Tax reporting puts potential immigrants under pressure

On January 1, 2026, the ten-year exemption given to new immigrants and returning residents from reporting their overseas income will be abolished. The exemption was enacted in 2018 in the framework of a tax reform that became known as “the Milchan law”. It granted new immigrants an exemption both from taxation on and from reporting assets and income originating outside of Israel for ten years from the date at which they became residents of Israel. New legislation that will come into force on January 1 cancels the reporting exemption, and tax experts are already seeing the consequences.

“There is already a wave of new immigrants planning to come to Israel before the end of the year,” says Adv. Yair Benjamini, a partner at Benjamini & Co. specializing in Israeli taxation law. “Since the summer, we have seen more people saying ‘Perhaps this is the time to go to Israel’, but the war was still in the background and so some of them waited. Now that the war has ended they already have one leg here. People with a connection to Israel who would in any event come here for two or three months a year and had plans to immigrate to Israel ‘one day,’ are putting those thoughts into practice.”

Adv. Benjamini says that potential olim (immigrants) are showing interest in aliya (immigration) as soon as this year, despite the short time remaining for doing it. “I have several clients sitting on the fence, Jews from the US who already have homes in Israel and some of whom have family here, sometimes children, and always thought they wished at some point to live in Israel, but they weren’t ready for the move. Now they realize that if they do it after January 1, they will have to report all their exempt overseas income, so they are taking advice on how to proceed with this step this year.”

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The law earned its soubriquet ‘the Milchan law’ from the fact that Arnon Milchan was one of the main beneficiaries of the extension of the exemption in 2018, and it is alleged that Prime Minister Benjamin pushed to have the exemption extended for his sake. The charge against Netanyahu in Case 1000 turns on the extension.

Amendment 168 to the Tax Ordinance was enacted in 2008 to encourage the flow of Jewish money to Israel, and in 2009-2010 several wealthy people living overseas, among them the late Sammy Ofer and his son Eyal, real estate mogul Sol Zakai, technology entrepreneur Arnon Katz, and Teddy Sagi, immigrated or returned to Israel.

Over the past decade, the Israel Tax Authority has tried to cancel the exemption from taxation and reporting, or at least the reporting exemption, but met with a wall of opposition from many politicians. Meanwhile, the law came in for severe international criticism, on the grounds that Israel was serving as a tax haven for illicit money, and domestic criticism as well, among others from the State Comptroller, who wrote that the exemptions created a risk of attracting criminal elements to Israel.

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In the end, the abolition of the reporting exemption was prompted by a warning from the OECD General Forum that Israel would be put on a blacklist of countries that are not compliant with international transparency rules, and would be exposed to economic sanctions if it did not stop providing a tax haven and assisting in concealing assets from the authorities in other countries.

The legislation passed in April 2024 contains two main changes on reporting of income and holdings overseas. It mandates reporting and provision of information on the ownership of rights in corporations and trusts, and reporting and information on all assets and income worldwide of new immigrants and returning residents. As mentioned, the main benefit, the ten-year tax exemption, has not been canceled.

“Although the tax benefits have not disappeared, the idea of reporting all overseas income to the Israel Tax Authority makes people nervous, especially wealthy people, because they think that when the Tax Authority sees how much income they have, it will look for ways of taxing part of it,” says Benjamini.

But there’s a tax exemption is there not?

“That’s not completely true. There are many questions of interpretation concerning what the exemption applies to and what it does not. The tax exemption was formulated in an apparently wholesale way giving a ten-year exemption from taxation for all income originating outside of Israel for ten years, but when it comes to applying the definition in reality, the question becomes more complicated. For example, in the case of a person with holdings in many companies, partnerships, and business activities of various kinds overseas, who files a tax report showing high income that in his view is exempt from tax, that gives the Tax Authority an incentive to examine what is exempt and what isn’t.”

Benjamini says that as a result of the reporting obligation many disputes are liable to arise with the Tax Authority. “The Authority has an interest in narrowing the definition of ‘income originating overseas’. Abolition of the exemption is a step that arouses considerable anxiety on the part of people thinking of coming to Israel.”

The Israel Tax Authority stated in response: “Amendment 272 to the Tax Ordinance is intended to boost taxation transparency and to assist in the war on illicit money, and to avert a negative assessment of Israel by the Global Forum and the blacklisting of Israel by the EU. The provisions of the amendment will apply to anyone who becomes a resident of Israel from January 1, 2026.”

Published by Globes, Israel business news – en.globes.co.il – on October 22, 2025.

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