Israel's tax law provides significant incentives for people who lived abroad and return to become Israeli tax residents again. These benefits are designed to encourage Israelis to return home after extended periods abroad without facing an immediate large tax burden on assets they accumulated while living outside Israel.
Two categories: returning resident vs. veteran returning resident
Returning resident (תושב חוזר)
Eligibility: An Israeli citizen who lived abroad for at least 6 consecutive years as a non-resident of Israel for tax purposes.
Benefits:
- 10-year exemption on income from foreign assets and income sources created or accumulated while living abroad
- This includes: interest, dividends, capital gains, rent, and royalties from foreign sources
- The exemption starts from the date you re-establish Israeli tax residency
This means if you return to Israel after 8 years in Germany, dividends from a German portfolio or capital gains from selling your German apartment are exempt from Israeli tax for the next 10 years.
Veteran returning resident (תושב חוזר ותיק)
Eligibility: An Israeli citizen who lived abroad for at least 10 consecutive years as a non-resident of Israel for tax purposes.
Benefits: All the benefits of a regular returning resident, plus:
- Treated like a new immigrant (עולה חדש) for tax purposes
- 10-year exemption on all foreign-source income, including active income (salary, business income) from abroad
- Option to be taxed only on Israeli-source income for 10 years
- Exemption from reporting foreign assets and income to the Israeli Tax Authority for 10 years (no obligation to include foreign income in Israeli returns)
This is the most generous status — effectively allowing someone who has been abroad for 10+ years to return to Israel while keeping foreign income completely outside the Israeli tax system for a decade.
What is exempt under returning resident status
Both categories exempt:
- Dividends from foreign companies
- Interest from foreign bank accounts and bonds
- Rental income from foreign properties
- Capital gains from foreign assets (shares, real estate abroad)
- Royalties from foreign intellectual property
- Income from foreign trusts
Active employment income from a foreign employer while physically working in Israel is generally not exempt. If you work remotely for a foreign employer while living in Israel, that income is typically taxable in Israel.
Timing matters
The 6-year or 10-year clock runs from the date you ceased to be an Israeli tax resident (not from when you left Israel physically). If you left Israel but maintained Israeli tax residency (kept your center of life in Israel), those years don't count toward the 6-year period.
Application and recognition
There is no formal application form to claim returning resident status. The status arises automatically by law if you meet the eligibility criteria. However:
- You should notify the Israeli Tax Authority when you return
- In practice, the ITA may challenge your non-residency claim if the 6-year period is disputed
- Keep documentation: foreign lease agreements, employment contracts, tax returns filed abroad, school records, utility bills — anything showing you were genuinely non-resident
Interaction with exit tax on departure
When you left Israel, you may have been subject to Israeli exit tax on appreciated assets. On return, the returning resident exemption effectively provides a new "step-up" in basis for foreign assets acquired or appreciated while you were away.
Pension (קרן פנסיה) consideration
Existing Israeli pension funds are not affected by returning resident status. They remain in the Israeli system and are taxed normally upon distribution. Foreign pensions accumulated while abroad may be covered by the exemption during the 10-year window.
Common scenarios for Israeli tech professionals
- Worked in the US for 7 years, returning: Returning resident status. ESOP/RSU gains from the US company are exempt from Israeli tax for 10 years after return.
- Worked in Germany for 12 years, returning: Veteran returning resident status. All foreign income (German dividends, investment gains) exempt for 10 years. May also be eligible for full new-immigrant tax treatment.
- Left Israel, returned after only 4 years: Does not qualify for any returning resident benefits. Standard Israeli tax rules apply immediately.
This content is for informational purposes only.