Purchase Tax Reform 2013-2014-2015

 

 

I wish to raise 2 questions

 

1)      What is the Purchase tax paid for purchasing an apartment in Israel for non-residents (non-Israeli)  ?

 

2)      What is the Purchase tax paid for purchasing an apartment in Israel using a company as owner of the apartment ?

 

For the 1st Question:

 

In general:

 

1st change: is the Distinction between "resident of Israel" and"non-resident" , as defined in the Income Tax Ordinance.

From now on, as of 01.01.2014 only "Israeli resident" are entitled to purchase tax benefits ("The progressive scale calculation") when buying a condominium unit in Israel and all the benefits of capital gains tax exemption when Selling  a condominium unit in Israel.

 

In General, after the new reform Tax-Laws "non-resident" are no longer entitled to purchase tax benefits ("The progressive scale calculation") when buying a condominium unit in Israel And no capital gains tax exemptions.

 

2nd change:  the law makes the Distinction between one who is purchasing his 1st ever apartment and one who is purchasing his 2nd apartment and/or an investment apartment.

 

3nd change:  two periods:  Aug 1, 2013 – December 31, 2014 AND  January 1, 2015 and on.

 

Purchase Tax Scales:

 

For "resident of Israel" (buying 2nd apartment) and "non- Israeli resident" (foreign buyers) Buying an apartment in Israel from Aug 1, 2013 – December 31, 2014:

(A) Up to 1,089,350 NIS - 5%;

(B) the part of the equity in excess of 1,089,350 NIS to 3,268,040 NIS - 6%;

(C) the part of the equity in excess of 3,268,040 NIS to 4,500,000 NIS - 7%;

(D) the part of the value in excess of 4,500,000 NIS to 15,000,000 NIS - 8%;

E) the part of the equity in excess of NIS 15,000,000 NIS  - 10%;

 

For "resident of Israel" (1st apartment)  - (does not apply for Foreign residents) Buying an apartment in Israel from Aug 1, 2013 – December 31, 2014:

(A) Up to 1,470,560 NIS - 0%;

(B) the part of the equity in excess of NIS 1,470,560 NIS to 1,744,270 NIS – 3.5%;

(C) the part of the equity in excess of 1,744,270 NIS to 4,500,000 NIS - 5%;

(D) the part of the value in excess of 4,500,000 NIS to 15,000,000 NIS - 8%;

E) the part of the equity in excess of NIS 15,000,000 NIS  - 10%;

 

In General for "resident of Israel" (buying 2nd apartment) and for "non- Israeli resident" (foreign buyers) Buying an apartment in Israel from January 1, 2015 – and on:

(A) Up to 1,055,935 NIS – 3.5%;

(B) the part of the equity in excess of 1,055,935 NIS to 4,500,000 NIS - 6%;

(C) the part of the equity in excess of 3,268,040 NIS to 4,500,000 NIS - 5%;

(D) the part of the value in excess of 4,500,000 NIS to 15,000,000 NIS - 8%;

E) the part of the equity in excess of NIS 15,000,000 NIS  - 10%;

 

For "resident of Israel" (1st apartment)  - does not apply for Foreign residents:  Buying an apartment in Israel from January 1, 2015 – and on:  There is no change

(A) Up to 1,470,560 NIS - 0%;

(B) the part of the equity in excess of NIS 1,470,560 NIS to 1,744,270 NIS – 3.5%;

(C) the part of the equity in excess of 1,744,270 NIS to 4,500,000 NIS - 5%;

(D) the part of the value in excess of 4,500,000 NIS to 15,000,000 NIS - 8%;

E) the part of the equity in excess of NIS 15,000,000 NIS  - 10%;

 

Conclusion:

"non- Israeli resident" who purchase an apartment in Israel will be charged for purchase tax, the progressive scale as buyers of 2nd apartment Even if the apartment is their first in Israel.

The amendment leaves the purchase tax benefits of a residential apartment unit - only for "Israeli residents".

 

 

1.8.2013-31.12.2014

2nd apartment or condominium unit for Israeli  individual resident OR for a foreign resident or corporation

Sole Condominium unit (1st apartment) by an individual resident in Israel

1,089,350

5%

1,470,560

0%

3,268,040 – 1,089,350

6%

1,744,270 – 1,470,560

3.5%

4,500,000 – 3,268,040

7%

4,500,000 – 1,744,270

5%

15,000,000 – 4,500,000

8%

15,000,000 – 4,500,000

8%

Above 15,000,000

10%

Above 15,000,000

10%

From 1.1.2015  and on

2nd apartment or condominium unit for Israeli  individual resident OR for a foreign resident or corporation

Sole Condominium unit (1st apartment) by an individual resident in Israel

1,055,935

3.5%

1,470,560

0%

4,500,000 – 1,055,935

5%

1,744,270 – 1,470,560

3.5%

15,000,000 – 4,500,000

8%

4,500,000 – 1,744,270

5%

Above 15,000,000

10%

15,000,000 – 4,500,000

8%

Above 15,000,000

10%

 

To summarize: Actual examples:

Buying an apartment until 31/12/2014 by "non- Israeli resident" or Corporation For apartment priced at 5,000,000 NIS ) aprox. 1,424,096 $ (payment would be:  311,426 NIS purchase tax

 

SCALES

UP TO NIS

% TAX

PAYMENT

0

1,089,350

5.00%

54,468

1,089,350

3,268,040

6.00%

130,721

3,268,040

4,500,000

7.00%

86,237

4,500,000

5,000,000

8.00%

40,000

TOTAL TAX

311,426

 

 

 

 

 

 

 

 

 

For the 2nd Question:

 

Any property purchase in Israel, by a company, for commercial use (Not an APARTMENT), is subject to Purchase Tax of 5% (now since Jan 2014= 6%)....Real estate tax regulations (purchase tax), were revised with effect from 1.8.13, so that for any acquisition right in land, offices, commercial and so on, that is not for residence reasons, tax liability for purchase tax is total of Flat 6%  Rate (instead of 5% so far).

 

In general buying an apartment using a company or foreign company  seems to have the look of a "Commercial Deal" that is subject to definitions and arguments

 

2 options may be applicable:
If declaring it for non-business reasons but for residence – one can argue that payment should be of the above "Progressive Scale calculation" for Purchase Tax liability.

If the argument does not apply and Tax authorities will see it as a commercial Transaction then the company will be taxed at a flat rate of 6%  (like when purchasing a commercial property)

 

For apartment priced at 5,000,000 NIS (commercial Transaction) payment for the company as of Jan 2014 would be:  300,000 NIS Purchase Tax

 

UP TO NIS

% TAX

PAYMENT

5,000,000

6.00%

300,000

 

 

300,000

 

It is clear that for high priced apartments there in so real difference.

 

Strange as it is Buying an expensive apartment using a company, Purchase Tax-Wise will be cheaper than buying the apartment as private Foreign owner

 

To clarify the Above:

 

Buying an apartment as a company, commercial wise, might be cheaper in Purchase Tax Payment, BUT, It has other future implications on Income Tax liabilty to defer from Capital gains Tax:   

When selling the apartment in the Future the Tax-Authorities might claim its business of the company and charge up to 48%-50% of the gain Instead of 25% liabilty for Capital Gains Tax.

 

This article is not intended to be used as legal counsling and shall not be viewed as such.

Real Estate Taxes are a majore treat in any Real Estate transaction and so it is highly recomanded to consult with a Tax expert prior to making any transaction.

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