Tax expert: Tax benefits for commercial property

Vol XXXIII: What and where in Israel are the highest tax benefits and discounts for buying commercial property to start a new business and does it also depend on the type of business?

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For Red Tape resources click here. Miriam Vilner is a licenced CPA (Isr.), a member of the Institute for Certified Public Accountants in Israel and a qualified Arbitrator registered with the Ministry of Justice. She holds degrees from London University and the Weizman Institute Send us your questions >> * * *
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  • Volumes XXIX-XXI * * * Vol XXXIII Q: What and where in Israel are the highest tax benefits and discounts for buying commercial property to start a new business and does it also depend on the type of business? A: Hi and thank you for your e-mail. Property taxes are not a significant part of a CPA's work. We are not even allowed to represent clients on all matters. You must not make any decisions without consulting a competent lawyer. I will send you or attach an article I wrote a month ago in collaboration with Advct. Sharifi who acts as our office's consultant. There are tax breaks for new immigrants on the purchase tax. The Law for Encouraging Capital Investment allows for tax breaks and government grants. But... 1. You have to be a company., which is far more expensive than a self-employed. 2. You have to have a business in certain fields, mainly manufacturing or hotel. 3. The regions given tax breaks are reduced every year. Most are in the far North. I don't think Yehuda & Shomron or Gaza still come into this category. Do you really want to travel to work that far? Just to save tax? 4. You would need a lot of paperwork and bureaucracy to get the necessary authorisation and lawyers are expensive. If you are serious, then I advise you call Advct. Sharifi and make an appointment to discuss the matter with him. If you have a professional business plan drawn up , we can help you apply for a grant from the Chief Scientist, if this is relevant. Sorry, but I think you do not really realise what you are up against. Q: Hi Miriam, will you please advise the costs, levies, duties etc and taxes payable when disposing of our only property in Israel jointly owned with my wife which we bought back in 1973: 1. sell in the open market 2. sell to our daughter 3. gift to our daughter My wife and I and our daughter are non-resident Israelis. A: Hello and thank you for your e-mail. It has taken me a long time to reply for several reasons. 1. The Cafe Oleh column is intended (from my side) to aid new (mainly) and old immigrants trying to find their way through the Israeli Tax Bureaucracy and not potential investors from abroad. There are people more qualified than me to do this. 2. My field is tax consultancy mainly income tax, Bituach. Excuse my delay in replying, but property taxation is really the field of a lawyer and not a C.P.A. We are even limited by the Tax Authority in how we may represent a client for Property Tax evaluation, as opposed to Income tax, V.A.T. and National Insurance. Leumi (National Insurance) and V.A.T. Property taxes are mainly a legal matter and we do work closely with an office in Netanya, who has been kind enough to formulate a general guidance, as far as is possible in the scope of the Jerusalem Post "Cafe Oleh" column. Property in Israel is liable for Capital Gains Tax whether sold on the open market or to your daughter. The evaluation is almost irrelevant who buys the property, family or not. The evaluation is based on the price increase since purchase. The authorities will calculate this factor regardless of the contract price. It is based on the market value of the property between independent buyer and purchaser set off against the rise in cost-of-living index. There would be certain privileges if sold to your daughter. Since I am not expert on the subject, I include Advct. Sharifi's general guidance. Advct. Sharifi worked closely with our office, however, cannot answer specific questions without consultation. -------------------------------------------------------------------------------- Advocat Sharifi says: 1. Any purchase of real estate in Israel is liable for Purchase tax (Mas Rechisha). The tax is not calculated on the cost of building a house on a piece of land but on the fact that real estate is purchased and is calculated taking into account the price. 2. Anyone selling an apartment /house with privileges will receive an exemption from Capital Gains Tax (Mas Shevach). and from Sales Tax (Mas Mechira) A priviledged dwelling is one in which you have lived for 4 years prior to selling or at least 80% of the period for which the Capital Gains tax is calculated and in addition has not sold another apartment/house in this period.Note; I have translated Mas Shevach as Capital Gains Tax as this is the underlying essence of this tax. The literal translation would be "Betterment Tax". But this leaves us without a word for "Mas Hashbacha" which is indeed a betterment tax on house improvements/ As you wish to build the "betterment levy" should not be relevant but were you to buy a used house, this would be one of the things you would need to check out at the engineer's office in the local Municipality. 