Even a foreign resident may be eligible to Real Estate Purchase Tax beneficial rates when purchasing a single apartment in Israel
As part of the Israeli government's efforts to reduce the relatively high housing prices, high real-estate purchase tax rates were set, at least until the end of 2020.
Up to a purchase price of NIS 4,967,445, a rate of 8% tax will apply, and any price higher will be taxed at a 10% rate.
Yet, the purchase of a single residence has the benefit of a much lower tax bracket: the value up to NIS 1,623,320 is not taxable at all; and then a 3.5%, 5%, 8%, and 10% tax rates, have been set.
However, this benefit is granted only to Israeli residents. Allegedly, a foreign resident who buys an apartment in Israel, and it is his only apartment in Israel, is charged with high purchase tax rates.
First alternative: Foreign resident as an Israeli resident to purchase a single apartment
Here is the thing: The definition "Israeli resident" for our purposes, extends and also includes "[…] who within two years of the purchase of the apartment became a resident of Israel for the first time or a veteran returning resident […]".
That is, if a foreign resident decides to immigrate to Israel (or return to Israel after ten years of exile) for a maximum of two years from the date of purchasing the apartment, then he will be considered, for that purpose, an Israeli resident, and will be entitled to benefit the special tax rates for purchasing a single residence.
It should be noted here that the definition "single apartment" is: "residential apartment, which is the only apartment of the purchaser in Israel and Judea and Samaria area […]". That is to say, that no consideration should be given to residential dwellings or any other real-estate that the foreign resident has outside Israel.
Even if he is rich in apartments outside Israel, and he buys a residential apartment in Israel, which is his only apartment here, as soon as he arrives in Israel to become an Israeli resident within two years of the purchase date, he will still be entitled to benefit from the purchase tax special rates given to Israeli residents buying their single residence in Israel.
Returning from Relocation: Watch out!
Another point to note: The expansion of the definition "Israeli resident" for eligibility to benefit from the special purchase tax rates in purchasing a single apartment in Israel, applies not only to new immigrants but also to veteran returning residents that decided to immigrate to Israel within two years from the purchase date.
This refers to a person who was previously a resident of Israel, left Israel, and became a foreign resident and was a foreign resident for at least ten years from his departure from Israel. When he returns to Israel, he will be considered a "veteran returning resident."
However, residents of Israel who left Israel and became foreigners for less than ten years – including returning but not veterans, i.e., those who were foreigners for at least six years but did not fill a decade – are not entitled to the said benefits.
Such individuals who purchase a single apartment in Israel, while a foreign resident, will not receive the beneficial tax rates when purchasing a single residence, even if they move to Israel within two years.
In these cases, which are relevant mainly to relocation families, it is best to consider purchasing a single residence apartment (in Israel) only after returning to Israel.
Second alternative: Foreign Resident as a New immigrant – Purchase Tax benefits
As shown above, a foreign resident is entitled to benefit from better tax rates for the purchase of his only apartment in Israel (even if he has apartments abroad) as long as he first immigrated to Israel (or returned to it after ten years of foreign residence) within two years of the purchase of the apartment.
However, if the said foreign resident (who has never been a resident of Israel; this point is irrelevant to returning residents, even veteran returning residents) makes an Alyiah within a year of the purchase of the apartment, he shall be entitled to a purchase tax rate of only 0.5% on the value of up to NIS 1,759,310, while on the exceeding cost – a purchase tax of 5%.
This is in light of Regulation 12 of the Real-estate Taxation Regulations (Betterment and Purchase) (Purchase Tax), 1974.
In such a case, the benefit is not only granted to the purchase of a single dwelling. It is also given for a residential apartment or a residence used for both residential and business purposes, to be used by the immigrant or his relative, or even in the purchase of vacant land (under the terms of the regulation) to be used to establish an apartment or business.
The said regulation 12 provides for additional relief and limitations.