Fourteen years ago, our clients, three family members and residents of France, who didn’t speak or understand Hebrew, inherited an apartment in central Tel Aviv.
At first, we handled the apartment’s rental and maintenance for them.
One year ago they decided to sell the apartment. Please find below an explanation of how we assisted them.
However, it is worth explaining that when a foreign resident wishes to sell an apartment in Israel, there are complex issues that ought to be understood and should be addressed.
This complexity stems from four principle causes:
- Geographical distance: The seller does not reside in Israel, which creates technical and bureaucratic difficulties. Occasionally he is interested in executing his transaction without coming to Israel.
- Legal and bureaucratic complexity: Stemming from the fact that the seller is not an Israeli resident, particularly if the seller has no Israeli bank account.
- Language-related complexity: All legal paperwork and bureaucratic proceedings involved in executing the transaction must be in Hebrew (a requirement of the majority of the authorities in Israel).
- Taxation matters connected with the transaction, in Israel and overseas, and reporting on receipt of monies in the country of residence (the country in which the seller resides).
Betterment tax for foreign residents
Up until December 31, 2013, foreign residents were allowed to sell an apartment (or home) in Israel and, under specific circumstances, receive an exemption from the betterment tax (also called capital gains tax or land appreciation tax).
Starting on January 1, 2014, the law in Israel was changed:
Foreign residents are not entitled to the exemption unless the apartment being sold is the sole apartment they own in Israel and oversees and they have to produce confirmation of such from the tax authorities in the country where they reside. This is a difficult confirmation to obtain (tax authorities in numerous countries do not issue confirmations of this type).
Even if the non-resident is not entitled to an exemption from betterment tax in Israel (in the sale of an apartment or home), it is almost certain that he is indeed entitled to a linear calculation of tax.
The betterment tax according to a linear calculation (in case the seller is entitled to the linear calculation) is lower than the full betterment tax.
How is the linear calculation done? The period during which the apartment was owned by the seller is calculated and then divided into two parts: the period of time from the purchase of the apartment through to December 31, 2013, and the period from January 1, 2014 to the date of sale.
The first time period mentioned above is exempt from betterment tax.
For the second period, 25% of the capital gains is paid as tax.
The limitation: During the period between January 1, 2014 until December 31, 2017, each family unit is entitled to execute only two selling transactions of an apartment or home and utilize this benefit (of the linear calculation).
Please note that as time goes by, this tax benefit (of the linear calculation) gets smaller since the period for which the betterment tax is paid gets longer.
Starting from January 1, 2018, there will be no limit as to the number of linear calculations that may be utilized in selling transactions for an apartment or home.
Aside from the betterment tax there are additional taxes that the seller must pay according to law that should be checked in advance:
- A land betterment levy to the city municipality or to the local committee as well as levies for sewerage, lighting, sidewalks, roads etc.
- In the event that the property is owned and registered in the name of the State of Israel or of Keren Kayemeth LeIsrael (Jewish National Fund), and the property is managed by the Israel Land Administration (or under its new name the Israel Land Authority)—there may be payments that are due to the Administration.
The property in Israel is unreported in the country of residence
Typically, following the sale of a property, sellers are interested in receiving the monies from the sale.
There are countries that impose taxes on the property. For this reason, and in order to avoid paying these taxes, properties that are owned in Israel may be unreported by their owners in the country of residence.
When the property which is about to be sold is not reported in the country of residence, there might be difficulty in transferring the money to the owner’s account in that country.
In order to handle these complicated issues, our firm works in close cooperation with overseas law firms (in the US, France, and all across Europe) that possess expertise in international taxation—so that ultimately our clients will be able to receive their monies and use them in the country in which they reside.
Additionally, we possess vast experience in preparing the required documents and authorizations so that the process goes smoothly and successfully vis-à-vis the overseas tax authorities.
Execution of a remote transaction
In Israel, the majority of bureaucratic processes vis-à-vis the vast majority of authorities (including the Land Registry Bureau [‘Tabu’], the Israel Land Administration [Israel Land Authority] and most banks) are in Hebrew.
It is possible to execute the transaction without coming to Israel; however, this requires correct management of the process.
The seller will need to sign on documents before the Israeli Consul overseas. A majority of the documents can be signed using a power of attorney given by the seller to his attorney or representative in Israel, instead of the seller. However, there are documents that the seller himself must sign.
The principle documents that the seller must sign (himself, or via the party given power of attorney) during the process are:
- A signature on the sales contract;
- Signatures on documents for the tax authorities;
- Signatures on Tabu documents.
Returning to the specific case of our clients— French residents, for whom we have handled the sale of the apartment in Tel Aviv—our services consisted of:
- Receiving a real estate appraisal of the value of the apartment;
- Based on the appraiser’s evaluation and in coordination with the clients (as to the requested price), we advertised the apartment to potential buyers. Due to the apartment’s attractive location in central Tel Aviv, there was great interest in the apartment and numerous potential buyers expressed interest;
- After receiving offers from a number of potential buyers willing to pay the requested price, we managed a process of negotiation in order to find the buyer with the highest offer for the apartment. Finally, a sale of the apartment was agreed upon, at a price that exceeded the real estate appraisal by 10%;
- The transaction was executed from start to finish without the sellers coming to Israel. We signed the Hebrew contract for them, we received all the payments on their behalf, and we transferred the apartment to the buyers.
- When the sellers requested the receipt of the money in France, we referred them to a French attorney’s firm possessing expertise in matters of international taxation. Taxation matters in France were handled by us in cooperation with the French firm;
- On the one hand, our clients benefited from full transparency as regards the process from beginning to end and also received daily updates from us. On the other hand, we handled all aspects of the transaction, which relieved them of a significant burden and afforded them peace of mind throughout the process.
In summary, the sale of an apartment, home or other property in Israel by a foreign resident—without coming to Israel—is definitely possible; however, it is highly advisable to devote proper attention to all of the aspects we have mentioned.
Our firm possesses vast and significant experience in accompanying and handling the sale of real estate properties in Israel by non-residents.
We will accompany your transaction professionally, step by step, and make sure that the transaction will be executed successfully.
We invite you to talk with us to receive our advice before executing a transaction such as this.
Note:
This article provides general and preliminary information only and should not be construed in any event as legal counseling and/or as a substitute for legal counseling in respect of any case and its circumstances.
The above should not be relied upon without consulting with an Israeli lawyer before taking any action or making any decision. The above is true as of the date of its composition, and its veracity may change from time to time.
Adv. Tali Kessler is a partner at Rechnitz, Kessler & Co. Law Office & Notary engaged in the fields of commercial law, real estate and land taxation.
Distribution and/or duplication and/or photocopying of this document and/or part thereof without permission are prohibited.
The contents of this document should not be construed as counseling and/or as a professional opinion of any kind.
