Is there VAT on real estate in Israel?
Value-Added Tax (VAT) is a standard tax in Israel, as in many countries worldwide. Set by the Ministry of Finance, the VAT rate increased to 18% on January 1, 2025, after remaining at 17% since 2015. This tax applies to transactions conducted by businesses or self-employed individuals, with certain exceptions. Typically, the VAT is incorporated into the total price paid by the buyer for goods or services.
VAT on Real Estate in Israel
When purchasing a new apartment in Israel from a construction company or a business engaged in selling apartments, VAT is charged at 18%, which is included in the transaction price. However, when buying a pre-owned apartment from a private individual, not in the real estate business, VAT does not apply to the apartment price. Instead, it only applies to related services, such as brokerage fees, legal assistance, or renovations. The same rule applies to other real estate types, such as land, commercial stores, or office space.
VAT and Foreigners
Israeli law exempts foreign residents from paying VAT for certain tourist-related services and purchasing various products for export; however, this benefit does not apply when buying real estate — the buyer is generally obligated to pay VAT like any Israeli buyer.
Impact of VAT on Real Estate Prices
It is important to note that paying VAT on a new apartment does not necessarily make it more expensive than purchasing a second-hand apartment. The market typically adjusts itself, and the prices of properties in similar locations of comparable size and quality tend to align, regardless of VAT inclusion.
Recent VAT Increase
If you purchased a new construction property before January 1, 2025, but still have outstanding payments, the applicable VAT rate will generally align with the rate in effect at the time each payment is made unless otherwise stipulated in the purchase agreement.
This guide is intended to provide the reader with general information and not to serve as legal or other professional advice. Readers are advised to obtain advice from qualified professionals before entering into any real estate transaction.
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