Memorandum of Law to Amend the Land Taxation Law

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Memorandum of Law to Amend the Land Taxation Law

23 January 2022

Dear clients and colleagues,

On January 13, 2022, a legislation memorandum was published to amend the Land Taxation Law (the “Memorandum“). The Memorandum proposes to include a number of amendments to the Land Taxation Law. Among these, are a number of significant changes, especially for foreign residents who own residential apartments in Israel.

It should be noted that this is a legislative memorandum that has not yet entered into force and additional changes may be introduced in the  final version of such legislation.

The following is a summary of the key changes:

 Changes relating to foreign residents

1. Currently, foreign residents who own residential apartments in Israel are entitled to taxation based on tax rates according to an adjusted linear calculation and, under certain conditions, a full  exemption when the sale is of a single residential apartment by the seller (provided they do not have an apartment in their place of residence), similar to Israeli residents.

The Memorandum proposes to cancel these benefits such that the capital gain of foreign residents from the sale of residential apartments in Israel is taxable in Israel at tax rates similar to the sale of other real estate (that is not a residential apartment), without providing the benefit granted to Israeli residents in respect to residential apartments. In other words, the tax rates for the sale of apartments in Israel for foreign residents will increase significantly, mainly in respect of “old” apartments (namely, apartments purchased before 2014).

2. An Israeli resident who has left Israel will be entitled to a tax exemption (available to Israeli residents) during a period of 5 years following the date he left Israel.

3. In addition, foreign residents are currently entitled to a tax exemption on rental  income of a residential apartments up to a ceiling of approximately NIS 5,000 per month. The Memorandum proposes to cancel this exemption regarding rental income.

4. The changes regarding foreign residents will apply starting from 2024 providing foreign resident with a two-year window during which they will be able to sell their apartments while enjoying the current tax benefit.

Proposals for additional general changes:

5. The Memorandum proposes to impose a 3% Surtax on the sale of apartments that are investment apartments. Currently, no tax is imposed on apartments the sale value of which does not exceed NIS 4.7 million (roughly US $ 1.5 million).

6. The Memorandum proposes to reduce the purchase tax levels in connection with a single apartment (an apartment with a medium value of approximately NIS 3 million (roughly US $ 1 million)) that is not considered a luxury apartment. The purchase tax on a residential apartment that is a luxury apartment will be increased.

7. The Memorandum proposes to clarify that the purchase tax applicable to unfinished apartments is the purchase tax applicable to residential apartments. Unfinished apartments are apartments at the time of purchase of which, there is no obligation on the part of the seller to complete their construction. In such a case, currently, there is a position that the tax applicable is the same as for the purchase of land (5%-6%), so that purchasers of an unfinished apartment are generally subject to better purchase tax rates in comparison to purchasers of a finished apartment. It is now proposed to clarify this point and include these apartments as a residential apartment for the purposes of purchase tax.

8. Shortening the period during which an apartment can be sold as a single apartment and at the same time holding a residential apartment as a substitutive apartment. The period will be 12 months instead of the current period of 24 months. This applies also to the purchase tax on the substitutive apartment.

9. The Memorandum proposes that the benefitted tax rate on a sale of an apartment will not apply to anyone who purchased land before January 1, 2014 and has not completed land construction by the end of 2025.

10. In addition, it is proposed that capital gain tax benefit will be applicable to lands purchased from April 1, 1961 to November 6, 2001. Currently, these lands are subject to high tax rates that can reach up to 40%. In a temporary order that will apply until December 31, 2024, it is proposed to allow a tax reduction to a rate of 25% (excluding surtax). This will only apply to land on which there is a plan to build at least 15 apartments. The extent of the benefit will be tied to the length of time it takes for the construction to be completed such that the shorter the period the greater the benefit.

 Tax Department
Herzog Fox & Neeman


Meir Linzen | Chairman
Chairman of the firm and Head of Tax Department​


Guy Katz | Partner
Tax Department



Eldad Chamam | Partner
Tax Department



Tal Hamdi | Partner
Tax Department


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