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Short-term rentals in Israel: the tax authorities are (also) getting up to date
Many apartment and villa owners rent out their properties on a short-term basis in Israel, via sites like Airbnb and booking.com.
However, this summer, as in the previous one, they were unpleasantly surprised to discover that the tenants they were expecting were not holidaymakers but tax inspectors checking that the owners were declaring their income from the property in question.
For most of them, the story didn't end there: they were summoned to Mas Ahnassa (Israeli Treasury) in the investigation department for tax fraud. Some of them will also be investigated by the criminal.
All this is the result of the tax authorities' firm determination to tax tax evaders of all kinds, particularly those who rent out their properties for short periods (seasonal rentals) and who have been in their crosshairs since 2016.
https://www.youtube.com/watch?v=OKdH4kXWzpQ&ab_channel=Dray%26DrayALSO READ: Taxes on property income in Israel.
What are the consequences for those who rent out their apartments as seasonal lets?
Renting out your apartment via AirBnb is considered the same as renting out a hotel room
The tax authorities now consider seasonal property rentals to be the same as renting a hotel room, with all the attendant tax implications.
It is therefore no longer considered as a long-term rental apartment, which is eligible for tax reductions. In certain cases, we remind you that property income can be tax-exempt if the monthly rent does not exceed 5,000 shekels.
Income from AirBnb is "active" income
The rent received for seasonal rental is considered by the tax authorities as income generated by work. As such, it will be taxed as a business, with tax rates for the property owner ranging from 10 to 50% of income.
Opening a file with the tax authorities in Israel mandatory
It's worth noting that you also need to open a tax file with the tax authorities. You will therefore have a "tik" (file) at Mas Ahnassa.
As a result, you will have to submit annual accounts and pay taxes from the first shekel you receive (the exemption of up to 5,000 shekels mentioned above does not apply in this case).
The real question: should VAT be paid or not?
Legally speaking, the owner must also pay VAT, as seasonal rentals are considered business income for tax purposes.
In practice, there are still a number of grey areas, and depending on the number of apartments rented, each owner will be charged VAT or not, as each case is different.LIRE AUSSI: AirBnb, when taxation comes up to date.
Do I have to give the tenant an invoice?
The owner must provide the tenant with an invoice, even if the tenant is a foreigner.
In this case, the difference will be VAT, which will be 0%.
Important Even if the VAT is 0%, the foreign lessee must be given the invoice for the service. (mentioning VAT 0%).
There will also be a tax impact at the time of sale of the short-term rental apartment(s). But we won't go into that here.
Conclusion: Taxes are getting tougher, to say the least!
The position of Israel's tax authorities is now clear. They have realized that several million shekels are generated via computer platforms. This income is generally not declared to the authorities. Short-term rentals in Israel are now in their sights.
Consequently, if you own one or more properties intended for seasonal rental to Israeli or foreign tenants, we recommend that you contact professionals who will be able to guide you and answer your questions.
This will save you a lot of trouble with the tax authorities in Israel.
In a nutshell:
Technological advances over the last few years have enabled us to turn a corner in terms of tax monitoring and control.
We urge landlords and rental management companies to seek advice.
A number of parameters are involved, and it is advisable to call in the professionals.
Your questions - our advice
- Are foreign owners subject to the same tax rules?
- What happens when properties are managed by a rental management company?
- How can rental management companies transfer money from rentals to apartment owners?
- Is the invoice issued by AirBnb sufficient, or should an additional invoice be given to the tenant? Can the fees charged by AirBnb and/or the rental management company's commissions be deducted?
- What status should a rental management company have?
- What are the risks if I don't declare my income?
