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OrdinanceTax Law

Income Tax Ordinance [New Version]

פקודת מס הכנסה [נוסח חדש]

Published: 1961-04-25Last amended 2026-06-08✓ Amendment status checked against the Knesset legislation record on 2026-09-04
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Chapter II-A: Real Estate Investment Fund

Definitions§

64a2.
(a)In this Chapter –

"means of control", "substantial shareholder", "original price", "relative" and "real capital gain" – as defined in section 88;

"application for addition of rights" – the submission of a plan to the competent planning authority under the Planning and Building Law for the increase of the total floor area permitted for construction on a plot designated for residential use under sections 62a(a)(14), (a1)(2) or 62a2 of that Law, or for the addition of a use or the increase of the total floor area permitted for construction on a plot designated for employment or commercial use under section 62a(a1)(14)(a)(2) of that Law, all for the purpose of long-term letting; for this purpose, a plan as aforesaid shall be deemed to have been submitted if the conditions prescribed under section 83a1 of that Law have been fulfilled with respect thereto;

"income in the amount of depreciation expenses" – income in the amount of depreciation expenses deductible under the provisions of this Ordinance or under the provisions of the Inflation Adjustments Law, in respect of income-producing real property;

"taxable income" – including land appreciation;

"exceptional income", of a real estate investment fund – its income as follows:

(1)income from the sale of business inventory;
(2)income, other than income as detailed in sub-paragraphs (a) to (c), the total rate of which exceeds 5% of all income of the fund in the tax year:
(a)income from income-producing real property, income from real property under construction, income from real property for rental housing purposes and income from the sale of building rights in real property that was income-producing real property on the date of its acquisition; for the purpose of this sub-paragraph, "income from real property for rental housing purposes" – excluding income from the sale of real property as referred to in paragraph (4) of the definition of "real property for rental housing purposes" if sold before the expiry of a period of at least 20 years during which the dwelling units served the purpose of letting, in accordance with that paragraph, provided they were not sold by way of a sale to a lessor;
(b)income from securities traded on a stock exchange, from Government loans and from deposits;
(c)income that under section 7 of the Inflation Adjustments Law is regarded as business income;
(3)income from the sale of real property as referred to in paragraph (4) of the definition of "real property for rental housing purposes", if sold before the expiry of a period of at least 20 years during which the dwelling units served the purpose of letting, in accordance with that paragraph, provided they were not sold by way of a sale to a lessor;
(4)income from the sale of real property that, at the time of its acquisition, was real property under construction, if sold before four years at least had elapsed from the date on which it began to serve the purpose of letting;

for the purpose of paragraphs (2) to (4), "income" – including land appreciation and excluding land appreciation in respect of a sale as referred to in sections 49v, 49ag or 49ag1 of the Land Taxation Law;

"long-term letting" – the letting of a dwelling unit for residential purposes under a lease agreement that shall be in writing and shall include at least the matters set out in paragraphs (1) to (4) of the definition of "long-term letting" in the Sixth Schedule to the Planning and Building Law;

"the Government Company for Rental Housing" – the Government company for rental housing established pursuant to Government Decision No. 770 of the 5th of Heshvan 5774 (9 October 2013);

"Planning and Building Law" – the Planning and Building Law, 5725-1965;

"date of listing for trading on the stock exchange" – the date of first listing for trading on a stock exchange in Israel as referred to in section 64a3(a)(2);

"sale to a lessor" – the sale of all the residential units let as referred to in paragraph (4) of the definition of "real property for rental housing purposes" to a single purchaser who undertook to let the residential units as aforesaid for a further period of at least 10 years, provided that before the sale to that purchaser, the said dwelling units served the purpose of residential letting, in accordance with that paragraph, for a period of at least 10 years;

"tax" – including land appreciation tax under sections 6 or 7 of the Land Taxation Law;

"real property" – including real property outside Israel and excluding a right in a real property association to which section 64a7c does not apply;

"real property under construction" – real property intended to serve as income-producing real property, the construction of which for that purpose has not yet been completed, provided that on the date of its acquisition a plan applied to it under which it would be able to become income-producing real property;

"real property held for a short period" – real property in respect of which one of the following applies:

