VAT in Israel lowered to 17%—good news for homebuyers

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As the government decided yesterday to lower the value-added-tax rate (VAT) in Israel by 1% from 18% to 17%, local and overseas homebuyers in the process of planning to purchase a new apartment in Israel are able to moderately reduce some of the cost involved.

When buying a property in Israel, VAT is included in the price of a new apartment at the current standard rate. In addition, VAT is charged for various services that are associated with real estate transactions.  For example, it is common to take the services of a real estate agent when looking to buy an apartment and it is customary for the buyer to pay the real estate agent a 1.5% to 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. Lawyers generally take between 0.5% and 1% plus the current VAT rate.

Contractors and building companies expect current homebuyers to save approximately NIS 10,000 on apartments priced at NIS 1.5 million as a result of the VAT cut. Homebuyers who have already signed a purchase contract for a property on the basis of the old VAT rate of 18% will get 1% reduction on future installment payments. However the VAT cut is not necessarily expected to have an impact on property prices per se.

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 are entitled to pay VAT at the new rate even though the pricing may have been agreed upon before.

Residential rentals remain exempt from VAT. When renting out commercial real estate, the date of VAT liability is determined on a cash basis. If rent was actually received by October 1, 2015 the old rate applies even if rent was paid in advance. On all rent received after then, the new rate applies.

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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