3. You mention passing on the building to a family member. I am not going into full details here but the definition of "family member' for purposes of Capital Gains Tax (Mas Shevach) differs from definition of "family member" for an the exemption from Purchase Tax. The former has a wider definition but both are more or less confined to a 2nd degree relationship. If you are talking about your own children, there is no problem, however, a spouses children from another marriage are only allowed the exemption from Capital gains tax. The law is that a transfer to a "relation" AS DEFINED BY LAW is exempt from capital Gains Tax and Sales Tax but is liable for 1/3 of the purchase tax required for a regular transaction. The only complete exemption from Purchase Tax is given to a transaction where the property is transferred to a "spouse" with whom one has been living. If you left it as an inheritance to your daughter, there is no inheritance tax in Israel, and when she eventually sold the property, the cost value for tax calculations would be the original piece of the property in 1973. All I have written above is general guidance and advice only and cannot replace specific professional advice concerning a specific transaction. ------------------------------------ For this I would advise you to consult a (very) competent lawyer, or you might end up with unpleasantly expensive situations. Following are his "Ten Commandments" The Ten Commandments For Real Estate Buyers In Israel Adv. Nisan - Sharify, Chairman of the Institute for Real Estate Research Below are the "Ten Commandments" for buyers of real estate in Israel, which should be followed carefully in order to save problems and endless negotiations. These guidelines are a summary of the lessons learned in the wake of numerous court decisions and the experience of professionals in the field. 1. Fully check the details of the real estate property in the Land Registry Office. 2. You must remove attachments, mortgages and other third party rights before paying the last payment. 3. It is important to verify who is responsible for paying the taxes that have been imposed on the transaction (especially: betterment tax, property tax, purchase tax and betterment levy). 4. Check out the neighborhood well. Are you sure you are suited to this environment? 5. Be sure that you have enough money for the purchase. 6. Confirm that there is authorization for the building that you want to purchase and verify the real estate designation in the town-planning department (in the municipality). 7. Do not assume you are eligible for a mortgage if the payments are more than one-third of your income. 8. Thoroughly check the identity card of the seller - are you sure he or she is who they say they are? 9. Do not surrender any guarantees that you might receive (warning remark, bank guarantee, insurance policy, etc). 10. Consult a real estate assessor and a lawyer before you sign the contract. Q: My grandfather purchased agricultural land in Israel in the 1930s. My father inherited that land from him in 1966. We are now interested in selling the land and are told that we have to pay 45% sales tax and Mas Shevach. That seems like a huge amount to give up. Is this true and can this be negotiated? Please Help!!! A: Hi and thank you for your e-mail. I am sorry it took so long to reply but this is my season so I don't have much time for extras. I am not an expert on Mas Shevach Mekarkin (Land taxation). This is not a C.P.A. field but a lawyer who works in close c0-operation with a land surveyer. Briefly: When your granfather bought the real estate is irrelevant because your father inherited it in 1966 and must have paid inheritance tax because inheritance tax was only abolished in 1982. In this case (you are lucky) the value of the property at purchase will be the value in 1966 and not 1930, which would have been the case if your father had inherited after 1982. The amount of tax you will be required to pay depends on the evaluation by Mas Rechush of your property on the date of inheritance, this will be the value on which the inheritance tax was paid and on the date of sale. The difference between the two. Index linking is taken into account. Yes, Yes yes you can argue and bargain over the evaluation but not on your own, you need professional help. This is not a job I can take on, you need a lawyer. Our office works closely with Advct. Nissan Sharifi, who specialises in property taxation and his sister, a land surveyer, has her office down the corridor. Try contacting him at Advocate Mr.Nissan Sharifi 24 Shmuel Hanaziv St., Netanya 42281, Tel: 09-8843313 The only problem you might encounter is that the secretary answering the phone may not know too much English. But otherwise it should be plain sailing. Good Luck. Q: What is the capital gains tax on selling property in 2008 that has been inherited from a relative of Israel who died in 1952? A: Hi and thank you for your e-mail. I'm sorry it took so long to answer but this is my busy season and it's hard to find extra time. If the property was inherites in 1952, presumabley inheritance tax was paid which means the original cost for purp[oses of calculating capital gains tax is the real value of the property then this is negotiable if you have a good lawyer, inflation is taken into account. The actual tax would be : basic tax 16% + 1% for each of the years 2005-2008 inclusive. Since capital gains tax is nowadays 20% for an individual, this is the tax you would pay. I would advise you not to deal in real estate without an experienced lawyer, who can save you more than his fees. Our firm works in close co-operation with Advocate Mr.Nissan Sharifi 24 Shmuel Hanaziv St, Netanya 42281, Tel: 09-8843313 * * * Vol XXXIII Q: What and where in Israel are the highest tax benefits and discounts for buying commercial property to start a new business and does it also depend on the type of business? A: Hi and thank you for your e-mail. Property taxes are not a significant part of a C.P.A.'s work. We are not even allowed to represent clients on all matters. You must not make any decisions without consulting a competent lawyer. I will send you or attach an article I wrote a month ago in collaboration with Advct. Sharifi who acts as our office's consultant. There are tax breaks for new immigrants on the purchase tax. The Law for Encouraging Capital Investment allows for tax breaks and government grants. But... 1. You have to be a company., which is far more expensive than a self-employed. 