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Taxes as a Foreign Real Estate Investor in Israel
- Sabine Denoun
- Nov 30, 2025
- 5 min read
Investing in Israeli real estate can be highly rewarding, but as a foreign investor, it's crucial to understand the various taxes that apply to property transactions and ownership. Israel has a comprehensive taxation system that includes taxes on property purchases, rental income, and capital gains. Below is a guide to the key taxes foreign investors must navigate when investing in real estate in Israel.
Purchase Tax (Mas Rechisha)
What It Is
Purchase Tax is a one-time tax that foreign buyers are required to pay when acquiring real estate in Israel.
The tax rate depends on the value of the property being purchased, and it differs for residential and non-residential properties.
How It Works
For residential properties, the tax rate can range from 0% to 8%, based on the value of the property:
0% for properties up to a certain threshold (often adjusted annually).
3.5% for properties with values above this threshold but below a higher set threshold.
5% and 8% for higher-value properties.
For non-residential properties, the tax rate is typically 6% of the property’s value.
Special Considerations for Foreign Investors
Foreign investors do not enjoy the same tax reductions that Israeli citizens may receive when purchasing a first home.
If purchasing multiple properties, the rates may increase as the property value grows.
How to Mitigate
Ensure the purchase tax is included in your financial planning. Be aware of changes in tax regulations and consult with a local real estate attorney or tax advisor to help minimize potential costs.
Value Added Tax (VAT, Ma'am)
What It Is
VAT is a consumption tax imposed on certain real estate transactions in Israel, typically when purchasing new properties or properties from developers.
How It Works
The VAT rate is 17% of the property price (as of 2024) and applies to new homes purchased directly from the developer.
VAT does not apply to resale properties (those that have had previous owners).
Special Considerations for Foreign Investors
If purchasing a new property, VAT can be a substantial additional cost. This tax is typically added on top of the purchase price.
As a foreign investor, VAT may be refundable if you qualify as a business entity or meet certain conditions related to the property’s use (e.g., if you plan to rent it out).
How to Mitigate
Investigate the VAT implications with a local tax consultant before making a purchase. Consider purchasing resale properties if you want to avoid VAT charges.
Annual Property Tax (Arnona)
What It Is
Arnona is an annual municipal property tax levied by local municipalities in Israel. This tax is calculated based on the size of the property, its location, and its designated use (residential or commercial).
How It Works
The tax varies significantly across different municipalities and is calculated according to the square footage of the property.
Residential properties generally incur a lower Arnona rate than commercial properties.
Special Considerations for Foreign Investors
Investors should expect to pay Arnona every year, and the rates can be higher in cities with high demand, like Tel Aviv, Jerusalem, or Netanya.
Rates vary widely by location, so it’s important to calculate the Arnona costs when considering a property investment.
How to Mitigate
Research Arnona rates in the areas you're considering for investment. Factor these costs into your long-term investment strategy to ensure they don’t negatively impact your rental yields or overall profitability.
Rental Income Tax
What It Is
Foreign investors earning rental income from Israeli real estate are subject to Israeli income tax on that income. The tax rate depends on whether the property is rented out for residential or commercial purposes.
How It Works
Rental income from residential properties: Foreign investors have the option to either pay tax at a flat rate of 30% of their income or, alternatively, declare their total rental income and deduct allowable expenses (like maintenance, property management fees, and mortgage interest).
Rental income from commercial properties: Tax on rental income from commercial properties is usually higher and is calculated based on the total income after expenses.
Special Considerations for Foreign Investors
Foreign investors may also be eligible for tax deductions related to expenses, maintenance, and property management fees.
If the property is used for short-term rentals (e.g., Airbnb), additional tax rules may apply, especially regarding VAT.
How to Mitigate
Consider utilizing a tax professional to help manage deductions and optimize your rental income tax strategy. If renting out the property, ensure that rental income is declared correctly to avoid penalties.
Capital Gains Tax (Mas Shevach)
What It Is
Capital Gains Tax is levied when an investor sells a property and makes a profit. The tax is applied to the difference between the sale price and the original purchase price (adjusted for certain expenses and improvements made to the property).
How It Works
The standard capital gains tax rate is 25% for individuals. However, if the property has been owned for less than 18 months, the tax may be higher (up to 50%).
There are exemptions and reductions available in certain cases, such as for primary residences or for long-term residents.
Special Considerations for Foreign Investors
Foreign investors are subject to the same capital gains tax rates as Israeli citizens. However, they may not qualify for exemptions that apply to primary residences, so it's crucial to understand the rules before selling.
How to Mitigate
Consider holding onto the property for the long term to minimize capital gains tax, or explore ways to reduce taxable profits through allowable expenses.
Use tax planning strategies, such as structuring the investment through a company, which may offer different tax treatment.
Withholding Tax on Rental Income (for Foreign Investors)
What It Is
Foreign investors earning rental income in Israel may be subject to withholding tax on their rental income at a flat rate of 25% for individuals or 30% for corporations.
How It Works
Withholding tax is typically deducted at the source (by the tenant or property management company), and the investor can offset this against their annual tax filing.
Special Considerations for Foreign Investors
This withholding tax can be seen as a prepayment of tax owed on rental income. Investors must still file an annual tax return to reconcile the amount.
How to Mitigate
Ensure proper documentation and filing to avoid overpayment of taxes. Consult with a tax professional to ensure compliance and to claim any allowable deductions or refunds.
Tax Treaties and Double Taxation
What It Is
Israel has signed double taxation treaties with various countries (including the U.S., Canada, the UK, and others), designed to prevent investors from being taxed on the same income in both Israel and their home country.
How It Works
These treaties may reduce or eliminate certain taxes, such as withholding taxes or capital gains taxes, for foreign investors.
In some cases, foreign investors can apply for a credit or exemption on Israeli taxes paid to offset taxes owed in their home country.
Special Considerations for Foreign Investors
Double taxation treaties may not eliminate all taxes but can significantly reduce tax liabilities for foreign investors.
Each country has its own rules for how the treaties are applied, so it’s important to consult with a tax professional who understands both Israeli tax law and the tax laws of your home country.
How to Mitigate
Review the details of the relevant tax treaties and seek professional tax advice to ensure you take full advantage of any exemptions or credits.
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