As a non-resident of Israel who owns an apartment in Israel and owns another residential property in their domicile, there have been recent tax amendments by the Israeli tax authorities that could affect you. These changes are aimed at increasing the supply of apartments for Israeli residents, at the expense of foreign residents, by abolishing significant tax benefits.
One of the most prominent measures in the new amendment is to cancel the exemption from the capital gains tax, which can be up to 25% tax imposed on the increase in the value of the apartment from the date of its purchase until the day of its sale, for anyone who is not a resident of Israel who owns another residential property, selling the apartment, This means that any non-resident including heirs who sells an apartment in Israel, will no longer be entitled to a full exemption from the capital gains tax, provided that it is his or her only apartment.
Furthermore, the tax laws before the latest amendments entitled anyone who sells an apartment in Israel, whether resident or non-resident, to an almost full exemption from the capital gains tax, provided that it is his or her only apartment. The cancellation of the exemption of capital gains tax for foreign residents requires careful planning to aggressively reduce the tax in Israel.
The new amendment also denies a non-resident entitlement to the Better Linear Tax Reduction, which means that a non-Israeli resident selling a home in Israel acquired before 2014 would be required to pay Land Appreciation Tax spanning the entire period in which the gain accrued. Additionally, a non-Israeli resident would be required to pay Land Appreciation tax under the Old Linear Tax rules.
Finally, the Bill denies the rental exemption to a non-Israeli resident. According to the current law, if a person rents out one or more homes in Israel and the total monthly rent does not exceed NIS 5,471 (in 2023), that person may be exempt from Israeli income tax thereon.
Understanding the Recent Tax Amendments and Their Impact on Non-Resident Apartment Owners in Israel
The original tax exemption was introduced in the 1990s when large numbers of immigrants from countries in the former Soviet Union began arriving in Israel. The new tax break continues to encourage rentals in place of empty apartments, but the favorable tax treatment also incentivizes bricks-and-mortar property investments, which in turn takes homes out of the market as primary residences, and drives up prices. It is important to stay informed of these changes in the law to ensure compliance and avoid any tax consequences.
Our law firm has extensive experience in reducing the new capital gains tax. Your taxes will ultimately depend on a number of parameters, including but not limited to apartment rights, length of the rental period if any, whether or not the apartment is occupied or empty, size of the apartment, and other variables.
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