ISRAEL Law and Practice Contributed by: Hagit Bavly and Adi Daniel Zamir, Arnon, Tadmor-Levy
appeal against it. The compensation to be paid for the expropriation depends on: • the decrease in value that results from the change of designation of the land from com - mercial to public designation; • the percentage expropriated from the land; • the stage of the expropriation process; and • the legislation under which the expropriation was carried out. If the land is expropriated but not used for the purpose for which it was expropriated, or if the need for such public use has ended, the original owner can claim back their land or its monetary equivalent. 2.10 Taxes Applicable to a Transaction Pursuant to the Land Tax Law (Appreciation and Purchase) 1963 (the “Land Tax Law”), the buyer must pay purchase tax and the seller must pay land appreciation tax in any real estate transac - tion. Generally, purchase tax is 6%; there are pro - gressive rates for residential properties that may exceed this figure. Land appreciation tax (which is capital gains tax) is equal to 23% of the seller’s capital gain on the transacted property applicable to a seller that is a corporation. The appreciation tax rate for individuals ranges from 25% to 47%, depending on the date of purchase of the sold property. However, if the seller’s business is the develop - ment and sale of real estate property, it will be subject to income tax rather than land apprecia - tion tax. There are specific exemptions with regard to land appreciation tax on residential apartments. The most common is an exemption on the sale
of an apartment if the seller has no other resi - dential unit. There are discounts on purchase tax that apply to an Israeli resident purchasing its only residential unit. Such exemptions apply only to Israeli residents. In addition, if the seller makes a profit on the sale that results from a change in the applicable city plan, the seller has to pay a land betterment levy to the local authority within whose jurisdic - tion the property is located, in addition to land appreciation tax. Such levy is calculated as 50% of the gain attributed to the property due to the approval of the city plan. A gift between certain immediate relatives can be exempted from land appreciation tax, and can be subject to reduced purchase tax rates. Note that there is no inheritance or estate tax in Israel, so the transfer of real property by will or succession is not taxable. Land appreciation tax and purchase tax pursu - ant to the Land Tax Law (as above) applies if the transfer is of shares in a “real estate entity” – ie, an entity that primarily owns real estate property. 2.11 Legal Restrictions on Foreign Investors There is no restriction on the transfer of privately owned real estate to foreigners. Rights in land administered by the Israel Land Authority (ILA) can be transferred to foreigners, subject to cer - tain limitations.
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