Declaration of assets when purchasing real estate in Israel
2019 will mark the beginning of a new era in the acquisition of real estate in Israel.
The new directive concerning real estate in Israel directly affects all property owners.
From now on, property owners will have to submit a general report detailing the sources of financing for their property purchases!
- Why do the tax authorities in Israel want to know where the money to buy an apartment comes from?
- What's the next "surprise" in store from the Israeli tax authorities?
Let's find out more.
Israel's current context and upcoming reforms
The tax authorities in Israel have set themselves a goal: Require taxpayers to declare their income and assets worldwide.
It all started a few years ago when the tax authorities in Israel allowed Israelis to declare their assets abroad without criminal prosecution: the "Miratson guilouye - גילוי מרצון".
This "arrangement" enabled certain Israelis to declare bank accounts located in offshore countries. The famous Swiss accounts of certain celebrities or important people.
Then it continued 2 years ago, when bureaux de change were obliged to declare information on their customers' transactions to the "anti-money laundering administration":
- Transactions over 50,000 Shekels.
- Cumulative transactions exceeding 200,000 Shekels over a 6-month period.
- Transfer received from abroad.
- The identity of the beneficiary of the transfer is different from that of the sender of the transfer.
Then comes the law that will come into force in 2019, on limiting cash payments: Ban on cash payments for transactions over 11,000 shekels.
Now comes this new reform concerning the purchase of real estate in Israel.
Who is this new reform aimed at?
It is true that the provisions of this new law require all buyers (individuals, companies, non-profit organizations, foreign residents, foreign companies) to declare to the tax authorities all means of payment used to acquire real estate. (apartments, land, etc.).
But They also require that the declaration include proof of payment for the purchase of the property..ALSO READ: Buying real estate in Israel? The taxman wants to know where your money comes from!
Let's try to understand what the Israeli tax authorities are looking for when they ask us to provide proof of payment, given that payment in cash is forbidden! (Both buyer and seller are liable to penalties already provided for by law if payment is made in cash).
So what's the connection between this report and the reporting of all means of payment for the apartment?
What are the Israeli tax authorities looking for in this report?
To answer these questions, it should be remembered that the enactment of this law is intended to:
- reduce undeclared assets;
- reduce tax evasion;
- and reduce opportunities for money laundering;
What exactly will the Israeli tax authorities be looking for?
The Israeli tax authorities will examine and analyze all information relating to any purchase of real estate in Israel, and will examine all sources of financing.
In this way, the personal funds used to purchase the property will be examined: their sources and the buyer's explanations of the source of the capital.
- If the source of the money comes from a relative's or third party's account, they'll ask "why did the relative or other person pay for you"?
- If the money comes from a foreign transfer, you'll need to give very detailed explanations of the foreign sources of funding.
- The tax authorities will check whether these accounts are declared in Israel or in the buyer's country of residence. (When the buyer is a foreign resident).
It should be noted that the provisions of this section also apply to companies and non-profit organizations purchasing real estate, and that they will also be required to declare and explain their sources of funding.
We're all familiar with financial packages using mutual aid funds (Gmah - גמ "ח) to finance apartment acquisitions.
This arrangement will no longer be possible after January 1, 2019.
If a company buys real estate through loans or payments made directly by a third party, it will have to explain the source of the money and why the payment was made by another person.
In addition, as we know, there is no obligation to declare the purchase of real estate in trust (a trust whose beneficiaries are not known).
However, under the new directive, sources of funding that were previously hidden will now be fully reported to the tax authorities. Trusts will no longer be an obstacle to tax authorities, as they will have access to all available data.
Towards an asset declaration for all real estate purchases in Israel?
It's worth recalling one of the stratagems often used, but which Israel's tax system is in the process of abolishing. Sometimes, tax evasion is practiced so that Mr. A buys an apartment and Mr. B pays for it. When our Mr A doesn't declare his income in Israel, because he doesn't run a business for example, it's unlikely that he would have been asked in the past to explain his assets in Israel. (And therefore that Mr B. could have been traced).ALSO READ: Who has to file a tax return in Israel?
With the application of the new directive, the Israeli Tax Authorities will closely examine the method of payment and will request details and explanations on :
- Why did someone else pay for you?"
- For whom do you own the property?
- Where do the funds used to purchase the property come from?
- and more;
As a result, honest people who were "doing a service" are likely to be in a lot of trouble over the next few months. Remember the saying: "there are no friends left in purgatory".
Conclusion: Israel's new tax authority shifts up a gear
Two new directives from taxes in Israel will come into force from January 1, 2019, namely:
- Limiting cash payments will therefore reduce the possibilities for cash payments in general. This will reduce the possibility of introducing undeclared money through purchases of real estate in Israel, such as apartments and offices.
- Explanation of sources of financing for the purchase of real estate in Israel.
So make no mistake:
The new directive on explanations of sources of financing should not be seen as a declaration of means of payment only.
Think of it more as a request for a detailed report on your assets.
It would therefore be a roundabout way of obliging all buyers to declare their assets in Israel, on all the capital used to purchase the apartment and its means, both in Israel and abroad.
Don't hesitate à contact us for further information and to regularize your situation if necessary.