Do apartment owners in Israel pay too much tax?
Is there a way to pay less than 10% in real estate taxes in Israel?
Ask any property owner, and most will tell you (wrongly) that there are 2 types of tax on real estate:
- Tax at 0% when rent received is less than around 5,000 Nis/month.
- Taxation at 10% if rent is higher.
Given the level of rents in our beautiful country, most people with more than one apartment will opt for the easy way out:
They'll choose to pay 10% on all rents received, no questions asked.
You might say that 10% in taxes isn't very expensive. Especially when you know that you don't have to pay Bitouah Léoumi on this income.
For the record, 10% of tax is the equivalent of corporate tax in some OffShore countries. Not bad.LIRE AUSSI : Having several apartments in Israel - Is it risky?
Paying less tax is up to you!
You almost forget one basic principle: You only pay taxes when you get rich. So the REAL question we need to ask landlords is: Did you make money from the rents you collected? Did you REALLY make money when you rented out your apartment? If your answer to that question is yes, let us prove you wrong.
From a tax point of view, receiving rent does not necessarily mean getting rich.
When you take a closer look at the world of real estate in Israel, you quickly realize that there's no logic to it. Rents no longer reflect the purchase price. We're not going to argue whether it's a bubble or not. Not in this article, anyway.
On the other hand, let's try to analyze the figures together: In the major cities (Jerusalem, Tel Aviv, Ashdod, Netanya, etc.) rental profitability on long-term rentals ranges from 1.5% to 2.8%.
Let's look at a numerical example: A 4-room apartment in Jerusalem's Arnona district costs around 2.6M Nis to buy. The rental price is 6,000 Nis/month. This gives us a return of 2.76%. If we choose the 10% package, we'll pay: 6000*12*10%= 7,200 Nis in taxes.
It doesn't matter if you've had work done on your apartment. It doesn't matter if the air conditioning had to be changed or the plumbing repaired. In fact, by opting for the 10% flat rate, no expenses are deductible.READ ALSO: PURCHASE TAX IN ISRAEL - ONLINE SIMULATION
Have you amortized your investment?
Most homeowners forget that there is a 3rd tax rate: the real rate.
With this package, you can deduct expenses. And that changes everything.
The biggest expense of an apartment is depreciation.
When you're looking to save tax, your main ally is often the depreciation of your investment. The depreciation of an apartment in Israel varies between 2% and 4%, excluding the cost of the land. If we go back to our previous example, this means an annual amortization of 69,333 Nis. You can now see that, according to this example, the "real" annual enrichment is : 72,000 - 69,333 = 2,667 Nis. (You won't have to pay much tax on this amount). And we haven't factored in any maintenance costs or work, just depreciation.
Do you rent out several apartments? Stop paying unnecessary taxes!
Our firm specializes in this type of case. Our knowledge of the real estate sector in Israel enables us to take full advantage of every tax benefit to which you are entitled. What's more, we can go back up to 7 years and recover overpayments for you, at a handsome interest rate.
Your questions - our advice
- Is it more advantageous to buy apartments through a company?
- What are the risks of failing to declare rental income?
- What happens if the apartments are managed by a rental management agency?
- What expenses can be deducted under the actual flat-rate scheme?
Visit tax authorities gives you the opportunity to pay less tax. In many cases, a simple study can save you tens of thousands of Shekels. The service offered by a firm of chartered accountants ensures tailor-made planning and optimization. Do you rent apartments in Israel? We strongly recommend that you contact our firm to optimize your personal situation.