Lawyers
Exemption from appreciation tax in the sale of real estate by a foreign resident
Do you live abroad and do you own a residential apartment in Israel?
At the time of sale, you may be entitled to an exemption from paying praise tax. This is a tax that usually amounts to very high amounts and therefore it is an important economic issue.
Under what conditions is a foreign resident entitled to an exemption from praise tax? The following article will elaborate on just this matter.
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
Introduction: What is a praise tax?
The sale of a right in real estate, including a residential apartment, is accompanied by a praise tax, which is imposed on the profit generated for the seller as a result of the sale of the property. That is, the tax imposed is on the difference between the price at which the seller purchased the apartment, and the price at which he is selling it now. The praise tax rate is about 25% of the capital gain and is therefore usually a very significant amount. The legislature granted an exemption from paying praise tax in a variety of situations and therefore, before beginning the sale process, it is very important to find out whether there is an entitlement to the exemption. It is sometimes discovered that at the present time the seller will not be entitled to an exemption, but if he waits a certain period of time, he will be able to accept it and this can naturally lead to a decision not to sell the property at this stage.
Exemption from praise tax for a foreign resident
The legislature has determined a number of cases in which the seller can benefit from an exemption from praise tax, including: the sale of a single residential apartment and the sale of an inherited apartment. Note that for each type of exemption, certain conditions have been set which the seller must meet in order to receive the benefit. The question now arises as to whether an exemption from praise tax is a right granted exclusively to residents of Israel, or whether a foreign resident who owns a residential apartment in Israel will also be entitled to an exemption from payment of praise tax. Until recently there was a very significant difference between an Israeli resident and a foreign resident on this issue. Some types of exemptions were blocked to non-residents and even those who were not, included strict conditions. However, In 2018, many changes were made to the Real Estate Tax Law, which greatly benefit non-residents and now allow them to enjoy all types of exemption from praise tax.
Sale of a single residential apartment
Apart from the property itself, it is very important that we also check its surroundings, as the apartment itself can be perfect for us but if it is on a noisy highway or near an active event garden, we may reconsider the viability of the deal. It is also very important to make sure that the access roads to it are convenient, that there is no parking shortage (as long as the apartment comes without parking) and whether the essential services for us are in the area (schools, health insurance and more). The level of maintenance in the building, the quality of the relations between the neighbors, the functioning of the house committee, etc. as these greatly affect our quality of life in the new house.
Evidence for a single apartment
As stated above, in order for a foreign resident to be able to enjoy an exemption from praise tax due to the sale of a single apartment, he must prove to the tax authority in Israel that he does not own another apartment in the country in which he lives. For this purpose, he must present objective evidence in this matter, such as:
- Proof of status at his current place of residence : by presenting a rental agreement for example and enclosing a certificate from the municipality on the payment of property bills as a tenant and not as an owner.
- Copy of a report to the Foreign Tax Authority : A copy of a report to the Foreign Tax Authority on income can be presented to the Israeli Tax Authority, where it can be seen that the foreign resident does not declare income from renting a residential apartment.
- Certified Public Accountant : A foreign resident represented by an accountant abroad can also be assisted in issuing a relevant certificate.
- Affidavit : In addition to all these, a signed affidavit must be attached with a statement from the foreign resident stating that he does not own another residential apartment in the country in which he resides.
Tax exemption for foreign residents even without the issuance of a permit from the tax authorities in the country of residence (Executive Order – Alternative Procedure)
The procedure of proof, in the absence of the possibility of presenting the approval of the tax authorities as determined by the Tax Authority is as detailed below:
A. The seller must prove on the basis of objective evidence that he does not actually own a residential apartment in the country of his residence and convince the manager.
B. A foreign resident seller must indicate his place of residence and the nature of his rights in the place of residence.
C. Inventing a tenancy agreement or any agreement that indicates that he is a tenant and not the owner of the same apartment.
D. As far as possible, inventing a certificate that the seller pays municipal taxes abroad (similar to property tax) as the owner of the apartment and not as the owner.
E. Alternatively, the presentation of an account of the seller’s income stating that his income does not include income from such rent.
F. Invention of an affidavit prepared under the Evidence Ordinance in which the seller declares that he has no rights in another dwelling in the State of residence.
The tax authority clarified that the alternative procedure will only apply to a foreign resident who is a resident of a country whose tax authorities do not issue a permit and will not apply to countries where a permit is issued (as of the date of publication of the executive order it is known that only Belgium and Russia issue a permit).
