Buying Real Estate in Israel as a Legal Entity: Taxes and Risks

Buying Real Estate as a Legal Entity in Israel: Pros and Cons

Buying real estate in Israel as a legal entity is a professional investment tool used for optimizing tax burdens, protecting assets, or running a rental business. However, such a strategy is not always profitable for a private buyer of a single apartment, as it entails additional expenses for audits, corporate taxes, and higher purchase tax (Mas Rechisha) rates.

Why buy real estate under a company name?

The main motivation for investors when registering real estate to an Israeli company (LTD / Ba'am) or a foreign structure is long-term tax planning. Unlike an individual, a company can deduct operating expenses from the tax base.

Such expenses include:

• Interest on loans for property purchase.
• Building depreciation (within statutory limits).
• Expenses for repairs, management, and property maintenance.
• Services of lawyers and accountants for property management.

For large real estate portfolios, this allows for a significant reduction in the effective tax rate on rental income.

Taxes on purchase and ownership for legal entities

The tax regime for companies differs significantly from rules for individuals. The focus is on the absence of social benefits and the application of corporate rates.

1. Purchase Tax (Mas Rechisha)

When purchasing residential real estate in Israel, a legal entity pays Mas Rechisha at the maximum scale provided for owners of two or more apartments. The tiered system of exemptions for a "primary residence" does not apply here. The tax rate is fixed and starts from 8% on the first shekel of the property's value (depending on current legislative amendments for 2024).

2. Capital Gains Tax (Mas Shevach)

Upon selling the property, the company pays a tax on profit. Unlike individuals who may claim tax calculations based on the "linear method" (with a reduced rate on part of the profit accumulated before 2014), legal entities are often taxed at the standard corporate tax rate (currently 23%).

3. VAT (Ma'am)

When purchasing commercial real estate, a legal entity that is a VAT payer has the right to a tax refund (17%), which significantly reduces the amount of required investment. When purchasing residential real estate from a developer, VAT is included in the price, but its refund for residential properties is virtually impossible unless the property is used for the hospitality business.

Comparison: Legal Entity vs. Individual

When choosing an ownership structure, it is important to consider not only entry taxes but also the cost of maintaining the structure.

Comparative characteristics of real estate ownership

Parameter	Individual	Legal entity (company)
Mas Rechisha (Housing)	Tiered (from 0% to 10%)	Maximum rate (from 8%)
Rental tax	Preferential tracks (0%, 10% or marginal)	Corporate tax (23%)
Expense deduction	Limited (only under marginal track)	Full deduction of business expenses
Reporting	Minimal (or none)	Annual audit and balance sheet filing
VAT refund	Impossible	Available for commercial properties

Tabu registration and legal nuances

The registration process for property rights in the land registry (Tabu) for a legal entity requires an extended package of documents:

1. Constitutive documents: Company charter and certificate of incorporation.
2. Meeting minutes: A directors' resolution to carry out the specific property purchase transaction.
3. Power of attorney: A power of attorney certified by a notary or consul for the representative if the director is not present in person.
4. Certificate of Good Standing: For foreign companies, confirmation that the legal entity is active and not in the process of liquidation.

It is important to remember that if the company is foreign, all documents must be translated into Hebrew, notarized, and apostilled.

Risks and limitations

Beyond taxes, owning real estate through a company carries additional risks:

• Double taxation: When withdrawing rental profits from the company as dividends, the shareholder pays dividend tax (usually 25–30%), which may make the total tax burden higher than for an individual.
• Maintenance costs: Annual reporting to the Israeli Registrar of Companies and services of a licensed auditor (Roe Heshbon) cost several thousand shekels per year.
• Banking difficulties: Opening an account for a company controlled by non-residents and obtaining a mortgage (mashkanta) is a complex process that requires deep verification of the source of funds (Compliance).

Frequently asked questions about buying as a legal entity

Conclusion

Registering real estate to a legal entity in Israel is a decision for experienced investors and those acquiring commercial spaces. For buying your first home "for yourself," this method is financially unjustified due to high taxes and administrative costs. Before making a decision, it is necessary to conduct an individual calculation of tax consequences (Tax Due Diligence) with the involvement of Israeli lawyers and tax consultants.

The information provided is for informational purposes only and does not constitute legal or tax advice. Israeli legislation changes regularly. Always consult with a specialist before proceeding with a transaction.

Date of last update: November 18, 2024