The core rule: where the work is done
The exemption covers income from sources outside Israel. Business income is generally sourced where the activity is performed. If you live in Israel and do the work here, the income is Israeli-source and taxable at regular rates, even if your clients and your bank account are abroad.
So a consultant who moves from London to Tel Aviv and keeps serving UK clients from Israel is running an Israeli business for tax purposes. The 10-year exemption does not cover that fee income.
What can stay exempt
- Passive foreign income: dividends, interest, rent and gains on foreign assets.
- Income from a foreign business genuinely run and managed outside Israel by others.
- Gains on selling foreign shares, including shares in a foreign company you held before Aliyah, subject to the residency of that company.
The foreign company trap
Many olim arrive with a company abroad, such as a US LLC or UK Ltd. If you manage and control that company from Israel, Israel may treat it as an Israeli-resident company, taxing its worldwide profits at 23%. An LLC is often transparent, so the question becomes whether its income is from work you do in Israel.
The fix is usually planned before Aliyah: decide who manages the company, whether to close it, or whether to put an Israeli entity alongside it. Our foreign company guide covers the control test in detail.
Osek or company for an oleh?
Most olim start as Osek Murshe because their first-year income is modest and foreign clients may allow zero-rated VAT. A company becomes interesting when profits grow, when you want to hire, or when you want liability protection.
If you are a US citizen, add one more filter: an Israeli company owned by a US person can create US reporting (Form 5471) and possibly GILTI exposure. An Osek has no such problem, though you still report the income on your Form 1040.
Bituach Leumi and advances
Self-employed olim pay National Insurance and health tax on Israeli business income and must set advance payments. Some non-working olim benefit from a temporary contribution exemption, but that does not apply to active business income.
2026 reporting
From 2026 new olim must file annual informational reports on foreign income and assets even when the income is exempt. If you open an Israeli business you will be filing a return anyway, so the reporting should be coordinated in one filing.
Checklist before you register
- Confirm your residency start date and status (Oleh Hadash or returning resident).
- List every foreign entity and account you control.
- Decide whether foreign companies close, continue under foreign management or move to Israel.
- Choose Osek Patur, Osek Murshe or Ltd based on expected profit and client location.
- If US citizen: check the US side before forming any Israeli company.
Further reading
This guide is general information, not advice for your situation. Tax rates and thresholds change; confirm current figures before acting. Tax-IL advises on tax structure and registrations; bookkeeping, payroll and banking are handled by your accountant and bank.
Not sure how this applies to you?
One free 15-minute call. Tell us the situation in a line — we'll reply with the specific rule that applies to you.
- Licensed Israeli tax advisors
- Reply within one business day
- Confidential — never shared