Finance Minister Bezalel Smotrich Announces New Tax Exemption Plan for New Immigrants
Tax Incentives for New Immigrants
Finance Minister Bezalel Smotrich revealed at a tax advisors conference on Sunday his intention to encourage immigration to Israel by offering a tax exemption on income earned by new immigrants within the country. Currently, new immigrants can benefit from a ten-year tax exemption on foreign income, but no such relief exists for earnings generated in Israel.
“By providing significant tax incentives, we aim to bring human and economic capital to Israel,” Smotrich stated. “As it stands, new immigrants take advantage of a ten-year exemption on foreign earnings, which means they often leave their mstarty abroad. Our goal is to incentivize them to bring that mstarty to Israel, benefiting our economy in the process.”
Changes in Tax Reporting Obligations
Effective January 1, 2026, the current exemption allowing new immigrants and returning residents to report their foreign income without taxation will be abolished. This exemption, which came into effect in 2018 as part of the “Milchan Law,” provided a ten-year reprieve on reporting assets and income sourced outside of Israel upon gaining residency.
However, newly introduced legislation will eliminate the reporting exemption before the broader tax changes take effect. The finance minister’s announcement regarding tax relief for income earned in Israel is in stark contrast to previous positions held by officials at the Tax Authority, who have advocated for the complete removal of tax exemptions for new immigrants.
Support from Tax Authority Officials
Despite the differing position from the Finance Minister, Tax Authority insiders indicated to Globes that if Smotrich were to propose a targeted initiative to grant temporary tax exemptions for newcomers arriving in Israel before the end of 2026, the Authority would support such a move. They view it as an opportunity to attract Jewish populations from Western countries facing rising antisemitism and to increase tax revenues.
Potential Revisions in Income Tax Bracket Adjustments
While details regarding specific tax reductions have yet to be disclosed, speculations within the Finance Ministry suggest that the primary measure under consideration is lifting the freeze on annual income tax brackets. Previously, the Ministry had frozen updates to these brackets through 2027 as part of its budget consolidation efforts. Ending this freeze in 2026 could allow some taxpayers to move into lower tax brackets, thus reducing their income tax liability.
Real Estate Development Plans
In addition to his tax announcements, Smotrich addressed a recently approved real estate plan, stating it will primarily be funded in cash next year and is expected to contribute to the increase of housing supply by tens of thousands of housing units. He advised potential homebuyers not to rush into purchases. “Negotiation is key with developers; there’s still plenty of room for prstart reductions, so don’t feel pressured to buy,” he said. “The market will see an abundance of supply in the coming years, thus it is crucial to avoid allowing developers to continuously hike prstarts.”
Remarks on Defense Budget Management
Lastly, Smotrich spoke on the defense budget, asserting the necessity for the military system to improve efficiency and adhere to reasonable budget limits. While acknowledging that the budget will remain higher than pre-conflict levels for the foreseeable future, he stressed that the unchecked financial flexibility observed in recent years cannot continue, and the system must return to more normalized financial figures.
This comprehensive approach by the Finance Minister underscores the government’s commitment to utilizing tax strategies to boost immigration and enhance the Israeli economy amidst evolving market conditions.