preface

BDO Israel
DOING BUSINESS IN ISRAEL
Rental Income - Reduced tax on income derived from the lease of a "new rental
building" - at the rate of 11% for companies and 20% for individuals.
Companies are liable to a lower effective tax rate of 10% on foreign
investments, where the foreign investment exceeds 90%.
Dividend - 15% tax is chargeable on dividends distributed from the earnings of
an approved enterprise which is a rental apartment building.
Total "direct to house" tax under Chapter Seven-1 is 24.35%.
Income from the Sale of a Building (Appreciation Tax) - This is liable to tax at
the rates mentioned above. We must emphasize that these tax rates apply to
betterment accumulated for the entire period and not merely from the effective
date (November 7, 2001). It is also noteworthy that Section 72A of the
Property Taxation Law denies such exemption for residential apartments,
relevant only to individuals, in the sale of apartments in a rental building
eligible for benefits under the Law.
Purchase Tax - There is a reduced purchase tax of 0.5%, where the Investments
Center demands the transfer of title to a property which is a building or plot
constituting a business inventory or fixed asset for a company held by the same
owners, for purposes of a "rental building", with certain restrictions.
Accelerated Depreciation - at the rate of 20%.
V.A.T. Benefit on the Sale of a Building - Section 31(a) of the V.A.T. Law
stipulates a tax exemption on the sale of such part of a building used for rent
and having enjoyed the said tax benefits. The Section stipulates that if that part
approved as a rental building had been rented for five years at least, the sale
thereof would be exempt from V.A.T.
V.A.T. on Apartment Rental - The exemption specified in Section 31(1) of the
V.A.T. Law shall apply in regard to rental housing for a period not exceeding
25 years.
7.5.1. Law for the Encouragement of Rental Housing
Rental Income - at the corporate tax rate which is currently 25%. To this
must be added the anticipated reduction in corporate tax to a level of
18% in 2016.
Dividend - Tax rate as stipulated in Section 125b of the Ordinance or
126(b) of the Ordinance.
Total "direct to house" tax rate for a substantial shareholder in
2010 is 43.75%.
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