(1)it is not real property for rental housing purposes, and from the date of its acquisition by a real estate investment fund until the date of its sale, including in an exempt sale, less than four years have elapsed;
(2)it is real property for rental housing purposes, sold by a real estate investment fund before four years have elapsed from the date on which it became income-producing real property for rental housing purposes, excluding real property as referred to in paragraph (4) of the definition of "real property for rental housing purposes";

"real property for rental housing purposes" – real property acquired during the period from the 1st of Sivan 5776 (7 June 2016) to the 9th of Tevet 5794 (31 December 2033) by a real estate investment fund, during the period from the date of its acquisition until its becoming income-producing real property or until the end of five years from the date of its acquisition, and in the Negev or Galilee region as defined in the Negev Development Authority Law, 5752-1991, and the Galilee Development Authority Law, 5753-1993, respectively – as well as real property in respect of which an application for addition of rights was submitted within two years of the date of acquisition – until the end of seven years, whichever is earlier, and if the administrator, as defined in the Land Taxation Law, approved it, until the end of an additional period beyond the said periods not exceeding three years, and in respect of real property on which more than 250 residential dwelling units are intended to be built – not exceeding seven years, for special reasons that shall be recorded; provided that one or more of the following applies thereto:

(1)the real property was acquired in the framework of a tender published by the State or the Government Company for Rental Housing acting on behalf of the State, whose terms provide that at least half of the dwelling units to be built on the real property shall serve for residential letting only, for a period fixed in the tender terms of not less than 15 years; however, only the dwelling units that under the tender terms are to serve for residential letting only, and the proportionate share of the common property attached to them, shall be regarded as real property for rental housing purposes;
(2)a plan for residential letting approved before the end of the period from the 1st of Sivan 5776 (7 June 2016) to the 9th of Tevet 5794 (31 December 2033) applies to the real property;
(3)the real property was marketed by the Government Company for Rental Housing for the purpose of residential letting only for a period of at least 15 years, and that purpose was guaranteed by means of the agreement concluded with that company for the acquisition of the real property;
(4)one of the conditions listed below applies to the real property, all provided that the Government Company for Rental Housing approved that the dwelling units would serve the purpose of long-term letting only and provided that the said company gave, at the end of each tax year, a confirmation that all the dwelling units served for long-term letting as aforesaid during the past tax year:
(a)at least 20 residential dwelling units were acquired by a real estate investment fund in a contiguous real property complex, or at least 20 such dwelling units were built by the end of five years from the date of acquisition of the real property, and in respect of real property for which an application for addition of rights was submitted within two years of the date of acquisition – by the end of seven years;
(b)at least 20 residential dwelling units were built by a real estate investment fund by the end of seven years from the date of acquisition of the real property by the fund, provided that the real property was acquired in a tender published by the State or the Government Company for Rental Housing acting on behalf of the State, and it was proved to the satisfaction of the administrator, as defined in the Land Taxation Law, that it had not been possible to obtain a building permit within a period of 30 months from the date of acquisition of the real property;
(c)at least 15 residential dwelling units were acquired by a real estate investment fund in a contiguous real property complex, or at least 15 such dwelling units were built by the end of seven years from the date of acquisition of the real property, provided that they are situated in real property in the Negev or Galilee region as defined in the Negev Development Authority Law, 5752-1991, and the Galilee Development Authority Law, 5753-1993, respectively;

"income-producing real property" – real property from the letting of which and from activity ancillary to the letting thereof income was derived or accrued to a real estate investment fund under section 2(1) or (6), excluding a temporary cessation of the derivation of such income, provided that buildings are built thereon the total area of which is at least 70% of the area available for construction under the plan applicable thereto, including movable property serving directly in activity on that real property, excluding the following:

(1)real property used for a purpose prescribed by the Minister of Finance, if management services in that real property are provided by that real estate investment fund or by a relative thereof;
(2)real property that is business inventory in the hands of the fund;

for the purpose of this Chapter, "plan" –

(a)in respect of real property in Israel – as its meaning in the Planning and Building Law, 5725-1965;
(b)in respect of real property outside Israel – the plan under the law of the state in which it is situated;

"income-producing real property for rental housing purposes" – income-producing real property acquired by a real estate investment fund during the period from the 1st of Sivan 5776 (7 June 2016) to the 9th of Tevet 5794 (31 December 2033), let by the fund for residential purposes only, and in respect of which one or more of paragraphs (1) to (4) of the definition of "real property for rental housing purposes" applies;

