ISRAEL Law and Practice Contributed by: Yaron Mehulal, Nataly Davidai and Shalom Hershkovitz, FISCHER (FBC & Co.)
restructure the individual’s global asset-holding struc - ture to reduce potential tax exposure in Israel. Similarly, before ceasing Israeli tax residency, it is important for individuals to plan around Israel’s exit tax regime, which applies capital gains tax to unreal - ised gains accrued while the individual was an Israeli tax resident. Such pre-exit planning should include reviewing whether assets should be sold before or after departure, obtaining appropriate valuations, and carefully managing the facts relevant to determining the termination date of Israeli tax residency under the centre of life and statutory day-count tests. The effectiveness of such planning depends heavily on the individual’s specific facts, the nature of the individual’s global asset-holding structure and income, and the availability of relevant double tax treaties. Accordingly, individuals considering immigration to or emigration from Israel should seek tax advice well in advance of the relevant move. Early planning is criti - cal, as opportunities to mitigate tax exposure may be limited or lost once Israeli tax residency begins or terminates. 1.5 Taxation of Real Estate Owned by Non- Residents and Non-Citizens In principle, the purchase of Israeli real estate is sub - ject to a progressive purchase tax that can be as high as 10% for expensive residential properties and 6% for commercial real estate purchased by an individual. However, certain tax reductions and exemptions are available to Israeli tax residents (regardless of their citizenship status) who purchase a home that will be their sole residence. The following are the applicable purchase tax rates for non-Israeli tax resident individuals purchasing resi - dential real estate in Israel: • 8% on the value of the real estate up to approxi - mately USD1.6 million; and • 10% on the value of the real estate above approxi - mately USD1.6 million. As per Article 12 of the Real Estate Taxation (Appre - ciation and Purchase) (Purchase Tax) Regulations, 1974, a new immigrant who purchases residential real
estate for their permanent use, as well as a business place for themselves, during the period starting one year before their immigration and ending seven years thereafter, enjoys special real estate purchasing tax rates, subject to the date of the purchase of the real estate. In certain cases, the above special rates for new immi - grants can also be applied to the purchase of land. 1.6 Stability of Tax Laws Israel had an estate tax regime until 1 April 1981, when it was abolished altogether and, currently, there are no official proposals to re-enact an estate tax regime. While levying an inheritance tax has sometimes been a campaign promise in Israeli national elections, no legislative changes have taken place. Nonetheless, due to the current regional conflicts, the Israeli government faces the inevitable task of financing its increasing expenditure. Consequently, the Israel Tax Authority is considering levying either inheritance tax or estate tax, as well as a limiting the new immigrant relief (see 1.3 Income Tax Planning ) and broadening the number of individuals subject to Israeli taxation, by amending the definition of Israeli tax resident to include any person living in Israel for at least 100 days in a certain tax year, and a total of at least 183 days over the two preceding years. In addition, it is also looking to further enforce the cur - rent applicable “exit tax” regime along with forcing dividend distributions by private holding companies. Further, the Israeli Finance Ministry is looking into increasing capital gains tax, corporate taxation and the local rate of VAT (in addition to the amendments in corporate taxation which have already been imple - mented; see 1.1 Tax Regime ). However, alongside the increase in taxation, an anonymous voluntary disclo - sure procedure is expected to be offered to the public. It remains to be seen whether any of the measures being considered will pass the political hurdles and be enacted into law. 1.7 Transparency and Increased Global Reporting Israel implemented the OECD’s Common Reporting Standard (CRS) and the Foreign Account Tax Com - pliance Act (FATCA) regimes in February 2019 and
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