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Real estate taxes in Israel: Differences between commercial and residential properties

Property taxes in Israel

Property taxes in Israel play a crucial role for investors and property owners. Understanding the differences between commercial and residential taxes can help you better manage your real estate taxes in the country. This article aims to provide key information and advice on how to optimize the tax management of real estate in Israel.

1. Property taxation in Israel: an overview

In Israel, property taxation is a key consideration for investors and homeowners. The Israeli tax system is based on a progressive income tax, which means that tax rates increase with income levels. Israeli residents are taxed on their worldwide income, while non-residents are taxed only on their income from Israel.

New immigrants benefit from tax advantages to encourage immigration and investment in the country. These benefits include a 10-year exemption from income tax. on income from foreign sources.

Understanding these advantages is essential to optimizing your tax situation as a new immigrant to Israel.

2. Commercial property: taxes and tax regimes

Commercial property in Israel encompasses various types of real estate used for commercial purposes, such as offices, stores, warehouses and factories. The taxation of commercial property in Israel has specific features, particularly as regards the taxes and tax regimes applicable to such property.

Taxes on commercial property in Israel include income tax, capital gains tax and value-added tax (VAT). Tax rates and rules vary according to the nature of the business activity and the type of property involved.

There are also specific tax regimes for commercial real estate in Israel. For example, certain geographical areas of the country offer tax benefits to the companies located there, with the aim of fostering economic development and job creation.

Investors and commercial property owners need to take these tax regimes into account when assessing the tax implications of their investments and deciding on the best strategy to optimize their tax position.

3. Residential properties: taxes and tax systems

Residential property in Israel includes housing intended for occupation as a primary or secondary residence, such as apartments, detached houses or villas. The taxation of residential property in Israel has specific features, particularly as regards the taxes and tax regimes applicable to such property.

Taxes on residential property in Israel include income tax and capital gains tax.

There is no VAT in Israel on the long-term rental of residential property.

As far as the specific tax regimes for residential property are concerned, there are three different ways of declaring property rental income in Israel: the "normal" tax mode, the "linear tax rate of 10%" mode and total or partial tax exemption. Each of these regimes has its advantages and disadvantages, and homeowners must choose the mode of taxation best suited to their situation.

We have detailed these 3 regimes in the video below:

4. Tax comparison between commercial and residential properties

Understanding the tax differences between commercial and residential properties in Israel is essential to optimize the tax management of real estate. Indeed, tax regimes, tax rates and exemptions vary according to the type of property and the use to which it is put.

Let's take an example of tax comparison for commercial and residential properties: imagine an investor who owns both an office building and an apartment for residential rental. Taxes on the rental income from the office building will be subject to a different tax rate than on the rental income from the apartment.

In order to optimize the tax management of real estate, it is advisable to find out about the tax specificities of each type of property, and to seek the help of real estate tax experts. These professionals can provide advice tailored to the situation of each investor and owner, taking into account the particularities of the Israeli real estate market and the regulations in force.

5. Tax management of real estate in Israel

The importance of tax management for business owners real estate in Israel cannot be underestimated. Effective tax management optimizes rental income, minimizes taxes and ensures compliance with current tax regulations.

Here are some tips for efficient tax management of real estate in Israel:

  • Keeping up to date tax laws and regulations in force, as well as any changes likely to affect the properties.
  • Consider the tax impact of every investment decision, including the purchase, sale, rental or renovation of a property.
  • Keep accurate, up-to-date records of all property-related transactions and expenses, to facilitate tax reporting and management.
  • Consult real estate tax experts on a regular basis for personalized advice tailored to your tax situation.

Our accounting firm is an example of a service specialized in the tax management of real estate in Israel. Thanks to our experience and expertise, we help investors and owners to optimize their real estate taxation and ensure compliance with current laws and regulations.

6. Online simulation for the acquisition tax in Israel

The simulation tool from online purchase tax is an invaluable service for investors and homeowners wishing to find out about the taxes involved in buying property in Israel. This tool makes it easy to calculate taxes based on the value of the transaction, and is updated annually by the tax authorities.

Once the data has been entered, the tool automatically calculates the taxes to be paid when the property is acquired, giving investors and owners a clear idea of the tax costs associated with the purchase of the property.

Purchase tax in Israel - Online simulation

7. Conclusion

In summary, the tax differences between commercial and residential property in Israel are significant and need to be taken into account by investors and owners alike. A good understanding of these differences will enable you to better manage your real estate taxes and optimize your investment income.

Tax management of real estate in Israel requires in-depth knowledge of the laws and regulations in force, as well as strategies for optimizing the taxation of such property. Investors and property owners are encouraged to consult real estate tax experts for personalized advice tailored to their specific situation.

8. Take action

To optimize the tax management of your real estate in Israel, don't hesitate to consult our firm's chartered accountancy services.

Our professionals will guide you in understanding current laws and regulations, and help you make the best decisions for your situation.

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Boruch Levenson - CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for the English speaking clients.

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Our consultants in Jerusalem

English speaking accountants in Israel
Address: Kanfei Nesharim 68. Merkaz Oranim
Phone number: 02 631 9000
Fax: 02 631 9005
Email: office@cpa-dray.com