"asset" – any property, whether real property or movable property, as well as any right or benefit, whether future or vested, all whether in Israel or outside Israel;

"issuance and proceeds assets" – Government loans, deposits or cash, originating from monies as detailed in paragraphs (1) to (3) of this definition, held during a period not exceeding the period as detailed in those paragraphs:

(1)monies received from the initial offering of securities of the fund listed for trading on a stock exchange in Israel – during two years from the date of the offering;
(2)monies received from an additional offering of securities of the fund listed for trading on a stock exchange in Israel – during one year from the date of the offering;
(3)proceeds from the sale of real property – during one year from the date of the sale;

"real estate investment fund" – a company in which all the conditions referred to in section 64a3 are fulfilled;

"residential letting plan" – a plan designating real property for residential letting only for a period of at least 15 years; for this purpose, a plan designating real property for residential letting and also for uses ancillary to residential use shall be regarded as a plan designating real property for residential letting only;

"the determining period" – a period of seven years from the commencement of the Income Tax Ordinance (Amendment No. 222) Law, 5776-2016.

(b)Any other term in this Chapter shall have the meaning attributed to it in the Land Taxation Law, unless expressly stated otherwise.

Real Estate Investment Fund§

64a3.
(a)A real estate investment fund is a company in which all of the following conditions are fulfilled:
(1)it was incorporated in Israel and control of its business and its management are exercised in Israel;
(2)its shares were listed for trading on a stock exchange in Israel within 24 months of the date of its incorporation; however, if at the end of the said date and at the end of 36 months from the date of its incorporation, the value of its assets that are real property for rental housing purposes or income-producing real property for rental housing purposes was not less than 30% of the value of all its assets – its shares were listed for trading on a stock exchange in Israel within 48 months of the date of its incorporation;
(3)from the date of its incorporation until the date of listing for trading on the stock exchange, it had no assets, activities, income, expenses, losses or liabilities (in this paragraph – activity), other than activity that fulfils the conditions set out in paragraph (5);
(3a)from the date of listing for trading on the stock exchange onwards, its shares are traded on a stock exchange in Israel;
(4)the provisions of Part 5-B, or the provisions of section 70 of the Land Taxation Law, did not apply with respect to the transfer of an asset to it;
(5)on 30 June and on 31 December of each tax year, from the date of its incorporation until the date of listing for trading, all of the following conditions were fulfilled:
(a)the value of its assets that are income-producing real property, real property under construction the actual acquisition cost of which paid does not exceed 20% of the value of all its assets at that date, real property for rental housing purposes, bonds, securities traded on a stock exchange, Government loans, assets to be included under the "receivables" item in accordance with generally accepted accounting principles, deposits and cash, was not less than 95% of the value of all its assets;
(b)(Repealed)
(c)the value of its assets that are income-producing real property and real property for rental housing purposes in Israel was not less than 75% of the value of all its assets that are income-producing real property and real property for rental housing purposes;
(d)(Repealed)
(5a)on 30 June and on 31 December of each tax year, from the date of listing for trading, the conditions referred to in paragraph (5) were fulfilled, and also all of the following:
(a)the value of its assets that are income-producing real property, real property for rental housing purposes and issuance and proceeds assets was not less than 75% of the value of all its assets and of the sum of NIS 200 million;
(b)the total amount of loans it took, including by way of issuance of bonds or capital notes, did not exceed an amount equal to 60% of the value of its assets that are income-producing real property that are not income-producing real property for rental housing purposes, plus 80% of the value of its assets that are income-producing real property for rental housing purposes or real property for rental housing purposes, plus 20% of the value of its other assets;
(6)from the end of three years from the date of listing for trading on the stock exchange onwards, five shareholders or fewer did not hold, directly or indirectly, 70% or more of the means of control in it, and from the end of five years from the date of listing for trading onwards (hereinafter – the second date) – 50% or more of the means of control in it; however, from the end of the second date onwards, no single shareholder shall hold more than 30% of the means of control, and from the end of three years after the second date onwards – no single shareholder shall hold more than 20% of the means of control in it; for this purpose –
(a)members of a provident fund, insureds in an insurance company with respect to investments of its insureds, and holders of units in a mutual fund as defined in section 88, shall be regarded as shareholders in the fund;
(b)a person and their relative shall be regarded as a single shareholder;
(c)"holding" – as defined in the Securities Law;
(7)from the date of listing for trading on the stock exchange, the taxable income was transferred to the shareholders as provided in section 64a9;
(8)each report submitted under section 131 in respect of each of the tax years from the date of its incorporation was accompanied by an auditor's confirmation of the fulfilment of the conditions listed in paragraphs (1) to (7).
(b)For the purpose of subsections (a)(5) and (5a), "value", of an asset – one of the following, at the election of the fund, provided that its election in respect of each tax year shall apply to all its assets:
(1)the original price or acquisition value of the asset, as the case may be, with the amount adjusted from the date of acquisition until the date in respect of which the value is being assessed;
(2)the price that may be expected in the sale of an asset by a willing seller to a willing buyer, with the asset free of any charge (security interest) securing a debt, mortgage, or other right securing payment;

