What is Purchase Tax in Ramat Gan?

Definition and Basic Principle of Purchase Tax

Purchase tax is a tax imposed on real estate purchasers in Israel, particularly on buyers of apartments and houses. This is a tax established under the Law on Real Estate Transactions Tax, and it applies to every purchase transaction involving land, buildings, or apartments, whether for residents or companies. The tax is paid to the tax authorities (Israel Tax Authority) and constitutes a significant portion of the total acquisition costs of the property.

Unlike other transaction taxes, purchase tax is not a value-added tax (VAT) — it is a direct tax imposed at a fixed or variable rate depending on the purchase price amount, the status of the purchaser (permanent resident, company, foreign investor, etc.) and the type of property (first apartment, second apartment, construction lot, etc.).

Who Pays Purchase Tax?

Purchase tax is paid by the purchaser (buyer) of the property. This is a legal obligation that arises the moment the purchase agreement is signed, although the closing (completion of the transaction) will occur later. In certain cases, a transaction may be completely exempt from purchase tax, such as transactions between family members under certain conditions, or the purchase of a first apartment according to specific conditions established by law. However, in some cases, the purchaser may be entitled to discounts or partial exemptions.

Permanent Residents and Foreigners Regarding Purchase Tax

A permanent resident of Israel is liable to pay purchase tax on the purchase of any property in Israel. In contrast, a foreigner (a person who is not a permanent resident) may be subject to a higher tax rate or different conditions, in accordance with the law's provisions. Foreign companies and entities controlled by foreigners face special and more stringent regulations concerning purchase tax, including the possibility of transaction denial or increased tax.

Acquisition Tax Rates in Israel — Comparative Table

Acquisition tax rates vary according to the type of property, purchase price, buyer's status, and reasons for purchase. Below is a table presenting the rates currently in force:

It is important to note that these rates may change and serve as general guidance only. Each case is examined individually according to specific circumstances and current legal provisions.

How is Acquisition Tax Calculated?

Calculating acquisition tax is a relatively straightforward process, but it requires accuracy and legal knowledge. The basic formula is: Acquisition Tax = Purchase Price × Tax Rate. For example, if you purchase a second apartment for 2 million shekels, the acquisition tax will be 2,000,000 × 5% = 100,000 shekels.

However, in actual calculation, important factors must be considered: Is there entitlement to an exemption or discount? Was the property purchased under Tama 38 or Evacuation and Reconstruction programs (which may lead to discounts)? Is the buyer a permanent resident or a foreigner? Is there a different valuation of the property by the tax authorities? Each of these factors may affect the final tax amount.

Role of the Tax Assessor

The tax assessor (income tax authority) determines the assessed value of the property for tax purposes, and often this value differs from the price agreed upon in the purchase agreement. If the assessed value is higher than the agreed price, acquisition tax will be calculated on this value. This is a matter that requires careful review, and an objection may be filed against the tax assessor's valuation if there is legal grounds for doing so.

Cases Where You May Be Exempt or Eligible for Acquisition Tax Reduction

The law recognizes several cases where a purchaser may be entitled to full or partial exemption from acquisition tax. These are special circumstances that require proof and proper legal classification:

Exemption for a First Apartment

A permanent resident of Israel purchasing a first apartment for personal residential use may be entitled to a full exemption from acquisition tax. However, this exemption is not automatic — certain conditions must be met: the apartment must be used personally as a primary residence, the purchaser cannot hold another apartment, and there are age and purchaser type restrictions. Additionally, there is a price limit on the apartment — beyond a certain amount (which changes over time), the exemption is reduced or eliminated.

Reductions under Tama 38

Real estate transactions within Tama 38 projects (urban renewal) may be eligible for substantial acquisition tax reductions. These reductions reflect government policy to encourage urban renewal and increase housing units in existing cities. Such reductions can reach dozens of percent of the regular tax.

Transactions Between Family Members

Under certain circumstances, transactions between family members (parents and children, spouses, etc.) may be entitled to reductions or exemptions. However, these conditions are strict and must be properly documented to avoid rejection of the claim by tax authorities.

Transactions by Government Companies and Institutions

Government companies, municipalities, and public institutions may be exempt from acquisition tax under certain conditions. Here too, this requires proof and proper legal classification.

Capital Gains Tax and Its Relationship to Acquisition Tax

It is important to distinguish between acquisition tax and capital gains tax. Capital gains tax is imposed on the seller (not the buyer) and applies to the profit realized from the sale of the property. If purchased for one million shekels and sold for one and a half million, the difference (half a million) is the capital gain, and capital gains tax applies at a fixed rate. This is an entirely different tax from acquisition tax, but both apply to a real estate transaction.

Acquisition Tax Payment Process in Ramat Gan

When purchasing a property in Ramat Gan, the acquisition tax payment process occurs in specific stages:

Stage 1: Signing the Sales Agreement

Once the sales agreement is signed by both parties (buyer and seller) and witnessed (usually by an attorney), the acquisition tax liability arises. The exact amount of the tax will be determined after the tax assessor evaluates the property and determines its assessed value.

Stage 2: Property Valuation by the Income Tax Authority

The Income Tax Authority determines the assessed value of the property. This valuation is based on market prices, the nature of the property, its location, and other factors. If the assessed value is higher than the agreed price in the contract, the acquisition tax will be calculated on the higher value.

Stage 3: Filing the Buyer's Declaration

The buyer's attorney (or seller's attorney, depending on the arrangement) submits a buyer's declaration to the Income Tax Authority. This declaration specifies the property details, purchase price, buyer identification, type of purchase (first home, second home, etc.), and any request for exemptions or discounts the buyer is entitled to.

Stage 4: Tax Amount Determination by the Income Tax Authority

After reviewing the buyer's declaration, the Income Tax Authority determines the exact tax amount owed by the buyer. This amount is added to the total purchase costs.

Stage 5: Tax Payment at Transaction Closing

Typically, acquisition tax is paid at the time of transaction closing (on the completion date), when the property is transferred to the buyer's ownership and registered in the Land Registry under their name. The buyer's attorney transfers the funds to an escrow account, from which the tax is paid directly to the Income Tax Authority.

Numerical Example: Acquisition Tax Calculation in Ramat Gan

Let's imagine a concrete scenario: a young couple in Ramat Gan wants to purchase their first home for 2.5 million shekels. Assuming they are eligible for a first home exemption, the tax owed would be 0 shekels. However, if they purchase a second home for the same price, the acquisition tax would be: 2,500,000 × 5% = 125,000 shekels.

Now, suppose they purchase an apartment as part of a Tama 38 project, and they are entitled to a 50% discount on acquisition tax. In this case, the tax would be: 125,000 × 50% = 62,500 shekels. As you can see, discounts and entitlements can save substantial sums.