Our October 2026 Tax Newsflash covers two key developments. First, the Bank of Israel has amended Directive 411, replacing the sweeping in-depth source-of-capital investigation for crypto activity above NIS 100,000 a year with a case-by-case, risk-based assessment. Second, the anticipated dissolution of the Knesset is expected to extend the Aliyah tax benefits on income from personal exertion for the 2026-2030 tax years to new immigrants and veteran returning residents who arrive in Israel by 10 February 2027. Here is what has changed and how to prepare.
In recent years, countless investors have settled their tax liability in Israel for activity engaged in by them in the cryptocurrency sector. This, among other things, due to the recent voluntary disclosure procedure published by the Israel Tax Authority (ITA), which for the first time included a reference to the matter of regulating unreported capital sourced from virtual currencies (see in this regard our September 2024 Tax Newsflash). Nonetheless, a substantial number of these investors discovered that the road from the digital wallet to a bank account in Israel is still a long way off. Some even found themselves back to square one, after having encountered rigid and uncompromising demands on the part of the Israeli banking system, which refused to absorb the funds.
Against the backdrop of these difficulties, on 7 October 2026 the Bank of Israel published Amendment No. 2862 to Proper Conduct of Banking Business Directive 411, aimed at alleviating the requirements to which Israeli banks are subject, with respect to the provision of services pertaining to activity in virtual currencies and the receipt of crypto-sourced capital. Generally, the Amendment symbolizes a transition from a rigid, procedural approach to one that is not only practical and flexible but also tailored to accommodate the account holder’s level of risk.
Within the context of the Amendment, the sweeping requirement for an in-depth investigation into the source of the capital, in cases where the scope of activity in the cryptocurrency sector exceeds NIS 100,000 annually, has now been revoked. It was thus prescribed that a decision regarding the necessity for clarification in this regard and its scope, will be determined individually, based on the level of risk in each case. The Amendment exemplifies characteristics that increase the level of risk (e.g., anonymous wallets), as opposed to characteristics that may mitigate the risk (e.g., coins obtained from direct mining). In addition, the Amendment clarifies that the requirement to present opinions and approvals from external experts will arise only where the individual level of risk justifies it, and that where the client’s activity is characterized as being of low risk, no such approvals will need to be obtained.
In our view, this is a significant step for individuals and investors wishing to transfer funds sourced from virtual currency-related activity to the Israeli banking system. Reducing the banking barriers, as outlined above, is expected to alleviate and encourage activity in the cryptocurrency sector. It is nonetheless important to clarify that this does not entail a comprehensive opening of the gates to the Israeli banking system for capital sourced from virtual currencies, since even after the Amendment enters into effect, banks are still duty-bound to maintain their ability to manage risks in the realm of money laundering. In any event, this is a welcoming change that is expected to significantly reduce onerous banking requirements, where the level of risk does not justify it.
The provisions of the Amendment will enter into effect on 1 May 2027. Prior to doing so, it is recommended to ascertain, in advance, the relevant bank’s policy and references required in order to enable the absorption of capital sourced from virtual currency-related activity. It is likewise advisable to maintain an orderly record of the sources of investment, the transactions carried out in coins and the currency path. Such record may facilitate any required investigation and reduce delays in obtaining the funds.
In our December 2025 newsflash we reviewed the provisions of the Law for Encouraging Immigration (Aliyah) to Israel and Return to it (Temporary) Order, 5786-2026 (Temporary Order). It should be recalled that the provisions of the Temporary Order grant new immigrants and veteran returning residents a tax exemption on income derived from personal exertion in Israel during the 2026-2030 tax years, subject to the conditions and ceilings specified in it.
The applicability of the provisions of the Temporary Order is limited, generally, to new immigrants who became Israeli residents for the first time, and veteran returning residents who returned to Israel and became Israeli residents during the period commencing on 5 November 2025 and ending on 31 December 2026. Nonetheless, the anticipated dissolution of the Israeli Parliament (the Knesset) is expected to extend the validity of the afore mentioned provisions, so that they will apply also to new immigrants and veteran returning residents who arrive in Israel by 10 February 2027. Let us explain.
Section 38 of the Basic Law: the Knesset prescribes that “every statute whose validity would have expired within the final two months of the tenure of the outgoing parliament, or within four months after the Knesset shall have decided to dissolve, or within the first three months of the tenure of the current Knesset – will remain valid until the end of the said three-month period”. As a result, the tax benefits enumerated in the Temporary Order are expected to apply also to new immigrants and veteran returning residents who arrive in Israel by 10 February 2027, being the date of expiry of the first three months of the tenure of the 26th Knesset.
We would add that the ITA has even implemented, in practice, the provisions of the Basic Law: the Knesset in this regard, by stating in a publication on a webpage on its internet site titled “Application Seeking Realization of Eligibility for Tax Reliefs for New Immigrants and Veteran Returning Residents For the Years 2026-2030” (Application Seeking Realization of Eligibility for New Immigrants) that “this service allows new immigrants or veteran returning residents, who arrive in Israel during the period November 5, 2025-February 10, 2027, to submit an application seeking realization of their eligibility for the relevant tax benefits.”
For anyone intending to immigrate or return to Israel at the beginning of 2027, extension of the said applicability of the law may thus be of considerable economic significance.
* The newsflash is intended to provide subscribers with general information only and should not in any way be regarded as firm professional advice and/or a definitive legal opinion.
