Is there VAT on real estate in Israel?

Value Added Tax (VAT) exists in Israel as in many other countries around the world. The VAT rate was set by statute by the Ministry of Finance and has stood at 17% since 2015. The tax is levied on all transactions made by an organization defined as a business or self-employed person (excluding certain cases) and is paid by the buyer as part of the total price of the product or service.

VAT on real estate in Israel

When you purchase a new apartment in Israel from a construction company or a company that sells the apartment as part of its business, a VAT of 17% will be included in the transaction price.  However, if you purchase a pre-owned apartment from a private person who does not engage in real estate for a living, VAT will not be included in the apartment price — it will only be applied to support services such as brokerage, legal advice, or renovations. The same applies to other real estate assets such as land, stores, or office space.

VAT and foreigners

Israeli law grants foreign residents an exemption from paying VAT for certain tourist-related services and on the purchase of various products for export, however, this benefit does not apply when purchasing real estate — the buyer is generally obligated to pay VAT like any Israeli buyer.

It is important to understand that paying VAT when buying a new apartment does not make it more expensive compared to a second-hand apartment. The market balances itself and the price of apartments that are in a similar location, and of comparable size and quality, will also be similar.