The situation of taxes (missim) in Israel is not fixed; it fluctuates from one extreme to the other, which makes it very difficult to follow. The domain of property taxes (missoui mekarkein) undergoes constant changes, depending on the various Ministers, on the political and economic situation, and numerous other reasons. The majority of these changes are made to improve the situation, but the results are not always necessarily, what was expected of them!
According to the law in Israel, any buyer (kone) of real estate (nadlan) has to pay the acquisition tax (mas rekhisha). These taxes rise and fall according to the years and the politicians, as well as to what happens in the financial and economic sector in the country.
The purpose of our article is to make available to all the essential information on the purchase taxes (misse knia), sales taxes (misse mekhira) and rental taxes (misse haskara). This will make things easier for people interested in buying (liknot), selling (limkor) or renting (leasskir) real estate (nadlan) in Israel, be they new immigrants (olim khadashim), Israelis (israelim), or foreigners (zarim).
The article has five parts, with several important information before the first, such as the deadlines for the taxes’ payments and the additional costs. The first part is for new immigrants making their first purchase of apartments (dira) in Israel, the second for Israeli first-time buyers (kone rishoni), that is to say those who acquire a first property, the third for Israeli and foreigners buying an additional property. Then there will be a fourth part about the rental taxes, and a fifth one for sales taxes, surplus value.
Tax deadlines for the purchase and sale of real estate
As for everything else, there are also payment deadlines for taxes for both the buyer and the seller. Buyers and sellers have up to 2 months, or 60 days, to declare their purchase and pay the tax to the country’s tax authorities. This is one of the reasons why buyers (konim) and sellers (mokhrim) use lawyers (orkhei din), as it is usually these who take charge of the procedure for the payment of taxes.
In addition to the price of buying a property, one must not forget the other costs (alouyot nossafot) that accompany it; they also count in the budget (taktsiv). They are the lawyers’ (orkhei din) fees (skhar tirkha), agency (soukhnout nadlan) fees, bank credit (mashkanta) charges, repair work (avodot tikoun), renovation (shipouts) of the property.
- Lawyers’ fees between 0.50 and 2% + VAT
- Agency fees between 2% + VAT
- Bank credit charges, if any, and their costs
- Repair or renovation costs: they depend on the condition (matsav) of the property
- Taxes for new immigrants
Immigration, too, is very much encouraged by the Israeli state, which is making many efforts to make the taxes less burdensome for the new immigrants. To be accepted as a new immigrant by the country’s tax system (maarekhet hamas), one must have lived more than 183 days in Israel, continue to live there, and have bought a property in the year before moving to Israel or during the 7 years after Alyia. Of course the new immigrant must live (lagur) in the purchased property. The Ministry of Finance (misrad haotsar) has made the tax changes on January 16, 2018. As before, the height of the tax depends on the price of the purchased property:
- From 0 NIS to 1,672,385 NIS the tax is 0.5%.
- More than 1,672,385 NIS the tax is 5%.
As said above, all these changes in taxes have been decided on January 16, 2018 and in principle will be in place until at least January 15, 2019. After that date, it is possible that other changes will take place, but we can hope that these new taxes will remain the same for more than one year.
- Taxes for Israeli first-time buyer
The Israeli state is very interested in encouraging people to buy apartments (dirot), especially those who do not have one yet. In the real estate language, such one is called a ‘first-time buyer’. The acquisition tax for a first-time buyer was also decided on January 16, 2018. The height of these taxes depends on the price (mekhir) of the purchased property:
- From 0 NIS to 1.664.520 NIS there is no tax to pay.
- From 1.664.520 NIS to 1.974.335 NIS the tax is 3.5%.
- From 1.974.335 NIS to 5.093.535 NIS the tax is 5%.
- From 5.093.535 NIS to 16.978.450 NIS the tax is 8%.
- More than 16,978,450 NIS the tax is 10%.
