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Short-term rental in Israel
Many people own one or more apartments for short-term rental in Israel.
Whether for the short or long term, rental income in Israel is taxable. At least in theory, because as we shall see, there are several ways of declaring rental income in Israel.
These different declaration options are adapted to each situation.
It's very important to choose the declaration method that's right for each owner, and each type of property. The right choice will generally result in lower tax rates, or even total exemption.
Dray & Natco is your ally in providing detailed, reliable information to light your way in Israel.
Talk to the Experts
How is property income from short-term rentals in Israel taxed?
I have an 80 M² apartment located in Tel Aviv. It's a 4-room apartment, with 6 beds available. I recently entrusted this apartment to a real estate agency for short-term rental. I do not wish to rent this apartment on a long term. The agency will soon start advertising my apartment on the following rental websites: Airbnb & Booking.com.
Several questions arise:
1. How do I declare the rents I will receive?
2. Can rental agency fees be deducted?
3. More generally, what expenses can be recognized to reduce my taxable income at the end of the year?
4. What is the tax rate on this type of income?Property income in Israel).
5. Do I have to set up a company for this activity?
a. If yes, does the apartment pass into the name of the company or do I remain the "official" owner of my apartment?
b. Will I have to pay Mas Rehisha again?
6. Do I also have to declare the rents to France? To be clear, I am still a French tax resident.
Our answer: Short-term rental in Israel is a business in its own right.
Short-term apartment rental in Israel is a hot topic with the Israeli tax authorities. Indeed, the Israeli tax authorities want to make sure that the income generated by this type of rental activity is properly declared by the owners.
We'll answer your request point by point, trying to cover as many aspects as possible.
Short-term rental in Israel: Opening a tax file with the Israeli tax authorities
To be able to declare the income generated by your business, you need to open a file with the tax authorities in Israel. There are 2 bodies to which you must apply:
1 - Income tax in Israel: Mas Ahnassa.
2 - VAT office: Maam.
In our response, we have assumed that you wish to declare income received in your own name and not through a separate company. We'll explain this choice in more detail later in this article.
Opening an income tax account
You will have a tax file opened at Mas Ahnassa in Israel. This file will enable you to file an annual tax return.
On this return, you'll have to declare the income earned from renting out the apartment. You will also be able to deduct certain expenses necessary for this business activity.
We'll look at the list of recognized expenses later in this article.
Open at the VAT office
It is also necessary to open an entity with the VAT office in Israel.
To do this, you have 2 options:
1. Osek Patur : It's the equivalent of an auto entrepreneur.
2. Osek Murshe Sole proprietorship.
Owner registered as Ossek Patour (Self-employed in Israel):
1. It may not exceed an annual turnover of 102,292 Shekels of rent collected per year (in 2022).
2. The Ossek Patour must declare its sales for VAT (maam) once a year.
3. He must declare his sales to the tax office (mas ahnassa) on a regular basis (usually every 2 months).
3. The Ossek Patour cannot reclaim VAT paid on business expenses.
4. He must file an annual tax return on his income in Israel. (Form 1301).
Owner registered as Ossek Mourché (Sole proprietorship in Israel):
1. There is no limit to annual sales.
2. The Ossek Mourché must declare its VAT sales (maam) every month or every 2 months (sales under 1,500,000 Nis).
3. He must declare his sales to the tax office (mas ahnassa) on a regular basis (every 2 months).
4. The Ossek Mourché can reclaim the VAT paid as part of its business expenses.
For example on :
a. Management fees paid to the rental agency.
b. Repairs and work.
c. Accounting fees.
d. Lawyer's or real estate agent's fees.
f. Current apartment expenses (electricity, internet, etc.).
5. He must file an annual tax return on his income in Israel.
Please note: In most cases, it is not possible to reclaim the VAT paid on the purchase of the apartment from the developer, for example.
Tax rate: according to progressive tax brackets
The progressive method
In Israel, income taxes are defined by a method known as "progressive taxation".
The progressive method means that the more money a person earns, the higher their tax liability will be.
As you can see from the table below, your tax rate increases as your net taxable income rises.
How to calculate net taxable income
To calculate your net taxable income, you need to take into account all the money you've earned in the past year. This is your annual income.
We then deduct from this income any exempt income, tax losses from the current or previous years, and certain deductions allowed by the Israeli tax code.
This gives us "net taxable income".
Tax brackets
Once we have your net taxable income, it will be broken down into different levels.
Each tier will be subject to a different tax percentage.
These tiers are called "tax brackets" and are updated every year by the Israeli government, as you can see on the following link:
It is important to point out that when a property is rented out on a short-term basis in Israel, the income is considered passive income if an agency is responsible for administering the property.
Profits from passive income are taxed from the bracket starting at 31%. With the exception of a person aged over 60.
In this case, profits remain taxable from the 10% level upwards, and the tax bracket increases progressively with each new level.
Should you set up a company or operate as a sole trader?
It all depends on how you want to use your apartment.
If it's a short-term apartment rental operation, and the property is already in your name, it's best to set up a sole proprietorship (Ossek Patour or Ossek Mourché). Except in exceptional cases, where it is preferable to buy the property and operate it via an SCI.
If you don't yet own the apartment, it may be worth checking out the possibility of buying through an SCI.
Our firm specializes in this type of project, so don't hesitate to contact us.
Declaring rent to the French authorities
As a non-tax resident of Israel, you must appoint a responsible person to act as guarantor for your business activity in Israel.
This person must be an Israeli resident for tax purposes.
Contact us to find out more about the opening terms and conditions, and the risks involved for the guarantor.
Finally, in accordance with the tax treaty between France and Israel, income must be declared to France. However, this income will only be taxed in the country where the property is located. In other words, in Israel.
Conclusion : Renting your property on Airbnb in Israel is a lucrative...and commercial :
Many owners rent out their properties on Airbnb or Booking. The profitability generated via this channel is far higher than the profitability of the property rented out over the long term.
However, the said owners are in the sights of the Israeli tax authorities.
It's vital to take the right steps to regularize your situation.
In most cases, you'll save money by reclaiming VAT on business expenses.
The bottom line: you'll earn more money, be able to declare your income with complete peace of mind, and sleep soundly in your own 2 ears. With no fear of the French or Israeli tax authorities.
