Purchase tax constitutes a substantial part of the costs of purchasing an apartment (see my previous article on related costs). This tax can discourage potential purchasers.
In order to avoid any nasty surprises and to budget for property purchase costs as well as possible, here are a few tips to help you plan your purchase wisely and effectively and reduce purchase tax costs legally and legitimately.
What is purchase tax?
According to Israeli land tax law, any person acquiring a right to a property in Israel is liable for purchase tax. Therefore, purchase tax is a tax paid to the State by the buyer of the right concerned upon completion of the transaction.
Purchase tax amount;
- The taxation rates applied to a first apartment owned by an Israeli resident depend on the property value.
| Property Value | Purchase Tax |
|---|---|
| NIS 0 to 1.568.800 | 0 % |
| NIS 1.568.800 to 1.860.790 | 3,5% |
| NIS 1.860.790 to 4.800.605 | 5% |
| NIS 4.800.605 to 16.002.015 | 8% |
| Over NIS 16.000.015 | 10% |
2. Tax rates applied to an additional residential apartment owned by an Israel resident or by a foreign resident.
| Valeur de la propriété | Taxe d’acquisition |
|---|---|
| NIS 0 to 4.800.605 | 8 % |
| Over NIS 4.800.605 | 10 % |
Please note: the sum to be paid is calculated by tax bracket.
Purchase tax for new immigrants:
The aim is to make it easier for new immigrants to buy a home or a business (starting a year before the Aliyah and ending seven years after the person concerned immigrated).
| Property Value | Purchase Tax |
|---|---|
| Up to a sum of NIS 1.700.220 | 0,5% |
| Over NIS 1.700.220 NIS | 5% |
The sum to be paid is also calculated by tax bracket.
Purchase of property through a limited liability company
When a limited liability company buys a property, the amount of purchase tax will be set according to the purpose of the purchase.
How do you get a purchase tax refund for foreign residents?
There are 2 options:
1. When purchasing the property, the foreign resident will pay the tax at the rate imposed on foreign residents. However, if s/he chooses Aliyah in the next 24 months, s/he will be able to receive a refund for the tax rate difference as an Israeli resident.
2. You can freeze purchase tax for 24 months and then pay purchase tax as an Israeli resident.
Please note that if you freeze your tax but do not do your Aliyah within 24 months, you will need to pay the interest and, in addition, the solicitor carrying out the transaction will have to wait 24 months, until the tax is paid, before being able to submit the file for entry in the land registry (the Tabo).
It is important to note that the sole fact of having a Teudat Zehut (national ID) or planning to apply for one does not guarantee that the holder will receive the rate applied to Israeli residents if s/he purchases a property. In fact, sometimes, the State carries out further checks to ensure that the purchaser is registered in Israel for tax purposes, i.e. they spend more than 183 nights a year in Israel (not necessarily consecutively) and their area of interest is in Israel (children’s schools, job, etc.).
When do you have to pay the purchase tax?
No later than 50 days after the date of signing the contract.
How do you pay the purchase tax?
There are two options:
- Take the payment slip to the bank – not a very convenient method for foreign residents.
- Pay the bill by credit card
See the online link. https://www.misim.gov.il/msmktashlumim/
Can you pay the purchase tax in instalments?
You can submit a request to the tax authorities to pay the purchase tax in instalments. The interest received by the State for staggering payments includes the indexing of the tax in question, with the addition of an annual interest of 4%. This is regarded as quite a reasonable interest rate compared to market interest rates and, thus, payment in instalments is less costly than taking out a bank loan to pay the tax.
Does purchase tax vary if the apartment is bought from a property developer?
The tax authorities may add the property developer’s solicitor’s fees to the tax on the value of the property, (usually around 1.5% of the price + 18% VAT). Therefore, you need to notify the buyer that they risk being taxed on a sum greater than the actual value of the property.
Is it important to pay the purchase tax on time?
The purchase tax payment slip indicates the due date. If the buyer pays late, a penalty of 0.2% per week of late payment will be charged.
Buyer who owns 2 apartments and who is paying the purchase tax for a first apartment.
If the buyer owns a residential apartment in addition to the new apartment bought and if they have sold the other apartment within two years of the purchase date of their new apartment, or in the year following the date they took possession of the new apartment (if they bought it from a property developer), they will be regarded as the owner of a single apartment for the purposes of calculating the tax? This sale must be reported to the office of the region concerned at the time of the sale of the additional apartment.
By Ms Galit Zamir
For more information, please contact us.
