AIRBNB: When taxation comes into its own

Airbnb Cabinet Expert Comptable Dray & Dray

In Israel, over the course of 2015, no fewer than 13,000 apartments were rented via AIRBNB.

A study conducted by the tax authorities in Israel has just revealed some interesting figures:

Around 33% of owners renting out their apartments via short-term rental platforms (AIRBNB, BOOKING) do not declare their income and are therefore in a situation of tax evasion.

The taxman also knows how to use new technologies

In order to carry out this study, the Israeli tax authorities have shown that they are capable of being inventive when it comes to recovering money.

In fact, in order to identify owners who were not declaring their income, Israeli tax agents placed several orders via the AIRBNB site, and even went so far as to meet the owner face-to-face, to see if he would provide them with an invoice and receipt, as required by law.

Jerusalem & Tel Aviv, the bad pupils

This survey, carried out on a total of almost 300 people, revealed figures that speak for themselves:

In Jerusalem, 44% of homeowners are involved in tax evasion, while in Tel Aviv the figure rises to 48%.

Haifa comes out on top, when "only" 27% of owners are in an irregular situation.

In view of the "success" of this operation, the Israeli tax authorities are considering expanding the number of orders and checks to be carried out in this sector over the coming months.

Here are a few examples of how owners have reacted.

The reaction of some owners when presented with a fait accompli is a stark reminder of the lack of information on the taxation system for this type of activity.

"I didn't know I had to declare this type of income," said one apartment owner who has earned no less than 144,000 Shekels via her apartments over the past 2 years.

"I declare this income via the 10% tax system, I didn't know it doesn't apply on this type of rental," for his part, said a landlord living in Tel Aviv, renting 2 apartments and earning over 127,000 Shekels in 2015 alone.

We won't debate the good or bad faith of owners in this article, but what is clear is that both Israeli and foreign owners are ignoring the requirements of the law in terms of taxation in this area.

Short-term apartment rentals: What does the law say in Israel?

This type of rental is subject to the following taxes:

  1. Income tax.
  2. Bituah Léoumi - Social Security.
  3. Maam - VAT (subject to certain conditions).

Income tax

The Israeli tax authorities have stated that they do not intend to miss out on the financial windfall represented by these new short-term rental platforms.

According to the tax authorities in Israel, this is an income from a fully-fledged business activity, and owners are therefore required to open their status with the tax office, declare income on a regular basis and, if necessary, register with the tax authorities. respecting management instructionsand submit an annual tax return - Doh Ishi.

The Israeli authorities regard short-term apartment rentals as a commercial activity.

And therefore do not qualify for the tax exemption subject to the 5,100 Shekel monthly ceiling (for the year 2020).

Furthermore, as this is a commercial activity, we cannot also take advantage of the 10% linear tax system that exists for long-term apartment rentals.

Consequently, the rental of this type of apartment will be subject to taxation on active income.ALSO READ: Israel's tax brackets.

The Bituah Leoumi

Income from apartment rentals will be subject to the Bitouah Léoumi. The tax rate varies according to the following levels :

  1. Monthly profits of less than 6,331 Shekels : 5.97%.
  2. Monthly profits in excess of 6,332 Shekels : 17.83%.

The real question: Should VAT be paid or not?

According to the Maam law, a rented apartment meeting the following criteria will be subject to VAT (17%):

  1. On average, 5 people stay there on a regular basis in exchange for payment.
  2. The apartment must be at least 14 m² for 2 beds, and 4 m² for each additional bed.

Consequently, only an apartment larger than 26 m² could meet these criteria. (excluding kitchen and bathroom).

If the above criteria do not apply, you will not be subject to VAT. (You'll still have to pay income tax and Bituah Leumi).

It's important to know that if the apartment is rented to tourists, VAT will be 0%. Even if you meet the above criteria.

Conclusion :

Many of you are wondering whether AIRBNB will pass on the information to the Israeli tax authorities. In our opinion, it is clear that in the long term AIRBNB will be forced to pass on this type of information.

However, the Israeli tax authorities have not waited for this type of information, and are using their imagination to find owners in irregular situations.

In conclusion, the technological advances of recent years have opened up new business opportunities, and AIRBNB represents only part of these advances. Sales on Ebay, and UBER-type transport services, will soon be in the sights of the Israeli tax authorities, who are keen to enter the commercial 2.0 world head-on and take advantage of this new financial windfall.

This article is for information purposes only. It does not constitute legal advice and should not be construed as such.



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