RECENT DEVELOPMENTS

The purchase of a real estate right in Israel (as defined in the law) is generally subject to a 5% acquisition tax. However, special tax rates may apply on the purchase of a residential apartment. On 6 May 2013 the Israeli government passed the most recent changes to the rates of acquisition tax.

Prior to 20 February 2011, Section 9 of the Real Estate Taxation (Appreciation and Acquisition) Law, 5726-1963 (the "Law") determined that the purchase of a real estate right by an individual was subject to acquisition tax at the following rates:

  • On the part of the price up to NIS 969,330 - 3.5%.
  • On the part of the price exceeding NIS 969,330 - 5%.

Special rates however were available for an individual purchasing a residential unit as his sole residential property after 1 November 2007 as follows:

  • On the part of the price up to NIS 1,139,320 – 0%.
  • On the part of the price exceeding NIS 1,139,320 and up to NIS 1,601,210 – 3.5%.
  • On the part of the price exceeding NIS 1,601,210 - 5%.

On 21 February 2011 the Israeli legislature passed The Real Estate Taxation (Increasing the Supply of Dwelling Units – Ad Hoc Provisions) 5771-2011 (the "Provisions"). Section 2 of these Provisions prescribes the following transition rates for acquisition tax on the purchase of a residential unit property between 21 February 2011 until 31 December 2012:

  • On the part of the price up to NIS 1,089,350 - 5%.
  • On the part of the price exceeding NIS 1,089,350 and up to 3,268,040 - 6%.
  • On the part of the price exceeding NIS 3,268,040- 7%.

Around the 2013 national elections, the Israeli legislature extended the application of the above transition arrangement until 5 May 2013.

On 30 April 2013, Amendment 76 to the Law (the "Amendment") was proposed and on 6 May 2013 it was passed by the legislature. The Amendment introduced changes on taxation on real estate as part of the government's policy to reduce ownership of residential housing for investment purposes only. For example the Amendment extended the timeframe set forth in the Provisions during which the friendlier tax brackets apply to the purchase of residential apartments from 5 May 2013 to 31 December 2014.

The Amendment provides that until 31 December 2014, the general tax brackets shall be:

  • On the part of the price up to NIS 1,089,350 - 5%
  • On the part of the price exceeding NIS 1,089,350 and up to NIS 3,268,040- 6%
  • On the part of the price exceeding NIS 3,268,040 - 7%.

Special reduced rates will apply to the purchase of a single residential unit by a private person as follows:

  • On the part of the price up to NIS 1,470,560 – 0%
  • On the part of the price exceeding NIS 1,470,561 and up to NIS 1,744,270 – 3.5%
  • On the part of the price exceeding NIS 1,744,270 - 5%

It should be noted that the proposed Amendment does not refer to other important provisions prescribed in the original Law, for instance those which relate to Betterment Tax etc.

Note, that during the last few decades special partial relief from acquisition tax has been available for new immigrants on the purchase of a first apartment.