Land Tax Print

The Land Taxation (Appreciation and Purchase) Law, 5723-1963 (hereinafter: the “Law”) deals with the taxation of real estate transactions, whereby the two main taxes presently levied are land appreciation tax and purchase tax. A party selling real estate rights and a party performing an action in a property association are subject to land appreciation tax, whereas the purchaser is subject to purchase tax.

Land appreciation tax is, in practice, a capital gains tax levied on the seller of real estate rights or of a right in a property association. The principle of the imposition of land appreciation tax is anchored in sections 6 and 7 of the Law; section 6 of the Law provides that land appreciation tax shall be imposed on appreciation upon the sale of a real estate right, and section 7 of the Law determines that land appreciation tax shall also be imposed on any action in a property association. In addition, section 15 of the Law states that land appreciation tax will be imposed on the seller, regardless of the terms of the agreement between the parties. It is noteworthy that, alongside the general principle governing the levying of appreciation tax and purchase tax, the legislator has determined various special provisions, exemptions and tax breaks concerning specific cases.

This tax is also imposed on an action in a property association, when as a rule, a property association is one in which all of its assets, both directly and indirectly, are real estate rights (also if its assets are comprised of cash, securities or chattels, the income from which is secondary to the main purposes of the association), except for an association whose rights are listed for trading on the stock exchange. In this respect, an action in a property association is the grant, assignment, transfer or waiver of a right in a property association, whether for consideration or for no consideration. Upon selling a right in a property association, the seller is required to pay land appreciation tax (the profit is calculated in a manner similar to the sale of shares under the Income Tax Ordinance, in applying the exemptions and tax rates specified in the Law) and the buyer is obliged to pay the purchase tax. However, only purchase tax is payable in the case of an allotment of shares which bears no direct or indirect consideration for the shareholders.

Land appreciation tax will be imposed where three elements exist: one, the property falls within the definition of a real estate right or a right in a property association; two, a real estate right has been sold or an action in a property association has been carried out; three, the sale or action gives rise to land appreciation. In other words, “sale value” must exceed the “purchase value”, as these terms are defined in the Law.

Further information concerning land appreciation tax