Purchase Tax for Foreign Residents in Israel

What is Purchase Tax for Foreign Residents?

Purchasing real estate in Israel as a foreign resident involves legal costs and tax obligations different from those applicable to Israeli residents. Purchase tax is one of the most significant taxes in an apartment or land purchase transaction by a foreigner, and it is given special importance in the financial planning of the transaction. Mandelboim, Gor, Witzman-Gor & Co., a law firm with over 18 years of experience in real estate and property law, provides accurate and up-to-date legal guidance to foreign residents seeking to invest in assets in Israel.

A foreign resident is defined by law as a person who is not an Israeli resident according to income tax definitions. This definition directly affects the purchase tax rate applicable to them, their eligibility for tax benefits, and their reporting obligations to the Israeli tax authorities. It is important to understand that the tax regime for foreign residents differs significantly from that applicable to Israeli residents, and therefore comprehensive legal and accounting consultation is required.

Purchase Tax Rates for Foreign Residents

The purchase tax rate for a foreign resident is determined based on the purchase price of the property and its intended use. Generally, the rates are higher than those applicable to Israeli residents, especially in cases of investment or commercial use. Below is a general overview of the applicable rates:

• First Residential Apartment: A foreign resident purchasing an apartment for personal use in Israel may be eligible for certain benefits, but the rate is typically still higher than for an Israeli resident. The rate varies depending on the district and property price.
• Investment or Second Apartment: When a foreign resident purchases a property for investment purposes or as a second apartment, the rates are significantly higher, sometimes reaching double-digit ranges.
• Land or Building Plot: Purchasing land by a foreign resident involves particularly high purchase tax rates, especially if the land is not designated for residential use.

It is recommended to consult with a law firm experienced in real estate, such as our office in Ramat Gan, to determine the exact rates applicable to a specific transaction, as rates may change according to changes in tax legislation and regulations.

Purchase Tax Calculation: Step by Step

Calculating purchase tax for a foreign resident is a complex process that requires understanding several legal and accounting concepts. Generally, purchase tax is calculated based on "transaction value," which is the purchase price of the property as determined in the sales contract. However, there are several additional considerations that can affect the final amount:

1. Determining Transaction Value

The transaction value is generally the price determined in the sales contract. However, the tax authority may conduct a review and determine market value if there is suspicion that the contract price is lower than the actual value of the property. Therefore, it is important that the contract price is reasonable and justifiable.

2. Calculating the Final Amount

After determining the transaction value, the purchase tax is calculated at the rate applicable to foreign residents. In addition to purchase tax, there are additional costs applicable to foreign residents, such as registration fees at the Land Registry Office and law firm fees.

3. Possible Benefits and Exemptions

In certain circumstances, a foreign resident may be entitled to benefits or exemptions from purchase tax. For example, if a foreign resident purchases an apartment for primary residence in Israel and intends to occupy it for a certain period, they may be entitled to certain benefits. Each case is examined individually, and accurate legal consultation is required.

Benefits and Rights for Foreign Residents Purchasing Real Estate

Although foreign residents are subject to higher tax rates, there are several benefits and rights that are important to know:

• Partial Exemption in Certain Circumstances: In special circumstances, such as purchasing a first apartment for residence, certain benefits may be available.
• Reductions in Purchase Tax Rate: At certain times, the government has offered reductions in the purchase tax rate for foreign residents to encourage real estate investment.
• Right to a Refund of Part of the Tax Under Certain Conditions: In rare circumstances, a foreign resident may be entitled to a refund of part of the tax already paid.

Any such benefit requires an in-depth examination of the specific circumstances of the case, which is why it is recommended to consult with a law firm experienced in real estate and property law, such as our firm with over 18 years of experience.

Cost Comparison and Scenarios

To understand the financial implications of purchasing real estate as a foreign resident, it is important to compare different scenarios and understand how rates change according to circumstances. Below is a table presenting typical examples:

Important Note: The data in the table are estimates only and reflect typical ranges. Actual rates vary according to legislative changes, the district in which the property is located, the property value, and the specific circumstances of each transaction. It is highly recommended to consult with a law firm experienced in real estate and property law, such as our firm with over 18 years of experience, to obtain an accurate calculation for a specific transaction.

The Purchasing Process: Essential Legal Steps

Purchasing real estate as a foreign resident involves a complex legal process requiring careful attention and in-depth knowledge. Below are the essential steps in the process:

1. Property and Contract Inspection: Thorough examination of the contract, its terms, and verification of the validity of the seller's rights to the property.
2. Verification of the Property's Legal Status: Inspection of the property at the Land Registry Office, verification of the absence of mortgages or liens, and verification of past tax and management fee payments.
3. Obtaining Approval from Tax Authorities: Approval is generally required from the Israeli tax authorities to execute the transaction, especially if there are complex tax issues.
4. Contract Execution: Signing of the purchase contract in the presence of a witness or attorney, and payment of the first installment of the consideration (usually up to 10% of the price).
5. Arrangement of Financing: If a foreign resident is interested in a bank loan, they should contact a bank in Israel or abroad to arrange the terms.
6. Payment of Purchase Tax and Additional Costs: Payment of purchase tax, registration fees, and attorney fees.
7. Registration of the Property in Your Name: Registration of the property in your name at the Land Registry Office, a process that may take several weeks.
8. Receipt of the Updated Tabu Certificate: Receipt of an official copy of the updated Tabu certificate confirming your ownership of the property.

Each step in this process requires careful attention and in-depth legal knowledge. Our firm has over 18 years of experience in real estate and property law, and we provide full guidance to foreign residents throughout the entire process.