Before you buy property in Israel, it is advisable to consult with your lawyer, mortgage broker or accountant on the subject of purchase taxes (mas rechisha). There have been many changes to the purchase tax structure over the past few years, and rather than relying on anecdotal information, avail yourself of expert advice.
Below is a brief overview extracted from an excellent paper on the subject of mas rechisha prepared by Epstein & Co., a Jerusalem law firm. You can obtain the full report by visiting their website (www.epsteinlaw.co.il).
If you are planning to invest in real estate in Israel, Epstein & Co., have two other very good documents on their website: “How can Foreign Residents Invest in Real Estate in Israel Without Paying Taxes?” and “The Ins and Outs of Real Estate in Israel.” We are not making an endorsement of the law firm, merely recommending that you take advantage of the very helpful information they provide through their website.
The Purchase tax is called mas rechisha. Until 2014, there were various provisions of which a buyer could avail himself and avoid paying a tax or pay a much reduced rate. New regulations have tightened up the exemptions. Whereas previously foreign and Israeli buyers could avoid the tax if purchasing their first property in Israel, the new law requires all foreign buyers (whether Israeli or not) to pay the purchase tax regardless of price and regardless of whether it is the first home in Israel or not. However the new law did make two exceptions: (1) if you live in Israel and hold Israeli citizenship; or (2) you immigrate to Israel within two years of making the purchase.
Israel and you live in Israel
A buyer must demonstrate that Israel is his or her primary residence in order to qualify for the exemption. A typical measure is if you spend more than half the year living here, then Israel is considered your primary domain. But nothing is simple when it comes to governments. Be prepared for the tax authority to ask for lots of proofs.
Non-residents must pay a purchase tax and it is based upon the purchase price of the property. Currently, on properties of up to 4,800,605 NIS the tax is 8%, and for properties over 4,800,605 NIS, the tax is 10%.
There are many intricacies and constant updating to the tax laws in Israel. A wise buyer will be sure to first check with a qualified attorney so that you have a full accounting of what it is going to cost you to purchase that dream home. Also a qualified attorney can help you access all the possible exemptions and discounts to make the tax part of your purchase as painless as possible.