The regime and who qualifies

The adjustment year was introduced by Amendment 168 to the Income Tax Ordinance in 2008. Two categories qualify. An individual who became an Israeli resident for the first time, and a senior returning resident, meaning an individual who became an Israeli resident again after having been a foreign resident for at least ten consecutive years. An ordinary returning resident, whose threshold is six consecutive years and whose exemption under section 14(c) runs five years and covers non-business income only, is outside the regime.

Income Tax Circular 1/2011, published on 18 January 2011, describes the regime this way: a benefited individual "will be regarded for tax purposes in Israel as a foreign resident, for one year from the day of his arrival in Israel".

The test is a tax test, not an immigration one. What matters is the date on which the individual became an Israeli resident for the first time, or returned after ten consecutive years abroad. Holding an immigrant certificate is evidence of that, and often decisive evidence, but the two can come apart.

A point of terminology that causes real confusion. Section 14A of the Ordinance exists, but it deals with the income of a company whose business is controlled from outside Israel, and empowers the Minister of Finance to direct that such a company pay tax at a rate not exceeding 15 percent, and in special cases to exempt it. It has nothing to do with the adjustment year, and the common reference to "section 14A" in this context is an error. Note also that section 14A and section 14(a) are two different provisions. The first is a section of its own; the second is the opening subsection of section 14 and carries the ten year exemption discussed below.

The operative words of section 14(b)(1): an individual who became an Israeli resident for the first time or a senior returning resident shall not be regarded as an Israeli resident "for one year from the date on which he immigrated or returned to Israel, as the case may be", provided that the individual gave notice "within 90 days of the day of his arrival in Israel", on a form prescribed by the Director, of his election to apply the subsection. The provision is drafted as a negative. It does not deem the individual a foreign resident; it directs that he not be regarded as an Israeli resident.

The ninety days, and the day they run from

The statute counts from the day of arrival. The service page of the Ministry of Aliyah and Integration, updated on 22 December 2025, says the notice is given within 90 days "from the day the status was received". The two are not the same, and the statute governs.

For an individual who lands holding an immigrant certificate the gap is nil. Where the certificate or the recognition of status is issued after arrival, the gap can run for months. Count from arrival.

Circular 1/2011 sets out how the arrival date itself is fixed. It is "determined in accordance with the date on which the individual arrived in Israel with the intention of meeting one of the alternatives". That is, in context, the intention of becoming an Israeli resident for the first time or of returning as a senior returning resident. The date is therefore a question of fact that has to be capable of proof, not a formality.

What the year gives, and what it costs

The year gives time. The individual is not regarded as an Israeli resident, and at the end of it he decides whether to remain in Israel.

The cost is set out in Circular 1/2011 and is not trivial. During the adjustment year the individual "will not be given a certificate confirming that he is an Israeli resident for tax purposes". He is not entitled to the credit points available to an Israeli resident, which are the personal tax credits that reduce Israeli tax on employment and business income. And his holding in a company "will be regarded as a foreign resident's holding in that body", which changes the analysis of any Israeli or foreign company he holds.

Mixed income: the mechanism in Tax Ruling 2316/18

An individual who works partly from Israel and partly from abroad holds employment income of which only part is taxable in Israel. In the adjustment year that follows from his not being regarded as an Israeli resident; in the ten year benefits period that follows, from the exemption in section 14(a). How the line between the taxable and the exempt part is drawn is the subject of Tax Ruling 2316/18. The parts of that ruling set out below give the computation. They do not state which of the two periods it was framed for, and that should be settled before it is applied to a year in which the individual is not an Israeli resident.

A word on what a tax ruling is. A ruling of this kind is agreed in advance with the applicant and published in summary. It is not a precedent, and its conditions are conditions of that applicant's ruling rather than duties owed by everyone in a similar position.

Tax Ruling 2316/18, dated 20 November 2018, sets out how the split is computed. It replaces the splitting principle that appeared in section 14 of Tax Ruling 4528/15 of 19 May 2015, and the rest of that earlier ruling stands.

The definitions carry the work. The relevant period is the calendar year in respect of which the employment income is paid. Total working days are the days in the period less Saturdays, Sundays, holidays, vacations and private travel. The taxpayer may elect to deduct Fridays instead of Sundays, provided that an election made for one tax year is applied in the following tax year as well. A day includes part of a day.

Two conditions attach. The exemption on the second component depends on the period of work outside Israel not being ancillary, and an ancillary period is one "of fewer than 60 working days a year, or a proportionate part of that number", the proportion being the days in that part of the year divided by 365. The documentation is monthly: a report at the end of each month delivered to the employer, on which the employer may rely for withholding. The annual return must carry a copy of the ruling, all the monthly reports, a signed employer declaration and a taxpayer declaration certified by an Israeli licensed lawyer or accountant.

The 60 working day test is not new to 2018. It already appears in section 15 of the 2015 ruling. The Authority took the same line in two rulings three and a half years apart, which is worth knowing when assessing how a file is likely to be handled, though a ruling binds its applicant and not the next taxpayer.

The working days ratio is also not a compulsory formula. In CA 1779/18 Yehuda Talmi v. Assessing Officer Kfar Saba the Supreme Court accepted the use of a business days ratio, while noting that an alternative computation may be presented and referring to the ancillary activity proviso. The court did not set out when an alternative would be accepted.

The election does not replace a factual test

Ruling 2316/18 is explicit about the limits of what an election achieves. In that file, Israeli residence from the stated date was made conditional: "provided that from the commencement of residence onward his centre of life is in Israel", and "provided that his centre of life remains in Israel throughout the benefits period".

