Purchase tax in Israel: New thresholds in 2017
Mas rechisha is an acquisition tax, or purchase tax, that a buyer is obligated to pay upon purchasing real estate in Israel. Once a contract is signed, a self-assessment must be filed with the Israel tax authorities, and paid in full, within 60 days. Late payment may incur interest and penalties. Generally, the real estate attorney who handles the contract for the property purchase deals with the issue of mas rechisha.
Mas Rechisha on residential property is a graduated (incremental) tax. Besides the purchase price of the property, other factors that are considered include the status of the purchaser (i.e. resident/tourist/oleh chadash), and additional properties owned in Israel.
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Each year in January, Israel Tax Authority publishes the new thresholds for mas rechisha according to the Central Bureau of Statistics Prices of Dwellings Index for the previous year. As of 16/01/2017, the levels are as follows*:
Single Residential Home – Applicable when the property purchased is the only residential property owned in Israel. Where an additional property is being purchased, individuals are given 24 months to sell their existing property and may retroactively claim a partial rebate on the Mas Rechisha paid.
|Up to 1,623,320 NIS of the purchase price||0%|
|1,623,320 – 1,925,460 NIS of the purchase price||3.5%|
|1,925,460 – 4,967,445 NIS of the purchase price||5%|
|4,967,445 – 16,558,150 NIS of the purchase price||8%|
|16,558,150 NIS and above||10%|
Additional Residential Home – Applicable when the individual owns more than one residential property in Israel.
|Up to 4,967,445 NIS of the purchase price||8%|
|4,967,445 NIS and above||10%|
New Olim – Applicable to new Olim within the first seven years of making Aliya. Where a married couple is purchasing a property, it is sufficient for only one of the spouses to have made Aliyah. (Time spent in mandatory army duty is not counted in the seven years.)
|Up to 1,759,310 NIS of the purchase price||0.5%|
|1,759,310 NIS and above||5%|
This reduced rate for Olim is only granted a) one time for a residential property, or for land that will be developed into a residential property; and b) one time for a property, or land, that will be developed into a place of work. In the event of an individual purchasing a property prior to making Aliyah, the tax must be paid in full within 60 days of contract signing and the discount may be claimed retroactively if the purchase is made within 12 months of making Aliyah and fulfills the required criteria.
In some cases an Oleh is actually better off not using his mas rechisha rights since he will pay less tax or in some cases no tax if he buys the property as an Israeli. For example, on an apartment priced at 1,600,000 NIS, an Israeli pays no mas rechisha whereas an Oleh pays 8,000 NIS.
Foreign-resident buyers pay mas rechisha at the same rate as Israeli citizens who own an additional residence.
*Rates applicable from 16/01/2017 until 15/01/2018.
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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 prior to entering into any transaction.
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