2. You have to have a business in certain fields, mainly manufacturing or hotel. 3. The regions given tax breaks are reduced every year. Most are in the far North. I don't think Yehuda & Shomron or Gaza still come into this category. Do you really want to travel to work that far? Just to save tax? 4. You would need a lot of paperwork and bureaucracy to get the necessary authorisation and lawyers are expensive. If you are serious, then I advise you call Advct. Sharifi and make an appointment to discuss the matter with him. If you have a professional business plan drawn up , we can help you apply for a grant from the Chief Scientist, if this is relevant. Sorry, but I think you do not really realise what you are up against. Q: Hi Miriam, will you please advise the costs, levies, duties etc and taxes payable when disposing of our only property in Israel jointly owned with my wife which we bought back in 1973: 1. sell in the open market 2. sell to our daughter 3. gift to our daughter My wife and I and our daughter are non-resident Israelis. A: Hello and thank you for your e-mail. It has taken me a long time to reply for several reasons. 1. The Cafe Oleh column is intended (from my side) to aid new (mainly) and old immigrants trying to find their way through the Israeli Tax Bureaucracy and not potential investors from abroad. There are people more qualified than me to do this. 2. My field is tax consultancy mainly income tax, Bituach. Excuse my delay in replying, but property taxation is really the field of a lawyer and not a C.P.A. We are even limited by the Tax Authority in how we may represent a client for Property Tax evaluation, as opposed to Income tax, V.A.T. and National Insurance. Leumi (National Insurance) and V.A.T. Property taxes are mainly a legal matter and we do work closely with an office in Netanya, who has been kind enough to formulate a general guidance, as far as is possible in the scope of the Jerusalem Post "Cafe Oleh" column. Property in Israel is liable for Capital Gains Tax whether sold on the open market or to your daughter. The evaluation is almost irrelevant who buys the property, family or not. The evaluation is based on the price increase since purchase. The authorities will calculate this factor regardless of the contract price. It is based on the market value of the property between independent buyer and purchaser set off against the rise in cost-of-living index. There would be certain privileges if sold to your daughter. Since I am not expert on the subject, I include Advct. Sharifi's general guidance. Advct. Sharifi worked closely with our office, however, cannot answer specific questions without consultation. -------------------------------------------------------------------------------- Advocat Sharifi says: 1. Any purchase of real estate in Israel is liable for Purchase tax (Mas Rechisha). The tax is not calculated on the cost of building a house on a piece of land but on the fact that real estate is purchased and is calculated taking into account the price. 2. Anyone selling an apartment /house with privileges will receive an exemption from Capital Gains Tax (Mas Shevach). and from Sales Tax (Mas Mechira) A priviledged dwelling is one in which you have lived for 4 years prior to selling or at least 80% of the period for which the Capital Gains tax is calculated and in addition has not sold another apartment/house in this period.Note; I have translated Mas Shevach as Capital Gains Tax as this is the underlying essence of this tax. The literal translation would be "Betterment Tax". But this leaves us without a word for "Mas Hashbacha" which is indeed a betterment tax on house improvements/ As you wish to build the "betterment levy" should not be relevant but were you to buy a used house, this would be one of the things you would need to check out at the engineer's office in the local Municipality. 3. You mention passing on the building to a family member. I am not going into full details here but the definition of "family member' for purposes of Capital Gains Tax (Mas Shevach) differs from definition of "family member" for an the exemption from Purchase Tax. The former has a wider definition but both are more or less confined to a 2nd degree relationship. If you are talking about your own children, there is no problem, however, a spouses children from another marriage are only allowed the exemption from Capital gains tax. The law is that a transfer to a "relation" AS DEFINED BY LAW is exempt from capital Gains Tax and Sales Tax but is liable for 1/3 of the purchase tax required for a regular transaction. The only complete exemption from Purchase Tax is given to a transaction where the property is transferred to a "spouse" with whom one has been living. If you left it as an inheritance to your daughter, there is no inheritance tax in Israel, and when she eventually sold the property, the cost value for tax calculations would be the original piece of the property in 1973. All I have written above is general guidance and advice only and cannot replace specific professional advice concerning a specific transaction. ------------------------------------ For this I would advise you to consult a (very) competent lawyer, or you might end up with unpleasantly expensive situations. Following are his "Ten Commandments" The Ten Commandments For Real Estate Buyers In Israel Adv. Nisan - Sharify, Chairman of the Institute for Real Estate Research Below are the "Ten Commandments" for buyers of real estate in Israel, which should be followed carefully in order to save problems and endless negotiations. These guidelines are a summary of the lessons learned in the wake of numerous court decisions and the experience of professionals in the field. 