Since the beginning of this year, we have witnessed a significant increase in the number of people interested in migrating and becoming Israeli citizens. Various organizations working abroad to streamline the immigration process to Israel report a surge of hundreds of percent in requests for assistance with moving to Israel and obtaining citizenship. Purchasing residential property is one of the primary steps when relocating to Israel, and the tax implications can be a significant cost in this respect.
Like many other countries, Israel imposes taxes not only on the income from the sale of real estate but also on the purchase itself (purchase tax), which is generally at the rate of 6% of the cost of the asset or 8%/10% of the cost of the asset in case of a purchase of a residential property by a foreign resident.
In an effort to attract more individuals to migrate, the finance minister has introduced a new tax relief that substantially lowers the purchase tax rates for residential property transactions involving new immigrants, with a particular focus on those purchasing their sole residential property in Israel.
Under the newly introduced tax relief, a new immigrant purchasing a single residential property will benefit from an exemption from purchase tax on the portion of the property’s value up to NIS 1,988,090 (as of 2024). For the property value that exceeds such an amount, and up to NIS 6,055,070 (as of 2024), a reduced purchase tax of 0.5% will apply. Any value exceeding NIS 6,055,070 will be subject to the standard purchase tax rate of 8%. It should be noted that the relief will not be granted should the value of the residential property purchased exceed NIS 20,183,565 (as of 2024).
Immigrants who purchase an additional apartment in Israel will pay the standard purchase tax rates set in the law (8% and 10%).
An immigrant purchasing a business property will pay 0.5% purchase tax up to NIS 1,988,090, with a 5% tax rate on any additional amount.
The reduction in purchase tax rates will only apply to transactions executed from one year before the immigrant’s arrival to Israel and up to seven years afterward, and in which time the immigrant holds an immigrant visa or an immigrant certificate, according to the Law of Return.
Certain stipulations for residential properties and tax relief
However, for residential properties that are under construction at the time of purchase, the new immigrant must relocate to Israel within three years of the purchase date to be eligible for the tax relief.
Those who immigrated to Israel before the amendment to the regulations may choose to follow either the previous regulations or the new regulations, according to their preference.
It should be noted that the Tel Aviv District Court recently addressed the residency conditions required from foreign residents and new immigrants in order to qualify for tax relief or exemption on purchase and capital gains tax, with each case rooted in different sections of the law. The court’s conclusions varied in ways that may potentially affect new immigrants.
The writers are tax lawyers at Benjamini & Co.