Israel Real Estate Basic Taxation Laws

Capital Gains Tax

Captial Gains Tax in Israel Capital Gains Tax (known as Mas Shevach, in Israel) is paid by a property owner that is selling a private home, apartment, land or commercial property (i.e., a store or office). The capital gains is a tax paid for the profit made on the sale of any real estate or property in Israel. Property owners that sell their home, land or commercial property in Israel are not exempt from paying the capital gains tax, although in some cases, property owners may be exempted from paying the Capital gains tax on apartments.

This is a conditional exemption which stipulates that if an apartment has been used for non-commercial, strictly residential purposes, the property owner may be exempt from paying a capital gains tax if: 1) the property owner owns more than one apartment and the apartment for sale was not sold or transferred over the last four years 2) the apartment being sold is the only apartment owned by the seller and if the apartment was not sold or transferred over the last 18 months An experienced Israel Real Estate attorney will be able to clarify the capital gains tax issue for any property in Israel.

Sales Tax

Property owners that sell residential or commercial properties as a 'business' are generally required to pay 2.5% sales tax (Mas Mechira), regardless of whether or not the property was a profitable real estate investment. Building contractors pay only 0.8% sales tax on residential apartments. Private individuals are generally exempt from paying sales tax.

Purchase Tax

Anybody that buys property, be it residential or commercial, must pay purchase tax (Mas Rechisa). The Purchase Tax is calculated on a sliding scale, which is updated every 3 months, it is generally between 3.5% and 5% of the property sale price. Israeli residents are eligible for a reduced purchase tax of 0.5% if it is the only residential property he/she owns.

New immigrants (Olim Hadashim) are also partially exempt from paying the Purchase tax, even if they purchase an apartment before making Aliya, they can still qualify for partial exemption for up to 7 years after making Aliya.

Foreign residents that purchase an apartment and make Aliya within a year of the purchase are also eligible for a partial refund of the paid purchase tax. If an individual receives an apartment as a gift from a close relative, he/she is partially exempt and is required to pay only 1/3 of the normal tax rate. In order to avoid fines, payment of the purchase tax should be made within 50 days of signing the contract. Furthermore, the property will not be registered in the buyers name unless the purchase tax has been paid.

Betterment Tax

If, for example, you own agricultural land that is later rezoned as residential land, you will have to pay Betterment Tax (Hetel Hashbacha). In most cases, rezoning of land increases the value of the property, therefore, the Betterment tax is 50% of the added value of the property. The added value of the property is generally determined by a professional land appraiser. You will also be required to pay a Betterment tax if your property has been granted expansion possibilities, allowing you additional building rights to a house, lot or building. The Betterment Tax (Hetel Hashbacha) is in many ways similar to the Capital Gains tax, likewise, you should consult with your real estate attorney about the Betterment tax with regards to prospective property and possibility of future changes in zoning before buying property in Israel.

Municipal Taxes

Municipal Tax (Arnona) is a real estate tax collected by the city which is calculated by the square meters of the property and neighborhood rate. The Arnona for expensive apartments in Israel can add up to thousands of shekels per year. It's crucial to check the arnona on the property in order for you to gain an accurate estimate of your property purchase.

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