First-time buyers have up to 60 days to pay the purchase tax
- Taxes for Israeli and foreign acquirers of an additional property
In the case of taxes for Israeli citizens (ezrakhim israelim) and foreigners (zarim) wanting to acquire a second or more real estate in Israel, there have also been changes in the law since January 16, 2018. Also in these cases, the height of the tax depends of the purchase amount (skhoum harekhisha) of the real estate:
- From 0 NIS to 5.095.570 NIS the tax is 8% of the amount of the purchase.
- More than 5,095,570 NIS the tax is 10% of the amount of the purchase.
In the case of a first-time buyer wishing to buy (liknot) a second property, but who decides to sell (limkor) his first property within two years after the purchase of the second one, the tax he will pay will be like that for a first-time buyer.
In the case of a non-resident buyer who buys a second property and decides to become Israeli within two years of the purchase of the second property, he will receive a refund of the paid taxes.
- Rental tax
In Israel, the rental (hasskara) of properties that were purchased and sold in Israel are also subject to taxes, those of the of real estate income taxation, and this for all types of rentals: housing (megourim), offices (misradim), warehouses (makhsanim), shops (khanouyot) etc.
Exemption from taxes (ptor mi mass)
- The rental is only for housing.
- The person who rents the accommodation is an individual (adam prati) and not a company (khevra).
- The rent does not exceed 5,000 NIS per month, for all rents of apartments of the same owner.
Fixed price tax (mas shatouakh)
The property owner can pay a fixed price tax of 10% of the total amount of all rents he has received during the year, which is a very advantageous opportunity. Many owners prefer this option, but it has a big disadvantage: it is impossible to deduct neither fees nor other expenses of the rents, which they will have received. Besides, they will have to pay the amount up to January 30, which is to say at the end of the first 30 days of the new fiscal year.
Include rental in income taxation
This option is less interesting and the progressive scale goes from 31% to 50%, because in this case the owner simply includes the rents he receives in the total of his income. The advantage of this option is that it allows him to deduct all the expenses he has had for the apartment, including for example the costs of lawyers, agency, work, renovation and others. Several homeowners prefer this option, which, although it is much less advantageous than the fixed price tax, allows them to reduce the tax by deducting other expenses.
- Sales taxes, surplus value
Since 2014, the sales tax (mas mekhira), or rather with its real name: the surplus value tax (mas revakh), is 25%. It is not complicated to calculate, but many people do not understand at all how to do it. As it is easier to explain using an example here is one, but understand that the prices mentioned are imaginary and do not necessarily correspond to reality, so do not rely on them to calculate your costs or your tax of surplus value.
|You bought a property in January 2014 for||1.000.000 NIS|
|You sell it in April 2018 for||2.000.000 NIS|
|Your gain is therefore||1.000.000 NIS|
But, you can add your expenses for the transaction and valuation of the property purchased, so all the bills (kheshbonit mas) of your expenses (hotsaot), such as the costs of lawyers, agencies, renovations, works, the amount of the purchase tax and registration fees, interest on the mortgage if there is one, additions such as air-conditioning, gates, gates etc.
Here is a concrete example:
|The purchase cost you||1.000.000 NIS|
|Invoice of the lawyers||+ 20.000 NIS|
|Invoice of the agency||+ 20.000 NIS|
|Invoice of works||+ 100.000 NIS|
|Invoice for renovations (shipoutzim)||+ 50.000 NIS|
|Bill of air-conditioning (mazgan)||+ 25.000 NIS|
|Invoice bill (delet knissa)||+ 10.000 NIS|
|Electric gate (shaar khashmali)||+ 25.000 NIS|
The final surplus value on which the seller will have to pay the 25% tax will therefore be as following:
|The selling price||2.000.000 NIS|
|The purchase price plus all expenses||– 1.250.000 NIS|
|Final surplus value on which the taxes are payable||750.000 NIS|
The payment period of the capital gain surplus value tax is up to 60 days maximum.