Real Estate and Tax Attorneys
Capital Gains Tax Exemption for Foreign Residents Selling Israeli Real Estate
Do you live abroad and own a residential property in Israel? When you sell the property, you may be entitled to an exemption from capital gains tax (known in Israel as “appreciation tax” or “mas shevach”). This tax, which can amount to a substantial percentage of the profit from the sale, represents a significant financial burden. Understanding the available exemptions can result in considerable savings.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
What Is Capital Gains Tax on Real Estate?
The sale of any interest in real estate, including a residential apartment, is subject to capital gains tax — a levy imposed on the profit generated from the difference between the purchase price and the sale price. This tax is governed by the Real Estate Taxation Law (Appreciation and Acquisition), 5723-1963, and applies to both Israeli residents and foreign residents who own property in Israel.
Capital Gains Tax Exemption for Foreign Residents
The legislature has established several circumstances under which a seller may qualify for an exemption from capital gains tax. These include the sale of a single residential apartment and the sale of an inherited property, among others. Foreign residents may also be eligible for these exemptions, provided they satisfy the specific conditions set forth in the law.
Exemption for the Sale of a Single Residential Apartment
The exemption for the sale of a single residential apartment is one of the most commonly utilized tax benefits in Israeli real estate transactions. To qualify, the seller must demonstrate that the property being sold is his or her only residential apartment — both in Israel and worldwide. For foreign residents, this requirement means proving that no other residential property is owned in the seller’s country of residence or in any other jurisdiction.
Proving Ownership of a Single Apartment
To qualify for the capital gains tax exemption, a foreign resident must prove to the Israeli Tax Authority that he or she does not own any other residential property anywhere in the world. This typically requires obtaining an official certificate from the tax authority in the seller’s country of residence confirming the absence of additional property holdings — a requirement that can present practical challenges depending on the jurisdiction involved.
In cases where obtaining an official certificate from the foreign tax authority is not feasible, an alternative procedure has been established by executive order. This alternative procedure allows the foreign resident to provide other forms of evidence to substantiate the claim that no additional residential property is owned abroad. An experienced real estate tax attorney can advise on the most effective approach for satisfying this evidentiary requirement.
This article has outlined the legal framework governing the capital gains tax exemption available to foreign residents selling Israeli real estate. Proper tax planning can result in substantial savings, which underscores the importance of consulting with a qualified attorney before proceeding with any real estate transaction in Israel.
Why Legal Guidance Is Essential
Are you planning to buy or sell property in Israel? Contact Mor & Co. Law Firm for a legal consultation on the preliminary due diligence and tax implications associated with your transaction — ideally before you sign any memorandum of understanding or binding agreement. Early professional advice can help you structure the transaction to minimize your tax exposure and protect your interests.