Property Taxes in Israel

Nonresident individuals are liable to pay tax on their income and capital gains derived from Israeli sources. Married couples can opt for joint or separate taxation.

Rental Income Tax

Rental income tax earned by nonresident foreigners can be taxed in two ways:

  1. Flat-Rate Option: The gross rental income is taxed at a flat rate of 10%. No deductions are allowed when this option is chosen.
  2. Progressive Rates Option: The taxable income is computed by deducting income-generating expenses from the gross income. Allowable deductions include depreciation, building insurance, municipal duties, management charges, maintenance, and repairs. Depreciation rate is 2% per annum.
Tax Type Rate
Flat-Rate Option 10%
Progressive Rates Based on deductions

Capital Gains

Most properties sold in Israel are exempt from capital gains tax. If the gains are taxable, the net gain is taxed at the standard income tax rates. The taxable capital gain is computed by splitting the capital gains into its real and exempt inflationary components. The inflationary portion of the gain is computed by applying the Israeli Consumer Price Index (CPI) to the cost of the capital asset. The inflationary portion was charged at 10% on the amount accruing up to 31 December 1993. No tax is levied on the inflationary portion accruing since that date.

Corporate Taxation in Israel

Income Tax

Income and capital gains earned by companies are subject to corporate income tax at a flat rate of 23%. Income-generating expenses are deductible when calculating taxable income.

Tax Type Rate
Corporate Tax 23%

Property Buying and Selling Taxes and Costs

Transaction Costs Rate
Property Transfer Tax 0.00% - 10.00%
Agent Fee (Buyer) 1.00% - 2.00%
Agent Fee (Seller) 1.00% - 2.00%
Legal Fees 0.50% - 1.00%
Notary Fee 0.10%
Roundtrip Cost 2.60% - 15.10%
Source: Global Property Guide, PWC

Property Holding Tax

Property taxes are generally paid by the occupier of commercial and residential property. If the property is unoccupied, the owner will have to take care of the tax payment.

Tax Type Rate
Property Tax Paid by occupier
Unoccupied Property Paid by owner

Property taxes in Israel can vary depending on the type and location of the property. Here´s a detailed breakdown:

  • Residential Property: Generally, residential property owners are subject to municipal property tax, known as "Arnona". The rate can vary depending on the city and the size of the property. For example, in Tel Aviv, the Arnona rate for residential properties ranges from 0.3% to 0.5% of the property value annually.

  • Commercial Property: Commercial properties typically incur higher property tax rates compared to residential properties. The rates also vary by municipality and type of commercial activity. For example, office spaces in central business districts can be taxed at a rate of 1% to 1.5% of the property value per year.

  • Vacant Land: Owners of vacant land are often subject to higher tax rates to encourage development. The rates can be around 2% of the land´s value per year.

Municipal Duties:

  • Property owners are also responsible for municipal duties, which include waste collection, street cleaning, and infrastructure maintenance. These duties are often included in the Arnona bill.
Property Type Tax Rate
Residential Property 0.3% - 0.5%
Commercial Property 1% - 1.5%
Vacant Land ~2%
Municipal Duties Included in Arnona