The ruling adds that it "does not constitute a residency certificate for tax purposes", that the assessing officer retains the authority to examine the individual's residence "in every tax year", and that "in any event no residency certificate for tax purposes will be issued for the adjustment year".

What the adjustment year does not do

It is not an exemption. The ten year exemption in section 14(a) is a separate matter, and it applies to income under sections 2, 2A and 3 of the Ordinance that was produced or accrued outside Israel, or that is sourced in assets outside Israel. The adjustment year addresses residence status for one year and nothing else.

It does not shelter the individual from the residence enquiry. The centre of life test applies to the years that follow, and the assessing officer examines each tax year on its own facts.

And it cannot be used to complete a qualifying period. Section 14(b)(1) opens by deeming an individual who has become an Israeli resident for the first time, or a senior returning resident, not to be an Israeli resident. The election is therefore available only to someone already within one of those two categories. An individual who returns after nine years abroad is within neither, so the election is not open to him and cannot generate the tenth year. The ten consecutive years must precede the return.

The year counts, and does not add a year

Section 14(b)(2) provides that where an individual has given notice of his election, the adjustment year "shall be included in the count" for the purposes of the periods listed in it. The list, as it now stands:

Amendment 272 deleted three of the sub-paragraphs in April 2024. The consolidated text shows them as deleted.

The consequence is that the adjustment year does not extend anything. The ten years run from immigration or return and the adjustment year sits inside them, so an individual who elects it and stays has nine years of exemption left when it ends. That is not a loss of shelter, because in the adjustment year the election has already put his foreign income outside the Israeli net. The real cost of the year is the one set out above: no residency certificate, no credit points, and a holding treated as a foreign resident's.

One drafting point. The statute conditions the counting on the notice alone, and draws no distinction between an individual who stayed and one who left. That distinction comes from Circular 1/2011, under which an individual who leaves "will in effect be regarded as one who never immigrated or returned to Israel in the first place".

The exemption can be waived, in whole or in part

Section 14(a) grants the exemption "unless they requested otherwise with respect to the income, in whole or in part". The waiver is a real planning tool where a foreign jurisdiction gives a credit for Israeli tax and the exemption would otherwise waste it.

A definitional limit sits alongside it and is easy to miss. For the purposes of section 14, an asset does not include an asset that reached the individual exempt under section 97(a)(5) from 1 January 2007 onward. Anything received rather than bought should be checked against it.

Extension in exchange for investment

Section 14(d) empowers the Minister of Finance, with the approval of the Knesset Finance Committee, to extend those periods by up to ten additional tax years for an individual who made "a significant investment in Israel capable of advancing national objectives relating to the economy of the state". The provision carries a two year period, running from the individual becoming an Israeli resident for the first time or a senior returning resident, or from the regulations coming into force, whichever is later.

No regulations under section 14(d) should be assumed. The provision is not to be relied on without confirming that regulations are in force.

The 2026 law disapplies section 14(b)(1), for one purpose

The Law for the Encouragement of Aliyah to Israel and Return to It (Temporary Order), 5786-2026, published in Sefer HaChukim 3511, the official gazette, on 31 March 2026, grants an exemption on income from personal exertion, meaning earned income under sections 2(1) and 2(2) of the Ordinance. It applies to an individual who became an Israeli resident between 5 November 2025 and 31 December 2026 and who meets the definitions in that law. The exemption runs for five tax years, subject to an annual ceiling that changes from year to year.

One condition of the qualifying income matters here. The income must have been produced in Israel while the individual was an Israeli resident.

Section 2(e) of that law provides: "for the purpose of examining the date on which an individual became an Israeli resident for the first time or a senior returning resident, under the provisions of this section, the provisions of section 14(b)(1) of the Ordinance shall not apply".

The effect is confined to that examination. In testing whether an individual falls inside the window, the adjustment year election is disregarded and the date is read without it. Section 2(e) disapplies section 14(b)(1) for that date test and for nothing else. It does not follow that the exemption is available for the adjustment year itself, and section 2(e) does not address that. The condition that the income be produced in Israel while the individual was an Israeli resident points the other way, and anyone whose plan depends on claiming the 2026 exemption for a year in which he has elected not to be regarded as an Israeli resident should settle the point before electing rather than in a filed return.

Two provisions, two treatments of the same election

Amendment 272 ties the application of its reporting provisions to an individual who became an Israeli resident for the first time or a senior returning resident "as stated in section 14(a)" from 1 January 2026 onward. It says nothing about the adjustment year.

The temporary provision, dealing with a date test of its own, disapplies section 14(b)(1) expressly. One provision addresses the interaction and the other does not. Where an individual sits close to the 1 January 2026 line and has elected an adjustment year, the question of which date governs for the purposes of Amendment 272 belongs in a pre-ruling application rather than in a filed return.

Points to check

Further reading

Sources: Income Tax Ordinance [New Version], sections 14, 14A, 75B, 75B1 and 97; Amendment 168 to the Income Tax Ordinance, 2008; Amendment 272 to the Income Tax Ordinance, Sefer HaChukim 3205, 7 April 2024; Law for the Encouragement of Aliyah to Israel and Return to It (Temporary Order), 5786-2026, Sefer HaChukim 3511, 31 March 2026; Income Tax Circular 1/2011, 18 January 2011; Tax Ruling 4528/15, 19 May 2015; Tax Ruling 2316/18, 20 November 2018; CA 1779/18 Yehuda Talmi v. Assessing Officer Kfar Saba; service page of the Ministry of Aliyah and Integration, updated 22 December 2025.

Last updated: 6 September 2026

This page is a general overview only. It is not legal or tax advice and should not be relied upon in making decisions. The application of these provisions depends on the date residence was established and on the facts of the particular case.