all less expenses incurred by the fund in improving the undeveloped part of the real property, until income under section 2(1) or (6) was derived or accrued to the fund from that part; for this purpose, "undeveloped part of the real property" – a part of the income-producing real property that is not built upon and is available for construction under the plan applicable to the real property.

(c)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe provisions with respect to the determination of value, including with respect to the determination of assets to be taken into account or not taken into account for the purpose of subsection (a)(5) and (5a).
(c1)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe conditions and restrictions with respect to the minimum rate of real property for rental housing purposes or income-producing real property for rental housing purposes held by a real estate investment fund, in order for the tax benefits in this Chapter that apply only with respect to such real property to apply to it.
(c2)
(1)If the provision of subsection (a)(6) in fine is not fulfilled, the shares of a shareholder holding more than 30% of the means of control in a real estate investment fund from the end of the second date, or more than 20% of the means of control therein from the end of three years after the second date, shall confer no rights whatsoever, and they shall be dormant shares as their meaning in section 308 of the Companies Law, for as long as they are held by that shareholder, until the provision of subsection (a)(6) in fine is fulfilled;
(2)If the provision of subsection (a)(6) in limine is also not fulfilled after the shares have become dormant as referred to in paragraph (1), the shares of a substantial shareholder in a real estate investment fund shall confer no rights whatsoever, and they shall be dormant shares as their meaning in section 308 of the Companies Law, for as long as they are held by that shareholder, until the provision of subsection (a)(6) in limine is fulfilled;
(3)Where there are several substantial shareholders as referred to in paragraph (2) in the fund, the provision of that paragraph shall apply proportionately to their share in the shares of the fund;
(4)Notwithstanding the provision of paragraph (3), the rate of holdings of a substantial shareholder shall not fall below 9.99% of the shares of the fund that are not dormant as a result of part of that shareholder's shares having become dormant pursuant to this section.
(d)
(1)If a condition among the conditions listed in subsection (a) ceases to be fulfilled in a company, it shall cease to be a real estate investment fund;
(2)Notwithstanding the provision of paragraph (1), if a condition among the conditions detailed under subsection (a)(5a) was not fulfilled at one of the dates fixed therein, it shall be regarded as if it had been fulfilled on the date, if it was again fulfilled within three months and continued to be fulfilled continuously for at least one year; if it was not again fulfilled and did not continue to be fulfilled as aforesaid, the company shall cease to be a real estate investment fund on the date detailed in subsection (a)(5a) on which the condition was first not fulfilled as aforesaid;
(3)If the winding up of the company has commenced, it shall cease to be a real estate investment fund;
(4)The company may notify the assessing officer that it has elected not to be a real estate investment fund; having so notified, it shall cease to be a real estate investment fund from the day it specified in its notice, or from the 90th day after the giving of the notice, whichever is later, provided that a decision not to be a real estate investment fund requires the approval of the general meeting of the fund, at which one of the following is fulfilled:
(1)the votes of three-quarters of all the votes of the shareholders who are not controlling shareholders of the company or who do not have a personal interest in the approval of the decision, participating in the vote, shall be included in the majority votes at the general meeting; in the count of all the votes of the said shareholders, abstaining votes shall not be taken into account; the provisions of section 276 of the Companies Law shall apply to a person who has a personal interest;
(2)the total votes of those opposing from among the shareholders referred to in paragraph (1) did not exceed a rate of 2% of all voting rights in the company;

for the purpose of this subsection –

"control" – as defined in section 268 of the Companies Law;

"personal interest" – as defined in the Companies Law.

