Transfer Taxes in Israel for Individuals Living Abroad
There are many unique aspects to apartment purchase transactions where one of the parties lives abroad rather than in Israel. Because the transaction is conducted remotely, a third party is needed to conduct preliminary checks for the purchaser who is abroad, as well as special conditions when requesting a mortgage from Israeli banks. This article discusses the topic of Transfer taxes for foreign residents – Israeli citizens living abroad who wish to purchase an apartment in Israel.
As opposed to Israeli residents, who enjoy lower transfer taxes, purchasers living abroad do not. This article also explains who is considered to be an Israeli resident for the purpose of determining the transfer taxes that they must pay and what tax benefits are available to purchasers living abroad.
Our law firm, which has branches in Jerusalem and Tel Aviv, specializes in real-estate and land law. We provide legal advice and representation to our customers in a variety of areas, such as real-estate transaction negotiations, land taxation, rental contracts, registration of land rights, and mortgages.
WHY ARE TRANSFER TAXES DIFFERENT FOR PURCHASERS LIVING ABROAD?
The topic of ‘ghost apartments’ has seen a great deal of recent discussion. These are apartments whose owners live abroad and who come to Israel to live in them for only one month a year or less, while the rest of the time the apartment lays empty. In luxury areas in Jerusalem and Tel Aviv there are buildings in which most of the apartments are dark and empty during much of the year, since their owner are absent—they live abroad and are not even interested in renting out their flats.
This phenomenon has brought the State of Israel to consider ways to cause these owners to refrain from buying apartments in Israel if they do not intend to live in them. Various rules have been set, including a difference in the amount of transfer taxes for purchasing an apartment by owners who do not live in Israel.
While Israeli residents are not required to pay transfer taxes for the first residence apartment that they purchase below a certain price, a purchaser from abroad is required to pay transfer taxes according to certain set rankings even for their first apartment and even if the do not own any other apartment abroad.
In other words, a person living abroad is required to pay transfer taxes for a first apartment in Israel that Israeli investors only pay starting from their second apartment.
The rankings for this are as follows:
For property that is worth up to 5,872,725 ILS, the tax to be paid is 8% of the property’s value.
For property that is worth more than 5,872,725 ILS, the tax to be paid is 10% of the property’s value.
These are the data as of 2023, and they are updated at least once a year.
WHO IS CONSIDERED TO BE AN ISRAELI RESIDENT REGARDING TRANSFER TAXES?
According to the Land Taxation Law (Appreciation, Sale and Purchase), anyone who purchases land rights must pay transfer taxes to the Israel Tax Authority. Anyone who is a resident of Israel and who owns a single apartment will enjoy exemptions and discounts on the transfer taxes. According to the law, even a purchaser who becomes a resident of Israel within two years of buying the apartment is considered an Israeli resident in this context.
The Income Tax Ordinance stipulates that a person is considered an Israeli resident if their “center of life is in Israel” and they have resided in Israel for at least 183 days during the tax year. That is, if they have resided in Israel for a shorter period of time, they are not eligible to the benefits of an Israeli resident.
The Ordinance also stipulates who is not considered an Israeli resident regarding transfer taxes. In contrast to the above statement, anyone who has stayed in Israel for less than 183 days during the tax year and whose center of life was not in Israel is not considered an Israeli resident.
OPTIONS FOR PAYING LOWER TRANSFER TAXES, FOR NON-ISRAELI-RESIDENT APARTMENT PURCHASERS:
As stated above, purchasers who are not Israeli residents must pay high taxes. However, according to the law and the Income Tax Ordinance, there are three ways to pay lower taxes:
- Becoming an Israeli resident—If, within two years of purchasing the apartment, the buyer becomes an Israeli resident, they will be eligible to pay lower taxes if they have no other apartment in Israel, even if they own several apartments abroad.
- Becoming a returning resident after at least 10 years—An Israeli resident who has left Israel for at least 10 years and has thereby ceased to be an Israeli resident, and, within two years from purchasing an apartment in Israel, has become a returning resident, is eligible to pay lower transfer taxes.
- Becoming a new immigrant—If a person who is not a resident of Israel becomes a new immigrant and the apartment that they have purchased serves as their home, they are eligible for a special discount for new immigrants on the transfer taxes. This benefit is valid starting from one year before making Aliyah (immigrating to Israel) and up to seven years after the immigration. The transfer tax rankings in this case are as follows:
- For property that is worth up to 1,928,220 ILS, the tax to be paid is 0.5%.
- For property that is worth more than 1,928,220 ILS, the tax to be paid is 5%.
- These are the data as of January 2023, and they are updated at least once a year.
In summary, if you live outside of Israel and are in the process of buying an apartment in Israel, and you need advice on the matter or on other real-estate matters, contact our law firm today. We have branches in Jerusalem and Tel Aviv, and we specialize in Israeli civil law. If you have any further questions, I and my colleagues will be happy to help.
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