1. Fully check the details of the real estate property in the Land Registry Office. 2. You must remove attachments, mortgages and other third party rights before paying the last payment. 3. It is important to verify who is responsible for paying the taxes that have been imposed on the transaction (especially: betterment tax, property tax, purchase tax and betterment levy). 4. Check out the neighborhood well. Are you sure you are suited to this environment? 5. Be sure that you have enough money for the purchase. 6. Confirm that there is authorization for the building that you want to purchase and verify the real estate designation in the town-planning department (in the municipality). 7. Do not assume you are eligible for a mortgage if the payments are more than one-third of your income. 8. Thoroughly check the identity card of the seller - are you sure he or she is who they say they are? 9. Do not surrender any guarantees that you might receive (warning remark, bank guarantee, insurance policy, etc). 10. Consult a real estate assessor and a lawyer before you sign the contract. Q: My grandfather purchased agricultural land in Israel in the 1930s.  My father inherited that land from him in 1966. We are now interested in selling the land and are told that we have to pay 45% sales tax and Mas Shevach.  That seems like a huge amount to give up. Is this true and can this be negotiated? Please Help!!! A: Hi and thank you for your e-mail. I am sorry it took so long to reply but this is my season so I don't have much time for extras. I am not an expert on Mas Shevach Mekarkin (Land taxation). This is not a C.P.A. field but a lawyer who works in close c0-operation with a land surveyer. Briefly: When your granfather bought the real estate is irrelevant because your father inherited it in 1966 and must have paid inheritance tax because inheritance tax was only abolished in 1982. In this case (you are lucky) the value of the property at purchase will be the value in 1966 and not 1930, which would have been the case if your father had inherited after 1982. The amount of tax you will be required to pay depends on the evaluation by Mas Rechush of your property on the date of inheritance, this will be the value on which the inheritance tax was paid and on the date of sale. The difference between the two. Index linking is taken into account. Yes, Yes yes you can argue and bargain over the evaluation but not on your own, you need professional help. This is not a job I can take on, you need a lawyer. Our office works closely with Advct. Nissan Sharifi, who specialises in property taxation and his sister, a land surveyer, has her office down the corridor. Try contacting him at Advocate Mr.Nissan Sharifi 24 Shmuel Hanaziv St., Netanya 42281, Tel: 09-8843313 The only problem you might encounter is that the secretary answering the phone may not know too much English. But otherwise it should be plain sailing. Good Luck. Q: What is the capital gains tax on selling property in 2008 that has been inherited from a relative of Israel who died in 1952? A: Hi and thank you for your e-mail. I'm sorry it took so long to answer but this is my busy season and it's hard to find extra time. If the property was inherites in 1952, presumabley inheritance tax was paid which means the original cost for purp[oses of calculating capital gains tax is the real value of the property then this is negotiable if you have a good lawyer, inflation is taken into account. The actual tax would be : basic tax 16% + 1% for each of the years 2005-2008 inclusive. Since capital gains tax is nowadays 20% for an individual, this is the tax you would pay. I would advise you not to deal in real estate without an experienced lawyer, who can save you more than his fees. Our firm works in close co-operation with Advocate Mr.Nissan Sharifi 24 Shmuel Hanaziv St, Netanya 42281, Tel: 09-8843313 * * * Vol XXXII Q: I am a UK citizen and have assets here but would like to transfer part to Israel with a plan to buying land and building a house. The intention is to visit and spend some time in Israel but not reside - initially no more than a month a year. Am I liable for tax on transfer? If things don't work out and I sell the house or transfer to my Israeli relatives will I or they face a tax bill? A: Hello and thank you for your e-mail. It has taken me a long time to reply for several reasons/ 1. The Cafe Oleh column is intended (at least from my side) to aid new (mainly) and old immigrants trying to find their way through the Israeli Tax Bureaucracy and not potential investors from abroad. There are people more qualified than me to do this. 2. My field is tax consultancy mainly income tax, Bituach Leumi (National Insuranc) and V.A.T. Property taxes are mainly a legal matter and we do work closely with an office in Netanya, who has been kind enough to formulate a reply to your question, as far as is possible in the scope of the Jerusalem Post "Cafe Oleh" column. Advocat Sharifi says: 1. Any purchase of real estate in Israel is liable for Purchase tax (Mas Rechisha). The tax is not calculated on the cost of building a house on a piece of land but on the fact that real estate is purchased and is calculated taking into account the price. 