Income of a Real Estate Investment Fund§

64a4.
(a)For the purpose of computing tax, tax rates and the set-off of losses, the taxable income of a real estate investment fund that has been transferred to the shareholders as provided in section 64a9 shall be deemed the taxable income of the shareholders (in this Ordinance – the taxable income of the shareholders).
(b)The taxable income of the shareholders shall be charged to tax at the time it is transferred to them.
(c)Notwithstanding the provisions of subsection (a), with respect to tax rates –
(1)exceptional income shall be charged to tax at the rate of 70%, without entitlement to any exemption, deduction, credit or set-off;
(2)taxable income from the sale of real property held for a short period shall be charged to tax as provided in section 121 or section 126, as the case may be;
(3)taxable income from income-producing real property for rental housing purposes that is not real property held for a short period, as well as real appreciation from the sale of such real property, shall be charged to tax at the rate of 20%.
(d)The classification of the taxable income of the shareholders according to source of income shall be in accordance with the source of income from which it was derived or accrued by the fund, and the following provisions shall apply in this regard:
(1)the income shall not be regarded as income from personal exertion;
(2)income in the amount of depreciation expenses shall be regarded as income from capital gain or from appreciation, as the case may be;
(3)amounts transferred to the shareholders in excess of the amount of the fund's taxable income and the amount of depreciation expenses as provided in section 64a9(b) shall be charged to tax as income from capital gain or from appreciation, as the case may be.
(e)Taxable income of a real estate investment fund that is not the taxable income of the shareholders shall be charged to tax in accordance with the following provisions:
(1)taxable income from the sale of real property held for a short period shall be charged to tax at the rate prescribed in section 126;
(2)exceptional income shall be charged to tax at the rate of 60%;
(3)other taxable income shall be charged to tax in accordance with the provisions of any law.
(f)The taxable income of a shareholder shall be exempt from tax, provided that it does not constitute exceptional income or income from a sale as provided in paragraph (2) of the definition of "real property held for a short period", if the shareholder is one of the following:
(1)a pension provident fund or a public institution – provided that with respect to the income of the public institution from the sale of real property, an exemption of half the tax shall be granted; in this paragraph, "pension provident fund" and "public institution" – as defined in section 9(2);
(2)a resident of a reciprocating state who administers a retirement savings plan or a long-term savings plan similar in its nature to a provident fund, as well as a pension fund that is a resident of a reciprocating state or is managed by a resident of a reciprocating state, provided that in the state of residence the profits received by them are exempt from tax by reason of being profits on retirement savings.
(g)Foreign taxes paid by a real estate investment fund shall be allowed as a deduction from the income in respect of which they were paid, and notwithstanding the provisions of this Ordinance, no credit shall be granted to the fund or to its shareholders in respect thereof.
(h)Losses incurred by a real estate investment fund shall not be allowed as a set-off against the income of its shareholders.
(i)The provisions of Chapter VII-1 of the Capital Investment Encouragement Law shall not apply to a real estate investment fund.

