The Israeli real-estate market is booming at present. If you are a
serious investor, tax is a cost like any other cost to be contained as far as
reasonably possible. And foreign investors in Israeli real estate will want to
minimize taxes in both Israel and their country of residence.
you need to plan with tax advisers in each country:
1. Entities: company,
partnership, trust, REIT.
2. Transactions: regular trading, long-term
3. Finance: local or international.
double taxation: credit for Israeli tax against tax in the home
Israel’s 50 tax treaties help, but only partly. Consider not
only income tax but also acquisition taxes, betterment taxes, VAT, capital-gains
tax, inheritance tax, etc.
2011 ISRAELI REFORM
Israel has reformed its
real-estate tax procedures. The buyer may now get title after paying 40 percent
of the consideration to the seller and a withholding tax of 15% (or 7.5% if the
seller bought before November 7, 2001). No withholding tax applies if you buy
from a recognized builder with Tax Form 50. Taxes are reportable within 40 days
and payable within 60 days. Separately, local mortgages rules are being
Israel imposes an acquisition tax of up to
Tip: There are reductions for homes for new immigrants and those with
no other home in Israel.
Big profits are possible if
agricultural land is rezoned as available for construction. Permission is needed
from various bodies. You may have to forfeit part for roads, etc. A betterment
levy (typically 50% of assessed amount) and other fees will apply.
Much Israeli land is held on a 49-year lease from the Israel Lands Authority. If
the holder’s time is up, consider renewing the lease with future rezoning
If this is for you, there is a lot to check.
Construction can be for own occupation, renting out, sale or service to
Check if this is a business activity having regard to your
expertise and frequency of dealings in real estate.
can sometimes recover VAT on expenditure (16%) unless the construction is for
2. Long-term construction projects (over one year)
for customers are taxed in Israel only after 25% completion by value or
quantity, at your option, is reached.
3 Nonbusiness status can sometimes
reduce Israeli income tax on rental income.
4. Businesses and
non-businesses can claim Israeli depreciation and finance expenses, subject to
Private landlords of Israeli homes can choose
1. No Israeli income tax if total monthly rental income is less than
2. Israeli tax at 10% on gross rental income, due by January
30, regarding each preceding calendar year.
3. Israeli tax at regular
rates on rental income net of expenses, depreciation and mortgage
1. Depreciation is on the building element, not land.
This can sometimes reduce your tax bill a lot:
• The depreciation rates are 2%
of cost for a good-quality building; otherwise 4%.
• Higher rates of 7%
to 15% apply to mechanical and electrical equipment.
• If the building
element is unknown, you are allowed to assume it is two-thirds of the overall
• Each asset is depreciated separately on a “straight-line” basis
(percentage of cost, not written-down balance).
2. Regular Israeli
individual tax rates range up to 45% in 2011.
Institute payments also apply at various rates but are minimal for foreign
3. Companies pay Israeli company tax at a rate of 24% in 2011.
Dividends are taxed in Israel at 20%-25% usually, subject to any
4. Israeli tax breaks are available for long-term
residential-commercial rental projects. These tax breaks may be protected from
home-country tax under special rules in a few tax treaties; e.g., the UK-Israel
Israel imposes land-appreciation tax (LAT) on capital
gains from Israeli real estate. The Land Registry (Tabu – a Turkish word) checks
that you don’t forget. In the case of “TAMA 38” anti-earthquake projects, the
taxable event is postponed until conditions are fulfilled or the option is
Companies generally pay 25% tax, individuals 20% if the real
estate asset was acquired after November 7, 2001.
Tip: Individuals are
exempt from LAT on Israeli home sales in various cases, including:
• After an
18-month waiting period following a previous exempt sale, if they only own one
home in Israel.
• After a four-year waiting period following a previous
exempt sale, if they own more than one home in Israel.
• In 2011-2012,
two more home sales are exempt if the sale price is no more than NIS 2.2
million. Above that, a pro rata exemption applies.
• It doesn’t matter
where the seller resides, or what other properties the seller has, outside
• For assets acquired in 1961 or earlier, special reduced tax
rates may apply.
Needs careful checking. Note that 16% VAT and
25% withholding tax usually apply to interest unless it is paid to an Israeli
Tip: Consider routing non-Israeli finance through
an Israeli financial institution.
The above is extremely general and
brief. You should consult Israeli property specialists (engineers, etc.) as well
as legal and tax advisers in each country.
firstname.lastname@example.org Leon Harris is an
Israeli CPA and tax specialist at Harris Consulting & Tax Ltd.