Israel's election deadlock extends tax incentive deadline for South African olim

Israel's recent election has resulted in a deadlock, leaving the country without a clear path to a new government. However, for South Africans considering making aliya, this development has brought an unexpected advantage. The Israeli government had introduced a temporary tax exemption on income earned from working in Israel, aimed at encouraging skilled professionals, entrepreneurs, and business owners to make aliya. The initial deadline to qualify for this incentive was 31 December 2026.

The tax incentive offers qualifying new immigrants and long-term returning residents the opportunity to earn up to NIS 1 million (R5.3 million) a year in Israeli-source employment or business income free of Israeli income tax, in both 2027 and 2028. The exemption then drops to NIS 350 000 (R1.8 million) in 2029 and NIS 150 000 (R793 870) in 2030. This is particularly attractive for professionals who can continue working remotely for their South African employers after relocating to Israel.

Under Israel's Basic Law, certain legislative provisions due to expire during the first three months of a newly elected Knesset are automatically extended until the end of that period. Following the 27 October election, this provision has extended the qualifying period for the tax incentive. The Israel Tax Authority has confirmed the extension and updated its official application system. This development provides some breathing space for prospective olim who were struggling to finalise their arrangements before the end of December.

To qualify for the tax incentive, individuals must genuinely move their centre of life to Israel. Israeli tax residency depends on where one actually lives and where their personal, family, and economic interests lie. The authorities consider factors such as where one's permanent home is, where one's spouse and children live, where one's children attend school, where one works, and where one spends their time.

Becoming an Israeli tax resident does not automatically mean that one has ceased to be a South African tax resident. South Africa taxes its residents on their worldwide income. To avoid remaining liable for South African tax on income earned while working in Israel, it is essential to properly establish cessation of South African tax residency and declare the change to the South African Revenue Service.

Ceasing South African tax residency can trigger a deemed disposal of certain assets for capital gains tax purposes, commonly referred to as “exit tax”. Moving money and assets abroad also requires careful consideration of South Africa's exchange control rules. Getting the timing and structuring wrong can be expensive and requires pre-aliya planning.

For prospective olim who hope to take advantage of this opportunity, it is essential to start making concrete arrangements now. The potential tax savings could run into millions of rands over the coming years. Michael Kransdorff, chief executive of the Institute for International Tax and Finance, advises that anyone hoping to take advantage of this opportunity should not count on another extension.

Key points

• The deadline for the tax incentive has been extended to 10 February 2027.
• Qualifying new immigrants can earn up to NIS 1 million (R5.3 million) a year in Israeli-source employment or business income free of Israeli income tax.
• Genuine relocation to Israel is required to qualify for the tax incentive.