New Immigrants and Taxes — Benefits and Rights You Must Know

Who is Considered a New Immigrant and How Does It Affect Your Taxes?

A new immigrant to Israel — it's not just a family or cultural concept. From the perspective of the Israel Tax Authority, it's a legal status with real implications for the taxes you pay, your reporting obligations, and your rights. If you are in your first few months or first year in the country, there's a good chance you're entitled to benefits that not everyone is aware of.

The status of a new immigrant is generally defined as entering Israel for the first time as a permanent resident. This can be if you are arriving from outside Israel, or if you have returned to the country after a long absence. In any case, the Tax Authority grants new immigrants tax benefits for a defined period, and this is money you can save.

The question that often comes up is: "At what point am I no longer considered a new immigrant?" The answer depends on several factors — the date of arrival, the type of housing you have, and your income. Precisely for this reason, it's important to clarify your status in a timely manner, because errors in reporting or lack of awareness of benefits can cost you money.

Main Tax Benefits for New Immigrants

Let's talk about the money. The Israel Tax Authority offers new immigrants several key benefits, and each of them can significantly impact your tax picture.

1. VAT Reporting Exemption During the Benefit Period

If you are self-employed or a exempt business owner, you may be exempt from the obligation to file a VAT return during your initial period in the country. This does not mean you don't pay VAT — you do pay it on purchases — but you don't need to submit a periodic report to the Tax Authority. This significantly reduces the bureaucratic burden in your first year.

2. Discount or Exemption from Rent Expenses

If you are renting an apartment in Israel, you may be entitled to a benefit regarding housing expenses. This is not a benefit that the Authority grants directly, but rather an advantage in calculating taxable income. In other words, part of your apartment rent will not be considered taxable income. This is particularly significant if you are self-employed and thinking about tax planning for the long term.

3. Eligibility for Limited Deduction Obligations

During the benefit period, you may not be required to present every expense that supported your income. This differs from a regular self-employed person, who must document everything. Of course, this is not a license to keep poor records — you still need to be organized — but it gives you some flexibility in your first year.

What's important to remember: these benefits are not automatic. You need to notify the Tax Authority of your status as a new immigrant and prove it with appropriate documentation. If you don't notify them, the Authority won't know, and you won't be able to use the benefits.

The Benefit Period — How Long Does It Last?

That's the big question. The benefit period for new immigrants is typically one to three years from the date of arrival in Israel, depending on circumstances. If you arrived on permanent immigration, the period begins from the date you were registered as a resident of Israel.

But here's the thing: the period varies depending on your housing type. If you live in state housing (subsidized housing), the period may be longer. If you rent a regular apartment in the private market, the period may be shorter. And that's exactly where things become unclear — because every case is a bit different.

Important point: If you leave Israel before the benefit period ends, you may lose some of your rights. So if you're thinking about temporary immigration or you're unsure about your plans in the country, that's something to consider.

What Do You Need to Tell the Tax Authority?

When you arrive in Israel, you have an obligation to report to the Tax Authority that you are a new immigrant. This doesn't happen automatically. You need to submit an application, usually through the Israeli Tax Authority website, and attach documents proving your status.

The required documents typically include:

• A passport or ID card with an entry stamp to Israel
• A letter from the Ministry of Interior confirming your immigration status
• A confirmation from your local authority of your registration as a resident
• In some cases — confirmation of your housing type (if it is state housing)

If you are self-employed or a business owner, you also need to report this to the Tax Authority when submitting your application. Usually, you do this through the Israeli Tax Authority's form system, or through your accountant.

What's not always clear: if you don't report on time, you can still claim these benefits in the following years, but it's more complicated. In short, it's better to do it on time.

Common Mistakes New Immigrants Make

In our work with new immigrants, we have seen several recurring patterns. Here are the mistakes we see most frequently:

Mistake 1: Failing to Report to the Tax Authority on Time

A new immigrant arrives in Israel, opens a business or starts working as a self-employed individual, but does not report to the tax authority that they are a new immigrant. In the first year, they think they are exempt from VAT reporting, but the authority does not know about it because they did not report. When they reach the second year, the authority thinks they are liable for reporting, and they have a problem.

Mistake 2: Misunderstanding the Benefit Period

A new immigrant thinks they are exempt from all reporting for three years. In fact, the benefit period varies depending on the type of housing, and some obligations still apply to them. When they reach the second year and have not reported, they owe obligations to the Israeli tax authority.

Mistake 3: Failing to Report Foreign Income

A new immigrant who still receives income from work abroad does not report it to the Israeli tax authority. They think it is not relevant because they are abroad. In fact, if you are a resident of Israel, you are required to report all worldwide income, regardless of where it comes from.

Mistake 4: Assuming Everything is Digital

Most clients we see think they can do everything through the Israeli tax authority's website. In fact, some reports require special forms, letters from other authorities, or professional advice. This is not something you can easily do on your own.

New Immigrants with Foreign Income — What You Need to Know

If you are a new immigrant who still receives income from abroad — whether from salary, self-employment, or investments — it gets a bit more complicated. In Israel, you are required to report worldwide income, regardless of where it comes from. This means you must report all income to the Israeli tax authority, just like a regular resident.

But here's the twist: if you are paying tax abroad on that income, you may be entitled to a tax credit in Israel to avoid double taxation. This is the kind of thing that requires professional international tax planning. If you don't do it correctly, you may end up paying more tax than you should.

Example: A new immigrant receives a salary from a foreign company and also starts a business in Israel. They need to report both to the Israeli tax authority. If they pay tax abroad on the salary, they can claim a credit. But if they don't do it correctly, they may end up paying tax on the same income twice.

FBAR Reporting — An Obligation Not Everyone Knows About

If you have a bank account abroad, an investment account, or any type of assets overseas, you may be required to file an FBAR report with the Israeli Tax Authority. FBAR is a report on foreign assets, and it's something the Tax Authority takes seriously.

This reporting requirement is not always clear — some new immigrants don't know they need to file it, and some convince themselves it's not relevant because they don't work abroad. But if you have money overseas, you need to report it.

If you don't report, and the Israeli Tax Authority catches you, it can be expensive. Not just in penalties, but also legal problems. It's something we help new immigrants understand and deal with from day one.

When Should You Consult with an Accountant?

If you are a new immigrant and think you need help with taxes, here are some signs that you should contact an accountant:

• You are self-employed or business owner and are not sure how to report to the Israeli Tax Authority
• You have income outside of Israel, or bank accounts abroad
• You are a company owner or partner in a business
• You are not sure if you are entitled to new immigrant benefits
• You need to file FBAR or other special reports
• You are unsure what to do at the end of the tax year

Ben Or Cook Accountants specializes in assisting new immigrants in Petah Tikva and Ramat Gan. We help new immigrants understand their benefits, report to the Israeli Tax Authority correctly, and plan their taxes for the long term. Your first meeting with one of our accountants is free of charge, and this is the perfect time to find out if we can help you.