Gains Taxes (or “Mas Shevach” in Hebrew) and the exemptions
Purchase Tax (or Mas Rechisha in Hebrew)
Mas Rechisha (taxes paid when purchasing a property) and the lawmaker’s intention:
Clearly and undoubtedly the main goal of the law is to dissuade foreigners from purchasing residential property in Israel, especially the most expensive and luxurious ones. As a result, the government raised the purchase tax rates significantly.
A foreign resident purchasing any residential property will pay the differential taxes stipulated by the law which are constantly updated by the change on the Israeli index rate.
These taxes can range between 5 to 10 percent. The more one pays for a property, the higher the tax rate will be.
Mas Shevach (taxes paid when selling a property):
What are the requirements to be exempt from Mas Shevach when selling a residential property?
The new (from 2014) regulations on Mas Shevach in Israel certainly changed the game not only for the Israelis but mainly for those not holding citizenship (tourists, foreigners, etc) as we will try to explain.
In this very short document we will focus on non-Israelis’ exemptions from paying Mas Shevach as required by law but please be aware of the limitations on using the exemption from paying Mas Shevach
- All the following exemptions are good only for the first four and a half million shekels (of course this number will change according to the index) of the final registered price for the property.
- The property being sold is the seller’s sole residential property in the State of Israel and if they own more than one residential property – they will no longer be exempt from Mas Shevach.
- As a result, non-Israelis or nonresidents must provide a “legal authorization” issued by his country of residence’s tax authorities that they don’t own any residential property in their country of residence. Of course it is a well know problem that many countries will not provide such a document but “The law is harsh but is the law” (Dura Lex Sed Lex).
- The exception: ownership of less than 33% of an additional residential property will not affect their exemption rights but on the other hand, the seller must own at least one third of the residential property being sold.
- The seller has owned the property being sold for more than 18 months* and used it as a “residential” property only but not for any other purposes such as a business.
- No other seller’s property has being sold in the previous 18 months under these exemption regulations.
- The property has not been sold or given as a “gift” to a family member.
- As in most rules there are exceptions and even when the seller has indeed purchased one other residential property within the 18 months (*) prior to the sale of this one there are many legal provisions for the non-payment of Mas Shevach. I don’t think is relevant to go into the many different and complex details of the law because anyway you will need a lawyer who is an expert in Real Estate taxation.
- Because of the complexity of these issues regarding taxes and family law, I will not write about the special rules for “gifts” and/or properties received by way of inheritance but you should know that there are many rules and rulings by the court regarding Mas Shevach.
A word of wisdom:
As can be seen Tax Law is an extremely complicated and complex issue. Most lawyers are not experts in the field and they will need a competent CPA to help them when dealing with more complicated and expensive deals.
Before you make the decision to purchase or sell a Real Estate property you must be sure you can afford the taxes you will have to pay.
