Aryeh Rachlin is a Jerusalem attorney with 15 years of experience representing clients in real estate transactions in Israel.

As many people are well aware, taxation has become an inseparable part of Israeli life. Taxes with names such as "Tax for Peace in the Galilee" have, since the establishment of the State, lined its coffers and provided substantial revenue for the government. But Israelis aren't alone -- the taxation of real estate transactions is customary in many countries and so, in this regard, Israel is no different.

The relevant legislation, the Real Estate Taxation Law (the "Law") is particularly complicated and, in fact, has been amended more than 50 times since it was originally enacted in 1963. A comprehensive review of the provisions of the Law would require far more space than is available here and, indeed, many volumes have been written analyzing the Law and its consequences for those involved in the real estate market. Accordingly, we will limit this discussion to transactions involving residential properties. Readers are advised to consult with their attorney prior to entering into any transaction to better understand the implications of the Law as it relates to their individual circumstances and to ensure that all information is up to date.

Upon entering into a real estate transaction (i.e. signing a contract to purchase or sell real estate), the parties are required to file declarations with the tax authorities informing them of the transaction. In many cases, a self-assessment of the tax payable is filed at the same time as part of the declaration.

Generally speaking, there are three types of tax that are relevant to the purchase and sale of a residential property. The first, "property acquisition tax" (mas rechisha), as its name implies, relates to the purchase of a property and is payable by the purchaser. The other two, "appreciation (capital gains) tax" (mas shevach) and "sales tax" (mas mechira) relate to the sale of a property and are the responsibility of the seller. An additional property tax (mas rechush) used to be assessed upon owners of vacant land but, a number of years ago, the government reduced the rate of tax to 0% and, therefore, it is no longer relevant.

The government has implemented a series of tax breaks and related incentives to stimulate the property market in Israel and, in many cases, one may find that the transaction they are involved in is either fully or partially exempt from the full amount of tax otherwise applicable to such a transaction. For example, preferential treatment is given to individuals (as opposed to corporations) who sell only one property every four years or those who own only one property. Gift transactions concerning real estate are also subject to tax, although certain exemptions may be available, which can significantly reduce the tax payable. Furthermore, married couples and their minor children up to age 18 are deemed to be part of the same family unit for the purposes of calculating tax rates and entitlement to reductions.

Please click on the links below to read the following articles for a more in-depth discussion of each of the taxes relating to residential real estate transactions:

1. Property Acquisition Tax (Mas Rechisha)
2. Appreciation (Capital Gains) Tax (Mas Shevach)
3. Sales Tax (Mas Mechira)

Visit Israelhomeowner.com to view its full selection of articles.

The above discussion is not intended to serve as legal advice for the purpose of entering into a specific transaction but rather as a general guide to many of the taxation issues that arise when contemplating a transaction of this nature. It is strongly recommended that the reader consult an attorney before entering into any real estate transaction.