ISRAEL Law and Practice Contributed by: Hagit Bavly and Adi Daniel Zamir, Arnon, Tadmor-Levy
• build without a permit or in violation of a permit; or • use any property in violation of a permit. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets Investors can hold real estate through any vehi - cle they choose, either in their capacity as indi - viduals or through corporate entities (companies, partnerships, etc). The main issues considered are tax planning and limitation of liability, as well as the ability to participate in decision-making. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity A company has a separate legal identity to that of its shareholder. A limited liability company protects its shareholders such that, subject to special circumstances, a shareholder of a lim - ited liability company has no exposure should any lawful activity of the company fail. A limited partnership also has a separate legal identity to that of its limited partners. Limited partners that are not involved in the management of the part - nership have similar protection as shareholders in a limited liability company, though the general partner (and limited partners that are involved in the management of the partnership) have certain liability to its actions. A corporation and partnership that purchases real estate will be required to pay a purchase tax at a rate of 6% of the purchase price (see 2.10 Taxes Applicable to a Transaction ). A corpora - tion selling real estate will be taxed with corpo - rate tax for the accumulated appreciation – ie, it will pay appreciation tax at the rate of 23%. In a partnership, each member of the partnership
will pay land appreciation tax (capital gains tax) according to their own status. REIT funds are entitled to benefits in purchase tax, appreciation tax and income tax, subject to certain restrictions. 5.3 REITs In Israel, there are only a few real estate invest - ment trust (REIT) funds, traded on the stock exchange – most invest in commercial real estate, and some in residential real estate. Those who wish to invest in real estate and enjoy a relatively high return on investment (compared to other low-risk investments) can do so by pur - chasing participation units in a REIT fund. Unlike investing directly in real estate, investing in REIT funds is simple and does not require high invest - ment amounts. The REIT mechanism in Israel is reminiscent of the trust funds mechanism – eve - ryone is a partner in the trust fund according to their share in the fund. Both foreign and Israeli entities can invest in REIT funds in Israel. In order to accelerate the integration of the gen - eral public into the real estate market through REIT funds, and to protect the general public, the activities of REIT funds were regulated by legislation in 2006. The law established several obligations and restrictions on REIT funds (such as the obligation to make regular distributions of the fund’s profits to its shareholders every year), and granted tax benefits to REIT funds. 5.4 Minimum Capital Requirement The minimum equity required to incorporate a company is ILS1 (less than USD1). No minimum equity is required to form a partnership.
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