The question of determining one’s status as an Israeli resident or as a foreign resident is essential both when buying properties in Israel (for calculating the purchase tax) and when selling properties (for calculating the capital gains tax).
Foreign residents are not entitled to a lenient calculation of property purchase tax in Israel even when they do not already own another property (in Israel or any other country). They are required by law to pay a high purchase tax rate ranging between 8% to a rate as high as 10% in cases where the property is priced at more than 5 million ILS.
Foreign residents are also not entitled to an exemption from capital gains tax (while Israeli residents can get an exemption in certain situations) unless they can prove that they do not own a residential property in their country of residence.
Thus, it is clear that the question of one’s status as a foreign resident has substantial financial consequences.
So what are the criteria that determine one’s status as an Israeli resident?
The declaration forms to the Israeli tax authorities states several criteria that determine one’s status as an Israeli citizen, whether if he’s the buyer or the seller (however, to be considered an Israeli citizen all criteria must be met):
- In the year of the sale or purchase of the property, my center of life is in Israel;
- In the year of the sale or purchase of the property I will be present in Israel for more than 183 days (provided that the exceptions of the Income Tax Regulations do not apply to me. Such exceptions include diplomatic representatives of foreign countries residing in Israel, a single person who arrived in Israel in order to enlist to the IDF and requested not to be considered an Israeli resident, a lecturer who works in Israel in the first three years since his/her arrival, etc.);
- In the year of the sale or purchase, I am not currently in a year of adjustment as prescribed in the Income Tax Ordinance (i.e., the first year after a new immigrant, Oleh, or a returning resident arrives in Israel, provided that he or she informs the tax authorities that he or she is interested in using the option of an adjustment year. It is important to note that the adjustment year has several other tax implications for the individual, apart from those detailed here;
- In the year of purchasing the apartment I will not claim the status of a foreign resident in the reports that I submit to the tax authorities;
- In the year of buying or selling the apartment I have not, nor will I, start legal proceedings against the tax authorities regarding tax exemption or tax rulings that require declaring my status as a foreign resident;
- I am not currently in dispute with the tax authorities regarding the status of my residency.
These are some of the principals that are required of someone who wishes to be considered as an Israeli citizen in order to get tax exemptions or tax reliefs while buying or selling an apartment in Israel.
As some of these principals are not merely matters of black and white, the Israeli courts have interpreted them throughout the years and given the tax authorities guidelines on how to accurately classify whether one’s country of residence is Israel or not.
Are you interested in consulting or in additional guidance? Please contact us.
Note:
This article provides general and preliminary information only and should not be construed in any event as legal counseling and/or as a substitute for legal counseling in respect of any case and its circumstances.
The above should not be relied upon without consulting with an Israeli lawyer before taking any action or making any decision. The above is true as of the date of its composition, and its veracity may change from time to time.
Distribution and/or duplication and/or photocopying of this document and/or part thereof without permission are prohibited.
