Detrimental Property Taxation Changes Looming in Israel

Here’s the bad news:  The State of Israel has a very large budget deficit that needs to be fixed.  The way the government has chosen to do this is with a large bill package that was submitted to the Knesset over a month ago and that has already passed the first reading.  In this proposed bill are some bad taxation surprises for any real estate investor, or indeed almost anyone who would like to purchase real estate in Israel.

For first time purchasers who never owned any residential property in Israel the news is actually not so bad. They will pay lower purchase tax under the new laws.

However, that is where the good news ends and the bad taxation starts. In the past, anyone who bought an apartment, whether it was their first apartment in Israel or not, paid lower property taxes if that apartment was the only property they owned.

This allowed people to improve their residential situation by selling a small apartment and buying a larger one. According to the new proposal, these types of purchasers will now pay purchase tax at a higher rate.

Previously, a foreign resident purchasing an apartment that was his only apartment also paid the lower rate purchase tax. According to the new tax proposal, a foreign resident will pay the higher purchase tax whether or not this is his only apartment in Israel.

These changes are slated to start on July 31, 2013. This gives anyone who is planning to buy an apartment a very small window of opportunity to do any tax planning.

We do not know if the bill will pass or if it does whether or not all the measures proposed will be accepted into the new law.  Chances are we will only know this a few days before the new proposal is to be enacted into law so the public will really have no time to plan.  Like I said, there are bad tax times ahead.