Real Estate Taxation in Israel
When buying or selling real estate, especially in a foreign country, it is important to be familiar with the local laws and regulations. Since 2014, Israel has seen major changes and reforms to the real estate tax laws. These changes have affected the bottom line for both buyers and sellers, and if you or your company are dealing with real estate transactions in Israel, this article is for you.
The Real Estate Taxation Law of Israel applies to the sale or purchase of real estate (building, house and/or structure permanently attached to the ground) in the territory of Israel. Technically, when real estate is sold, the ownership rights are sold and transferred to the new owner. Even if no money is exchanged, it is still considered a “sale” and liable for taxation. Exceptions to this are the transfer of real estate rights to a trustee, receiver, guardian or liquidator, and the transfer of real estate rights in divorce proceedings. In these cases, it is not considered a “sale”.
According to the law, as of 2014, both the buyer and seller are liable to pay taxes. The buyer pays a “purchase tax” and the seller pays an “appreciation tax”.
What is a Purchase Tax?
A purchase tax (mas rechisha) is the tax that a buyer has to pay for purchasing the property, and it is paid only after the purchase is complete. The purchase tax amount is calculated based on the type of property, the cost of the property and on how many other properties the buyer owns.
What is an Appreciation Tax
An appreciation tax (mas shevach) is the tax that the seller pays when they sell a piece of real estate. It is also known as “capital gains tax” because it is applied to the profits or capital gains that are earned from the sale of the property. A lot of factors can raise the value of a property – renovations made to the property itself, renovations to the building in which the property is located, general rise in price in the real estate market, and even development and upgrades in the surrounding area.
The amount to be taxed is determined by calculating the difference between the initial purchase value of the property and the value at the time of the sale.
How much is the Appreciation Tax?
The appreciation tax is approximately 25% of the profits from the sale. If no profit is earned from the sale of a property, appreciation tax is not payable.