The Israeli Ministry of Finance has today (January 13, 2022) published a draft bill seeking to amend existing law concerning real-estate taxation in Israel; should this bill go into effect, it will affect foreign residents holding real property in Israel.
The first issue addressed in the draft bill relating to foreign residents concerns the tax exemption on the sale of single residential apartments (with value of up to ILS 4,500,000 - i.e. approximately USD$ 1,450,000); this exemption currently applies to foreign residents and Israeli residents alike, provided that they do not own another residential apartment in Israel, or in their country of residence. The draft bill seeks to abolish this tax exemption for foreign residents.
Furthermore, foreign residents (as well as Israeli residents) are entitled to a linear tax exemption on any capital gain accrued upon the sale of a residential property in Israel, as of the purchase date of the property and through December 31st, 2013; tax is paid on any capital gains accrued from January 1, 2014 to the date of sale. The draft bill seeks to abolish this exemption as well. It is important to keep in mind that the tax rate on historical gain may range from 25% - 50%!
As many foreign residents own residential property in Israel and enjoy these tax exemptions under current law, the bill offers a grace period through 2024, for foreign residents wishing to sell their residential property under the existing (and obviously more beneficial) provisions.
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