In Israel, the number of apartments rented via AIRBNB has been on the rise year by year, attracting landlords and entrepreneurs with the prospects available in the short-term letting industry. But landlords don’t know that there’s special treatment for Airbnb Israeli taxation.
Back in 2015, a study conducted by the tax authorities in Israel released some interesting figures:
Around 33% of owners renting their apartment through short-term rental platforms (AIRBNB, BOOKING.COM) did not declare their income and are therefore guilty of tax evasion. In 2016 Haaretz newspaper published an article on the AIRBNB tax evasion problem.
The tax authorities also know how to use new technology
In order to carry out this study, the Israeli tax authorities showed a creative imagination and proved that they are capable of being inventive when it comes to collecting money.
In fact, in order to identify owners who did not declare their income, Israeli tax officials placed several orders via the AIRBNB site. They even went to meet the landlords directly, in order to see if they would issue an invoice and receipt, as required by law.
Jerusalem & Tel Aviv, the bad examples
This survey, carried out on nearly 300 people in total, revealed figures that speak for themselves:
In Jerusalem, 44% of homeowners were guilty of tax evasion, while in Tel Aviv the figure reached 48%. However, Haifa was doing better, with “only” 27% of owners are tax evaders.
In view of the Tax Authority’s « success » , they continue to expand the number of orders and checks out in this sector of activity.
How did the landlords react?
The reaction of certain landlords when they were faced with a tax evasion investigation is a rather glaring testimony to the lack of information concerning the tax system on this type of income.
“I didn’t know you had to report this kind of income,” said an apartment owner who has earned no less than 144,000 ILS from her apartments over the past 2 years.
« I declare this income via the 10% tax route, I did not know that it does not apply to Airbnb rentals ». This is what a landlord living in Tel Aviv said. Airbnb Israeli taxation is different to normal rental income.More: Tax on Israeli rental income
Airbnb income Israeli taxation: What ‘s the law in Israel?
This type of short-term rental income is not treated the same as long-term rental. The tax Authority view this income as ‘business income’ – you are effectively offering hospitality services. The income is therefore subject to the following taxes:
- – Income taxes
- – Bituach Leumi – Social Security
- – Ma’am – VAT (Subject to certain conditions).
The Israeli tax authorities have asserted that they do not intend to miss out on the financial windfall represented by these short-term rental platforms.
According to the tax authorities in Israel, short-term rentals aren’t considered passive income like other rental income. Rather its considered to be a fully-fledged “business”. Therefore, landlords are required to register as a ‘business’ and submit their bi-monthly/monthly reports as required. This is in addition to the annual tax return – Doch Ishi.
It’s important to be clear that the Israeli Tax Authorities view short-term apartment rentals as a business activity. Therefore, they do not allow landlords to take advantage of the tax exemption subject to the ceiling of 5,196 Shekels per month (for the year 2022).
Similarly, landlords cannot also take advantage of the linear 10% tax system that exists for long-term residential property rentals.
The rental of this type of apartment will be subject to taxation on active income.What are the income tax rates in Israel ?
Income from short-term property rentals is subject to Bituach Leumi . The contribution rate varies according to the following levels (2021):
- Monthly profits below 6,331 Shekels: 5.97%.
- Monthly profits between 6,332 to 44,020 Shekels: 17.83%.
VAT: Should landlords pay VAT or not?
According to VAT law, a rented apartment meeting all the following criteria will be subject to VAT:
- On average, 5 people stay there on a regular basis for a fee.
- The surface of the apartment must be at least 14 m² for 2 beds, and 4 m² for each additional bed.
Therefore, only an apartment larger than 26 m² could meet these criteria. (excluding kitchen and bathroom).
If all the criteria listed above does not apply, you will not be subject to VAT. (You will still have to pay Income Tax and Bituach Leumi).
It is important to know that if the apartment rental is intended for foreign tourists, the VAT will be 0%. This is even if you meet the criteria mentioned above. However, the landlord must ensure to collect and record the correct evidence that the guests were foreign tourists.
Many of you are wondering if AIRBNB will pass the information on to the Israeli tax authorities. In our opinion, it is clear that in the long term, AIRBNB will be forced to transmit this type of information.
However, the Israeli tax authorities did not wait to have this type of information and showed imagination to find the owners in an irregular situation.
To conclude, the technological advances of recent years have opened up new business opportunities, and AIRBNB represents only a part of these advances. Sales on Amazon, and UBER-type transport services will quickly be in the sights of the Israeli tax authorities, who wish to fully enter the commercial world of 2.0 and take advantage of this new financial windfall.Getting registered for short-term rentals: The Osek Murshe Guide