Withholding of Tax§

64a5.
(a)At the time of payment of the taxable income of the shareholders, a real estate investment fund shall withhold tax, or – with the approval of the administrator – a banking corporation or a stock exchange member shall withhold tax, in accordance with the following provisions:
(1)from real property appreciation or capital gain, other than from the sale of real property held for a short period and income-producing real property for rental housing purposes that is not real property held for a short period, as well as from income in the amount of depreciation expenses – at the rates prescribed in section 91, or in section 48a of the Land Taxation Law, as the case may be;
(1a)from taxable income from income-producing real property for rental housing purposes that is not real property held for a short period, including real appreciation from the sale of such real property – at the rate of 20%;
(2)from exceptional income – at the rate of 70%;
(3)from other taxable income – at the maximum tax rate prescribed in section 121, or at another tax rate prescribed by the Minister of Finance with the approval of the Finance Committee of the Knesset, or at the tax rate prescribed in section 126(a), as the case may be;
(4)from taxable income transferred to a shareholder who is an exempt trust fund as defined in section 88 – as detailed in sub-paragraphs (a) to (c) of this paragraph, as the case may be, and notwithstanding the provisions of section 129c, tax paid under this paragraph shall be regarded as final tax for which the exempt trust fund is liable and it shall not be entitled to any exemption, deduction, credit or set-off in respect thereof:
(a)from real property appreciation or capital gain, other than from appreciation or gain in the sale of real property held for a short period – no tax shall be withheld;
(b)from exceptional income – at the rate of 60%;
(c)from other taxable income – at the rate prescribed in section 126(a).
(b)Notwithstanding the provisions of subsection (a), at the time of payment of the taxable income of the shareholders, where such income does not constitute exceptional income or income from a sale as provided in paragraph (2) of the definition of "real property held for a short period", to a shareholder as provided in section 64a4(f), no tax shall be withheld.
(c)
(1)Where taxable income that, prior to the transfer, was charged to tax in accordance with the provisions of section 64a4(e), has been transferred to shareholders, it shall be regarded as dividend income and the provisions of subsection (a) shall not apply to it, and the tax that the fund shall withhold shall be the tax it is required to withhold upon payment of a dividend to its shareholders or upon payment of a dividend to substantial shareholders therein, as the case may be;
(2)no credit shall be granted to the shareholders in respect of the tax paid by the fund as provided in section 64a4(e).
(d)The assessing officer may permit in writing that no tax be withheld as provided in subsection (a), or that tax be withheld at less than the rates prescribed therein, if the assessing officer is of the opinion that the taxable income of the shareholder is not liable to tax or that the tax thereon is less than the rates prescribed in subsection (a).
(e)The amounts withheld shall be paid to the assessing officer at the prescribed time and shall be accompanied by a report as prescribed.

Assessment, Objection, Appeal, Appeal and Collection§

64a6.

Notwithstanding the provisions of this Ordinance and the provisions of the Land Taxation Law, the following provisions shall apply with respect to assessment, objection, appeal, appeal and collection:

(1)the assessing officer or the administrator as defined in the Land Taxation Law, as the case may be, may determine, in accordance with the provisions of the Ordinance or the said Law, the taxable income of a real estate investment fund and assess the tax for which it is liable even after the taxable income has been transferred to the shareholders;
(2)only the real estate investment fund may object to, appeal or appeal against the assessment determined for it, in accordance with the provisions of the Ordinance or the said Law; a shareholder may object to or appeal against the effect of the assessment determined for the real estate investment fund on the shareholder's income, but not against the assessment determined for the fund;
(3)the additional tax in respect of the taxable income of the shareholders following assessment proceedings shall be collected from the real estate investment fund alone, and any tax refund in respect of the said income shall be refunded to the fund alone.

Capital Gains Tax on Transfer of Real Property and Reduced Purchase Tax for a Fund upon Establishment§

64a7.
(a)In this section –

"transfer of real property" – the transfer of eligible real property to a company that subsequently became a real estate investment fund, in consideration for the allotment of shares in that company, whether or not additional consideration other than in shares was given, provided that all of the following are fulfilled:

(1)the ratio between the market value of the allotted shares and the market value of all rights in the company immediately after the allotment is equal to the ratio between the market value of the real property in respect of which the shares were allotted and the market value of the company immediately after the transfer;
(2)the transfer was made before the date of registration for trading on the stock exchange;
(3)all rights in the eligible real property were transferred to the company as part of the transfer of real property;
(4)advance approval of the administrator was obtained for the transfer;

"the real property in respect of which shares were allotted" – the portion of the real property transferred to the company as part of a transfer of real property that was transferred solely in consideration for the allotment of shares;

"founder" – one who carried out a transfer of real property to a company, provided that within 180 days from the date of the company's establishment or after the transfer, whichever is earlier, and until the registration of the shares for trading on the stock exchange, that person is a substantial shareholder in the company, and if the transfer of real property is of real property for rental housing purposes – after the transfer and until the registration of the shares for trading on the stock exchange, that person is a substantial shareholder in the company;

"allotted shares" – shares in a company allotted to a founder in consideration for eligible real property transferred by the founder to it;

"eligible real property" – income-producing real property or real property for rental housing purposes.

