As a result of the war, foreign residents and new immigrants have shown interest in the local real estate market. Below is a summary of the main tax implications that may be of interest.
The Israeli Real Estate Taxation Law imposes two types of tax on taxpayers: Appreciation tax and purchase tax. The law is a territorial law and applies to real estate located in the State of Israel (including Judea and Samaria) and to Israeli citizens.
Tax implications when selling a residential apartment in Israel
In accordance with legislative law and case laws, a “residential apartment” is an apartment that is lawfully used for residential purposes according to the planning and building laws or that is intended for residential use according to its nature, provided that additional conditions are met.
Accordingly, when selling a residential apartment, the seller will be charged appreciation tax on the gain created by its sale. However, there are several cases in which the legislature sought to benefit taxpayers selling their apartment, by granting exemptions and/or reliefs prescribed by law, as detailed below.
Exemption for a single residential apartment
In accordance with the law, an Israeli resident who sells a residential apartment that meets the definition of a “qualifying residential apartment,” which is in fact an apartment used mainly for residential purposes during at least one of the following periods: (1) four-fifths of the period for which the gain is calculated; (2) the four years preceding its sale; will enjoy an exemption at the time of its sale if the following conditions are met: (1) the apartment being sold is the only apartment of the seller’s family unit in Israel; (2) the seller held it for at least 18 months from the date it became a “residential apartment”; (3) for the 18 months prior to the aforesaid sale, no other residential apartment was sold by them.
It should be noted that the exemption granted will apply only to the part of the value that does not exceed the ceiling limit set by the law, which as of 2024 stands at NIS 5,008,000. It should also be noted that in relation to the sale of a residential apartment that includes additional building rights, tax may be charged at the regular rates for the part attributed to those additional rights (as detailed below).
We recommend examining the availability of this exemption to a foreign resident who does not own a residential apartment in their country of residence. To be entitled to this exemption, the foreign resident will be required to procure the relevant documentation from the tax authorities in their country of residence.
The calculation of the Beneficial Linear Tax rate when selling a qualifying residential apartment applies also to foreign residents
According to the law, it was determined that an individual (including a foreign resident) who sells a “qualifying residential apartment” that is not their only apartment, will benefit from a beneficial linear calculation, as follows:
A gain that accrued from the date of purchase until 1.1.2014 will be exempt from tax and a gain from the aforesaid date until the date of sale will be charged appreciation tax at a rate of 25% (the Beneficial Linear Tax).
In accordance with a recent memorandum of law (not yet approved), the legislature’s intention is to reduce the Beneficial Linear Tax’s advantage.
Tax implications when purchasing a residential apartment in Israel by a foreign resident
The law stipulates that when a foreign resident purchases a single apartment, no beneficial purchase tax will apply. Instead, the gradual tax relevant to an additional residential apartment will be (for the period from 16.1.2024 to 15.1.2025), whereby a rate of 8% to be charged up to the value of NIS 6,055,070 and on the part of the value exceeding the said amount, the buyer will be charged at the rate of 10%.
Following the amendment of the Economic Efficiency Law, the purchase of a “shell apartment” (without finishing and interior work) will be considered a purchase of a residential apartment.
Reliefs when purchasing a residential apartment by an Israeli resident (including a veteran returning resident)
Benefited Purchase Tax rates will apply on a single apartment acquired by an Israeli resident (who does not own any other apartment), or in relation to the purchase of an alternative apartment. In addition, those reduced tax rates will apply on the purchase of a single apartment, by a single purchaser who is a veteran returning resident, as well as to those who, within two years of the purchase of the apartment, became Israeli residents for the first time.
Single Residential Apartments (January 16 – January 15, 2025) purchase rates
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