Capital Gains Taxation under the Israeli Land Law

Types of tax – background
There are several tax types that each property seller has to face. The first one derives from upgrading the construction permits (municipal reclamation permits), issued through the municipalities and the other type is for the rise in the asset’s price which create actual gains linked (subtract) to consumer/construction price indexes.

This article is for capital gains only and is not for other tax types as mentioned above.

Foreign Residents

The Israeli law is quite complicated but foreigners can be exempt from tax if they sell one residential asset in every 4 years. This tax exemption is conditioned by an approval form their country’s authorities that they do not own residential asset in their country’s residency. This legal matter can generate good investment opportunities, to wait 4 years and then to sell them. Anyhow, each investment must be thoroughly examined in order to consider different taxation aspects.

The procedures of receiving an exemption are as follows:

Credential from the state (including all parishes and districts without Belgium and Russia) where foreigners are considered as residents, confirming that they do not have any residential assets and/or do not have any income from such assets.

This tax exemption includes assets that the foreigners inherited, but in a case that the legator could have been charged if he was alive, the legatee is also charged under the same terms and taxation rules as the legato, unless the legator is also exempted.

Tax Rates

Capital gains tax rates are usually 25% above the consumers pricing indexed gains less than municipal reclamation taxes, half of maintenance costs and other subjected costs such as legal and mediation services. In a fact and since the Israeli law has recently changed, there is a transition period that ends at 31/12/2017, so in a case of inherited assets the tax may vary from one legatee to another.

Conclusion

There are many taxation types that need to be considered such as purchase, reclamation, capital gains, inherited assets, transitional periods and regulative instructions. Even under these intricated law, there is still a way to locate a good investment, providing that the Israeli tax laws are properly tackled.