Israeli Tax Changes 2026: Your Complete Guide to New Tax Laws

Major Israeli tax changes coming in 2026 will impact new immigrants, returning residents, reserve duty soldiers, and employers across Israel. This comprehensive guide explains the new tax brackets, unprecedented benefits for olim chadashim, reserve duty tax credits, and critical compliance updates for businesses.

TL;DR: Key Takeaways

• ₪1 million tax exemption for new immigrants arriving in 2026 ONLY – most generous benefit in Israeli history
• 10-year foreign income reporting exemption ENDS January 1, 2026 – critical timing for Aliyah planning
• First-ever tax credits for reserve soldiers – up to ₪11,616 annually for 110+ service days
• Expanded tax brackets save middle-income earners ₪400-800 monthly
• Mandatory digital tax reporting for all employers starting April 2026

As we approach 2026, significant changes are coming to Israel’s tax system. Whether you’re a new immigrant, a returning resident, a reserve duty soldier, a foreign worker, or an employer, these changes will impact you. Here’s everything you need to know.

Key Highlights: Israeli Tax Changes  2026

Tax Bracket Relief for Middle-Income Earners

Good news for workers earning ₪16,000-₪25,000 per month!

The Israeli government has approved a widening of tax brackets to provide relief for middle-class workers:

• New 20% tax bracket: Expanded to cover income up to ₪19,000/month (₪228,000/year)
  • Previously, the 31% rate kicked in at ₪16,150/month
• 31% bracket: Now starts at ₪19,000/month instead of ₪16,150
  • Workers earning up to ₪25,100/month will see significant savings
• 35% bracket: Raised to ₪25,100/month (from ₪22,440)

Example Impact: A worker earning ₪19,000/month will save approximately ₪400-800 per month in tax payments compared to 2025 rates.

Important Note: Tax brackets for 2025-2027 remain frozen (not adjusted for inflation of ~2.6%), meaning the real purchasing power effect is moderated.

Revolutionary Changes for New Immigrants (Olim Hadashim)

Historic Tax Exemption for 2026 Arrivals

Unprecedented tax relief for those who make Aliyah or return to Israel in 2026 ONLY:

A temporary one-year opportunity offering massive tax exemptions on Israeli-sourced income from personal labor for the first 5 years after arrival:

Who qualifies:

• New immigrants (Olim Chadashim) arriving in 2026
• Returning residents (Toshav Chozer Vatik) who return in 2026 after 10+ years abroad

This is in ADDITION to existing exemptions on foreign-sourced income!

Critical Change: End of 10-Year Reporting Exemption

Major Policy Shift Starting January 1, 2026:

The longstanding 10-year exemption from reporting foreign income and assets (Sections 134b and 135(b)) has been CANCELLED for anyone who becomes an Israeli resident from January 1, 2026 onwards.

What this means:

• Before 2026: New immigrants and returning residents enjoyed 10 years without reporting foreign income/assets
• From 2026: Must report ALL foreign income and assets from Day 1, starting with annual tax returns and wealth declarations

Strategic Planning for 2025 Immigrants:

• Those currently in the process of Aliyah should consider completing their move before December 31, 2025 to secure the 10-year reporting exemption
• Some who immigrated in recent years may want to consider waiving their “year of adjustment” status to be counted as residents before 2026

Breakthrough Benefits for Reserve Duty Soldiers (Miluim)

Tax Credit Points System – Effective January 2026

For the first time, reserve duty combat soldiers will receive direct tax benefits based on service days!

Starting January 1, 2026, tax credit points will be granted to combat reserve soldiers based on the number of service days performed in the previous tax year.

2026-2027 Tax Credit Scale:

Note: Each credit point is currently worth ₪242/month (₪2,904/year). Value increases if tax bracket freeze is lifted.

2028+ Tax Credit Scale (Easier Qualification):

Starting in 2028, the requirements become more generous:

How to Claim:

1. Obtain official service confirmation from the IDF (Form 1324a)
2. Submit Form 101 to your employer (Part H, Section 16)
3. Attach IDF confirmation certificate
4. Benefits apply automatically in payroll from January 2026

Important Notes:

• Only combat positions (Ma’arechet Lochem) qualify
• GMR units are excluded
• Service in 2025 = tax benefits in 2026
• The temporary law is in effect for 2026-2027, with discussions to make it permanent

Additional Reserve Soldier Benefits:

• Cash grants: ₪30-80/day for 10-80 service days (up to ₪5,000 maximum)
• Digital wallet: For government fees, recreation, and welfare services
• Summer camp subsidies: Government participation in children’s camp costs
• Priority housing: Preference in land tenders and “discount apartment” programs

Important Changes for Employers and Businesses

1. Digital Reporting Becomes Mandatory

From 2026, all companies must transition to full digital reporting of invoices, advance payments, and employee salaries through direct API connections to Tax Authority systems.

Requirements:

• ERP and payroll systems must connect to Tax Authority APIs
• Real-time invoice reporting
• Digital employee salary submissions
• Automated tax coordination updates

2. Charitable Donation Reporting Goes Digital

Starting January 1, 2026, all public institutions with Section 46 approval must report donations exclusively through the Tax Authority’s digital donation system.

Benefits:

• Automatic updating in tax coordination systems
• No need to present receipts to accountants
• Seamless tax return filing
• Automatic eligibility for 35% tax credit (individuals) or 24% (companies) on donations over ₪207

3. Property Tax on Vacant Land

New wealth tax on undeveloped land:

• 1.5% annual tax on vacant land value
• Owners must report land acquisitions/disposals to both Land Registry AND Tax Authority
• Expected to generate billions in annual revenue

4. Aircraft Depreciation Reduction

For companies purchasing aircraft from 2026 onwards:

• Depreciation rate slashed from 30% to 5% per year
• Revenue impact starts in 2029 (after 3-year accumulation period)
• Aligns Israeli rates with international standards

Changes Affecting Foreign Workers

Work Permit and Tax Status

Foreign workers in Israel should be aware:

Continued Benefits:

• Standard tax arrangements for foreign workers remain in place
• Employer of Record (EOR) services ensure full compliance with evolving regulations
• CWS Israel handles all payroll, social benefits, and tax withholding

What to Monitor:

• Changes in visa processing procedures
• Updated social security contribution rates
• New digital reporting requirements affecting employers

CWS Israel Advantage: Foreign companies employing workers in Israel through CWS Israel EOR services benefit from:

• ✅ Automatic compliance with all 2026 tax changes
• ✅ Proper worker classification and risk mitigation
• ✅ Updated payroll calculations reflecting new tax brackets
• ✅ Digital reporting integration with Tax Authority systems
• ✅ Reserve duty administration and tax credit processing

Additional Tax Updates for 2026

Capital Gains Surtax Increase

An additional 2% surtax on capital income over ₪721,561, bringing the total surtax to 5%

Pension Exemption Rates Updated

Progressive increase in maximum pension exemption:

• 2025: 57%
• 2026: 57.5%
• 2027: 62.5%
• 2028+: 67%

Study Fund and Shift Work Credits Extended

Tax benefits for shift workers extended through December 31, 2026

• Maximum credit: ₪12,540
• Income ceiling: ₪143,040/year

Angel Investment Law Extended

Incentives for high-tech investors continue through December 31, 2026:

• Tax credits for investments in R&D companies
• Benefits for Pre-Seed and Seed stage investments
• Advantages for Israeli companies acquiring others