Getting the Best Israeli Real Estate Tax rate
The Legal Framework Governing Israeli Tax Law
The Israel Tax Authority regularly updates the Israeli real estate tax rates and regulations, which generally apply to all Israeli real estate “users” (tenants and owners). There are different factors that determine the rate at which you end up paying. The most important factor tends to be whether you currently are/plan to become a resident of Israel.
In 2014, a major change occurred in the Israeli tax laws. Prior to 2014, Israeli citizens were entitled to tax relief, even if they were currently not residing in Israel. Following this year, tax relief is only given to people residing in the state of Israel, even if they are not legally considered to be a citizen. The new framework focuses upon the idea that if your center of life is in Israel, you should be more likely to qualify for a form of tax exemption.
May it be noted that it is still relatively easy for a citizen and foreigner to purchase real estate in Israel, but the documentation packet required by the Israeli Tax Authority is different for foreigners and residents.
Four Types of Taxes most Applicable in the Case of Property
- The first type of tax, and arguably the most important, is the acquisition (purchase) tax. This is a tax applied to the buyer, amounting to a marginal fee of the value of the purchase. These rates change correspondingly to the price of the apartment (the top rate being 10%). There are generally no exemptions on this tax.
- The second type is the capital gains tax, which is imposed upon the seller of the real estate, correlating to the amount by which the property has increased over the time of their residency, from when it was purchased. Due to the recently changed laws, it is now much easier to receive exemptions on this tax. As a buyer, we recommend the use of our legal team to avoid the chance of your seller trying to increase the price of the property as compensation for the capital gains tax.
- Third is the local municipal tax (arnona), which must be paid to the local municipality continuously on a monthly basis. This rate is based on the size of the apartment and the desirability of the location. Exemptions on this tax may be granted on a variety of different factors: religious, cultural, socioeconomic, or etc.
- The fourth type is income tax and is paid on income generated from the apartment.
If looking to request an exemption, one may be submitted to the Israel Tax Authority with the help of our legal staff at the Decker, Pex, Levi, Rosenberg & Co Law Office.