Tax Rate on Rental Income
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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 earned by nonresident foreigners can be taxed in two ways.
It can be taxed using the flat-rate option wherein the gross rental income is taxed at a flat rate of 10%. No deductions are allowed when this option is chosen.
The other option is to be taxed at progressive rates. The taxable income is computed by deducting income-generating expenses from the gross income. Allowable deductions are depreciation, building insurance, municipal duties, management charges, maintenance and repairs. Depreciation rate is 2% per annum.
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.
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.
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.