2. Anyone selling an apartment/house with privileges will receive an exemption from Capital Gains Tax (Mas Shevach) and from Sales Tax (Mas Mechira). A privileged dwelling is one in which you have lived for 4 years prior to selling or at least 80% of the period for which the Capital Gains tax is calculated and in addition has not sold another apartment/house in this period. Note; I have translated Mas Shevach as Capital Gains Tax as this is the underlying essence of this tax. The literal translation would be "Betterment Tax". But this leaves us without a word for "Mas Hashbacha" which is indeed a betterment tax on house improvements. As you wish to build the "betterment levy" should not be relevant but were you to buy a used house, this would be one of the things you would need to check out at the engineer's office in the local Municipality. 3. You mention passing on the building to a family member. I am not going into full details here but the definition of "family member' for purposes of Capital Gains Tax (Mas Shevach) differs from definition of "family member" for an the exemption from Purchase Tax. The former has a wider definition but both are more or less confined to a 2nd degree relationship. If you are talking about your own children, there is no problem, however, a spouse's children from another marriage are only allowed the exemption from Capital gains tax. The law is that a transfer to a "relation" AS DEFINED BY LAW is exempt from capital Gains Tax and Sales Tax but is liable for 1/3 of the purchase tax required for a regular transaction. The only complete exemtion from Purchase Tax is given to a transaction where the property is transferred to a "spouse" with whom one has been living. All I have written above is general guidance and advice only and cannot replace specific professional advice concerning a specific transaction. For this I would advise you to consult a (very) competent lawyer, or you might end up with unpleasantly expensive situations. Following are his "Ten Commandments": The Ten Commandments For Real Estate Buyers In Israel by Adv. Nisan - Sharify, Chairman of the Institute for Real Estate Research Below are the "Ten Commandments" for buyers of real estate in Israel, which should be followed carefully in order to save problems and endless negotiations. These guidelines are a summary of the lessons learned in the wake of numerous court decisions and the experience of professionals in the field. 1. Fully check the details of the real estate property in the Land Registry Office. 2. You must remove attachments, mortgages and other third party rights before paying the last payment. 3. It is important to verify who is responsible for paying the taxes that have been imposed on the transaction (especially: betterment tax, property tax, purchase tax and betterment levy). 4. Check out the neighborhood well. Are you sure you are suited to this environment? 5. Be sure that you have enough money for the purchase. 6. Confirm that there is authorization for the building that you want to purchase and verify the real estate designation in the town-planning department (in the municipality). 7. Do not assume you are eligible for a mortgage if the payments are more than one-third of your income. 8. Thoroughly check the identity card of the seller - are you sure he or she is who they say they are? 9. Do not surrender any guarantees that you might receive (warning remark, bank guarantee, insurance policy, etc). 10. Consult a real estate assessor and a lawyer before you sign the contract. The writer is a lawyer specializing in taxation and real estate. Advocate Mr.Nissan Sharifi 24 Shmuel Hanaziv St., Netanya 42281, Tel: 09-8843313. * * * Q: I am an olah hadacha ("ezrachit olah" to be more precise..had an israeli passport but never lived here) since september 07 and was wondering if I can get tax advantages on the purchase of commercial property? Are there only advantages for residential real estate or also office space? A: You brought up an interesting question. Yes you do have tax advantages on BOTH residential and commercial property. This is for a period of one year prior to your Aliya up to 7 years after your FIRST made Aliya. (some come and go and will not enjoy the benefit). There is a proviso: You and/or a close member of your family must use the property for your business or employment. If you rent it out and you are caught, which you probably would be since businesses renting premises are required to give details of the owner of the property in their yearly tax returns, the reduced tax rate would not apply. Instead of paying 5% Mas Rechisa, you will pay only 0.5% on the first 1,031,535 NIS. (This number may not be entirely up-to-date). After that 5%. Are you sure that you want to do this because if you sell it you will be liable for Capital Gains Tax if the property was not in your possesion prior to Aliya. * * * Cafe Oleh experts have been chosen for their knowledge and reputation. Cafe Oleh does not take responsibility for any advice they offer. Click here to send us your questions for Miriam.
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