Good news for homebuyers: Israel lowers VAT rate to 16%
Posted on 05. Jan, 2010 by Buy-It In Israel Staff in Israel Real Estate
©iStockphoto.com/Jacob Wackerhausen
Local and overseas homebuyers in the process of planning to purchase a new home in Israel are able to moderately reduce some of the costs involved as the government lowered the value-added-tax (VAT) rate by 0.5% from 16.5% to 16% as of January 1 this year.
At the end of December, Israel’s Finance Ministry decided to lower the VAT rate earlier than planned on signs of continued growth in the economy. Israel raised the VAT rate on July 1 last year to 16.5% from 15.5%, a temporary measure, and was planning to cut the tax back to 15.5% in 2011. The reduction in the VAT rate is not expected to have much of an impact on prices of basic goods and services but rather on potential investment such as Israel real estate.
When buying a property in Israel, VAT is charged for various transactions and services, which is applicable for both resident and non-resident buyers and is non-refundable in the latter category. VAT is included in the price of a new apartment at the current standard rate which is 16% as of January 1 this year. In contrast VAT is not charged as part of the sale of second-hand apartments in Israel.
It is common to take the services of a real estate agent when looking to buy a home in Israel and it is customary for the buyer to pay the real estate agent a 2% commission on making a purchase. On top of the commission the current VAT rate is levied. Buyers are also strongly advised when purchasing a property in Israel to being represented by their own a lawyer. Israel real estate lawyers generally take between 0.5% and 1.5% plus the current VAT rate.
Contractors and building companies expect current homebuyers to save approximately NIS 5,000 on apartments priced at NIS 1 million as a result of the VAT cut. Homebuyers in Israel who have already signed a purchase contract for a property on the basis of the old VAT rate of 16.5% will get 0.5% reduction on future installment payments. However the VAT cut is not necessarily expected to have an impact on property prices in Israel per se.
In the sale process of an apartment in Israel, the VAT is charged when the property is placed at the disposal of the purchaser, or registration in his name, or whenever an amount is paid on account of the purchase price if earlier. Therefore, home buyers who brought forward a payment to January may not be able to benefit from the VAT cut on that payment. This also applies if they took early possession before January 1.
When it comes to building services, the VAT is paid upon completion of the work and placing the real estate at the disposal of the party who ordered the work, or upon making any payment on account. Thus homeowners who will be paying for building services after January 1 will be entitled to pay VAT at the new rate even though the pricing was agreed upon before.
Residential rentals in Israel remain exempt from VAT. When renting out commercial real estate, the date of VAT liability is determined on a cash basis. If rent is actually received by December 31, the old rate applies even if rent is paid in advance. If rent is received after then, the new rate applies.
© Copyright 2010.
The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals before entering into any transaction.
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