Taxation of property income in Israel
Property income in Israel is the target for investors who plan to acquire an apartment in Israel as an investment, with a view to renting it out. In a general environment of falling financial yields, this type of long-term investment can prove highly profitable.
Especially as property income in Israel offers very attractive tax advantages.
There are three tax regimes:
1. Tax exemption
This is the best-known plan. It has existed since 1990. In practice, if rents received do not exceed a monthly ceiling of 5,470 Shekels (for the year 2023), they are purely and simply exempt.
This option only applies to residential rents, and will only be of interest if rents do not exceed the ceiling set by law. In general, this system is suitable for owners of a single apartment.
If you own an apartment that you rent out on AirBNB, check out the following article:ALSO READ: Airbnb, when Israeli taxation comes up to date
2. Linear extraction of 10%
This second option allows you to pay only 10% in taxes on the rents you receive, with no income limit. It doesn't matter whether the rent is 6,000 shekels or 50,000 shekels.
There are two disadvantages to this sampling method:
- The tax must be paid within 30 days of the end of the tax year (i.e. by January 30 of the year following the year in which the rents were collected).
- No expenses, no Nekoudate Zikouye, no tax credits can be deducted from your tax bill.
So even if you make donations to associationsyou will not be able to benefit from the 35% tax credit for your donations.
- No depreciation can be deducted from gross property income.
Despite these drawbacks, this system remains highly advantageous for large landowners. In fact, a tax rate of 10% is considered very advantageous from a tax point of view.
3. Rents are taxed at the progressive income tax rate
This progressive scale ranges from 31% to 50%. It is therefore less attractive at first glance.
On the other hand, under this system, it is possible to deduct all expenses related to the property (legal fees, agency commission, loan interest, works, as well as depreciation).
This scheme could be of interest to investors who have committed or are planning to commit to major works, or who are carrying a large loan.
After deductions, the scale will apply to the profit received. The interest of the method therefore depends on the expenses and income envisaged.
Did you know?
You have been declaring and paying the 10 % package for several years.
You may be able to change your package retroactively and reclaim part of the tax already paid. Please contact us for further information.
I am the French owner of a house rented in Israel. Do I have to pay taxes in France?
It is important to note that taxed (or exempted, depending on the tax regime chosen) property income received in Israel will not be taxed a second time in France, under the terms of the Franco-Israeli double taxation treaty.
In other words, subject to compliance with local tax obligations, this income will not be taxed in France.ALSO READ: Understanding Israel's tax system.
Your questions - our advice
- I make donations in Israel. Can I deduct them from my property tax?
- I have several houses that I rent out, but I've never declared this income. If I start declaring them now, won't I wake up the taxman about the previous years?
- Can I change my tax status from one year to the next?
- What about SCI income received in France for an Israeli tax resident?
If you don't opt for the right system, the tax burden on your property income can reach substantial sums.
Our firm specializes in tax optimization in Israel for property income.
A consultation can be beneficial and save you tens of thousands of Shekels.