i.e., legal entities), trusts and foundations, and a duty to specify the tax residency of anyone defined as a “beneficial owner” in an annual tax return (effective as of the 2025 tax return);
• New authority allowing the ITA to request additional disclosure of information from a legal entity whose business is controlled and managed in Israel by a new immigrant or veteran returning resident and that is not considered as an Israeli tax resident for that reason (effective for legal entities owned by those who immigrate or return to Israel on or after January 1, 2026);
• Establishing reporting requirements for Israeli resident trustees of trusts that have no assets or income in Israel, and any Israeli resident settlors and beneficiaries (“Exempt Trusts”) within 90 days from settling of the trust (effective immediately). Trustees of pre-existing Exempt Trusts will have an extended deadline of 120 days from January 1, 2026, to comply with the new reporting requirements; and
• Allowing the ITA to approach financial institutions to obtain the identification details of account holders under the Anti-Money Laundering Law, including the details of the “beneficial owners” of the account, for the purpose of transferring the information to another country in accordance with an information exchange agreement between the State of Israel and the relevant foreign jurisdiction (effective October 1, 2024).

As the main changes of the new legislation will affect those becoming Israeli tax resident in 2026 or later, individuals contemplating immigration to Israel in the next few years should obtain advice on the expected changes to the Israeli tax system.