In an increasingly uncertain economic and financial landscape, the Israel real estate market has succeeded in upholding a reputation for having some of the most reliable and profitable investments for local and foreign investors alike. Purchasing real estate in Israel has big potential, but can be a challenging endeavour for non-residents. If you are looking to acquire assets in the Israel real estate market, continue reading. 

Real Estate Properties in Israel

For non-residents, your first step in Israel real estate acquisition is to gain a deeper understanding of the various property types in Israel. Real estate properties in Israel fall under two main categories, namely:

• State-Owned Land 

A state-owned or Israeli land is a property owned by the government and governed by the Israel Land Administration (ILA). The majority (93%) of real estate in Israel is owned by the Jewish National Fund and the country’s Development Authority. 

• Privately-Owned Land 

The laws governing privately-owned real estate in Israel are less restrictive than those applicable to state-owned lands. By rule, private real estate property owners can sell property to others, regardless of citizenship and religious affiliation. Privately-owned land includes previously-owned homes, apartments, and newly-developed housing units. 

Can Foreigners Acquire Real Estate in Israel? 

If you are an Israel non-resident, you have the right to purchase privately-owned property in Israel. In most cases, interested real estate investors do not even need to travel to Israel to complete a purchase. With a solid team of consultants and attorneys, you can facilitate a successful acquisition. Typically, you will need to sign a purchase contract translated in Hebrew and in your language, a power of attorney, and an Israeli Acquisition Tax Rate declaration. Foreign investors can furnish all these documents from any Israel Consulate in their home countries. 

Brackets Purchase Tax of Buying Real Estate in Israel

Foreign investors keen on buying real estate in Israel must be prepared of the various purchases costs, including real estate fees, mortgage fees, appraiser fees, and more. The biggest cost will go towards the acquisition tax that a buyer must pay in New Israeli Shekels (NIS). Foreign buyers will be subject to higher tax assessments than local residents for properties with the same value. A foreign buyer is deemed to pay all tax assessments within 45 days of signing the purchase contract. 

Acquisition tax rates will be calculated based on the total purchase price of a property. Rates are adjusted accordingly every January, reflecting Israel’s prevailing consumer price index. 

Tax Rates Related to Real Estate Property Buying in Israel 

If you are a non-resident, prospective buyer of real estate in Israel, there are a few issues to take into account. Here are a few taxation reminders that you must remember in purchasing real estate in Israel. 

The Real Estate Taxation Law was amended recently, which declared an increase in tax brackets purchase. This amendment alone places a a heavy burden on non-resident real estate buyers, as well as Israeli citizens who already own a residential property in Israel. On the other hands, tax benefits are granted to new immigrants and Israeli residents their first ever property. 

Purchase Tax

• Purchase tax is assessed on the buyer upon acquisition of Israeli real estate. 
• Tax must be paid at the time of purchase, and is calculated based on the percentage of the total value of acquired asset. 
• Tax rate will differ and depend on the value of the property, the status of the buyer, and the extent of his or her personal assets. 

As of November 2021, the default tax rates set or brackets for buyers or residential real estate in Israel are as follows:

• 8% tax rate applicable on any sum up to NIS 5,348,565
• 10% tax rate applicable on any sum more than NIS 5,348,565

Based on the amended Real Estate Taxation Law, the purchase tax burden will ease starting 1 January 2025, returning to the level before amendments were enacted:

• 5% tax rate on any sum up to NIS 1,294,770
• 6% tax rate on any sum between NIS 1,294,770 and NIS 3,884,295
• 7% tax rate on any sum ranging between NIS 3,884,295 and NIS 5,348,565
• 8% tax rate on any sum ranging between NIS 5,348,565 and NIS 17,828,555
• 10% tax rate on any sum more than NIS 17,828,555

New Israeli immigrants or Oleh are not affected by these amendments on real estate purchase tax rate. 

Capital Gains Tax

• Appreciation tax or capital gains tax component will be assessed on the seller of a real estate property. 
• Capital gains tax stands at 25% of the yield of the property. 
• Increase in a property’s value which occurred before 1 January 2014 will be exempt from capital gains tax, but a linear computation will still be performed. 
• In some cases, a real estate property will be exempt from capital gains tax, such as in the case of a seller’s single property that is used for residential purposes. 
• Capital gains tax exemption is applicable to Israeli tax residents and non-residents who submit an approval from relevant authorities from their home country, confirming they do not own a residential property in that country. 
• Exemptions will be granted up to NIS 4,495,000, with any sum above will be automatically assessed to capital gains tax on the excess component of the price exceeding NIS 4,495,000. 

It is crucial to note that under the Israel real estate law, a single homeowner is designed as someone who owns less than 33% of an initial property in and outside of Israel. You will be considered a multiple homeowner if you gain ownership of more than 33% of a property in and outside of Israel. 

Non-residents may qualify for a reduced tax rate for seven years of aliya, or if you purchase a property one year prior to making aliya or eligibility for Israel citizenship for Jewish individuals looking to take up residence in Israel. If you are married, you can be eligible for a reduced acquisition tax rate either for you or your spouse becomes an oleh, an individual who espouses to return to Israel. 

Things to Consider Before Buying Real Estate in Israel

Before proceeding with the purchase of an Israel real estate, you must take the following factors into consideration:

• Prevailing local housing prices
• Municipality tax rates
• Potential property value appreciation or depreciation

Israel Property and Deed Registration Processes

• The most crucial step to take in purchasing a residential property, such as a home or apartment in Israel is registration of the property in your name. 
• The registration facilitates the successful transfer of legal right from the seller to the buyer. Without registration, transfer of ownership is deemed incomplete. 
• Buying a privately-owned property must be properly registered through the Israeli Land Registration Office, also known as The Tabu. 
• The registration is different if you purchased real estate still under construction or state-owned real estate. 
• To register a real estate property, you need to submit the registration papers in the office where the property is specifically located. Land Registration Offices are located in Tel Aviv, Haifa, Jerusalem, Nazareth, Petach-Tikva, Netanya, Beersheba, Rehovat, and Halon.  Satellite offices are also located in Acre, Ashdod, and Hadera. 
• After successful registration, The Tabu will issue a deed or tile to the buyer.
• Registration of real estate under the name of a buyer can take between three to four months. 

As a full-service business consulting firm, Damalion offers expert assistance and guidance in the process of buying real estate in Israel. With our extensive background and knowledge in the Israel real estate market and its laws. Our global service network allows us to connect you to service professionals that can facilitate a smooth and worry-free real estate buying process. Our international desk consists of lawyers and service professionals who can help you in the registration process, bank account opening, negotiations, legal presentation, and company formation, you can rest assured that your investment needs fit your portfolio strategy. By partnering with Damalion, you can rest assured to receive superior guidance every step of the way. To learn more about our services, reach out to a Damalion expert today. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.