(b)Any other term in this section and in sections 64a7a to 64a7c shall have the meaning ascribed to it in Part 5 or in the Land Taxation Law, as the case may be, unless expressly stated otherwise.
(c)The transfer of the real property in respect of which shares were allotted shall not be charged to appreciation tax as a sale at the time of the transfer, and the provisions of Part 5 and the provisions of this section shall apply with respect to the sale of the allotted shares, and for this purpose it shall be deemed as if –
(1)the original price of the allotted shares is the balance of the acquisition value of the real property in the hands of the founder under the Land Taxation Law, proportionately to the real property in respect of which the shares were allotted;
(2)the acquisition date of the allotted shares is the acquisition date of the right in the real property in the hands of the founder under the Land Taxation Law;
(3)the balance of the adjusted original price of the allotted shares shall be computed in accordance with the balance of the adjusted acquisition value as defined in section 47 of the Land Taxation Law, as it would have been had the founder continued to hold the real property.
(d)Where real property in respect of which shares were allotted has been transferred, and one of the following has occurred, the provisions of subsection (c) shall be deemed not to have applied, from the date of the transfer, to the person who was the founder, and that person shall be charged with the tax from which the person was exempt, together with linkage differentials and interest from the date of the transfer until the date of payment:
(1)the company's shares were not registered for trading on the stock exchange at the time prescribed in section 64a3(a)(2);
(2)the person who was the founder ceased to be a substantial shareholder in the company as provided in the definition of "founder".
(e)In a transfer of real property, the following provisions shall apply with respect to the company:
(1)the company shall pay purchase tax at the rate of 0.5% of the value of the real property transferred to it, provided that if additional consideration other than in shares exceeding 50% of the total consideration for that real property was given for the real property, the company shall pay purchase tax at the rate of 0.5% of the value of the real property in respect of which shares were allotted, and purchase tax in accordance with the provisions of the Land Taxation Law on the value of the real property for which additional consideration other than in shares was given;
(2)notwithstanding the provisions of paragraph (1), if the company's shares were not registered for trading on the stock exchange in accordance with the provisions of section 64a3(a)(2), the company shall be liable to pay the difference in purchase tax in accordance with the purchase tax rates that applied to the real property on the date of its acquisition under the Land Taxation Law, together with linkage differentials and interest as defined in the Land Taxation Law from the date of acquisition until the date of payment;
(3)the balance of the acquisition value in the hands of the company of the real property in respect of which shares were allotted shall be the balance of its acquisition value in the hands of the founder under the Land Taxation Law, proportionately to the real property in respect of which the shares were allotted, and the acquisition date of the said real property shall be the acquisition date of the right in the real property as it was in the hands of the founder under the Land Taxation Law had the asset not been transferred.

Reduced Purchase Tax on Real Property for Rental Housing Purposes or on Income-Producing Real Property for Rental Housing Purposes§

64a7a.
(a)A real estate investment fund that has purchased real property for rental housing purposes or income-producing real property for rental housing purposes shall pay purchase tax at the rate of 0.5% of the value of the said real property, provided that if one of the following has occurred, the fund shall be liable to pay the difference in purchase tax in accordance with the purchase tax rates that applied to the real property on the date of its acquisition under the Land Taxation Law, together with linkage differentials and interest as defined in the Land Taxation Law from the date of acquisition until the date of payment:
(1)its shares were not registered for trading on the stock exchange in accordance with the provisions of section 64a3(a)(2);
(2)the real property did not become income-producing real property within five years from the date of its acquisition by the fund, and in the Negev or Galilee regions as defined in the Negev Development Authority Law, 5752-1991, and the Galilee Development Authority Law, 5753-1993, respectively, as well as real property in respect of which an application for the addition of rights was submitted within two years of the date of acquisition – within seven years, and if the administrator, as defined in the Land Taxation Law, approved an additional period as provided in the definition of "real property for rental housing purposes" – at the end of such additional period;
(3)the real property became real property held for a short period.
(b)Where a real estate investment fund has purchased land on which only part of the planned residential units to be built thereon are for rental housing purposes, the administrator shall determine the acquisition value.

Transfer of Assets in Consideration for Shares§

64a7b.
(a)In this section –

"transfer of real property" – the transfer of eligible real property to a real estate investment fund, in consideration for the allotment of shares in that fund, whether or not additional consideration other than in shares was given, provided that the transfer of real property was made during the determining period and all of the following are fulfilled:

(1)the ratio between the market value of the allotted shares and the market value of all rights in the fund immediately after the allotment is equal to the ratio between the market value of the real property in respect of which the shares were allotted and the market value of the company immediately after the transfer;
(2)all rights in the eligible real property were transferred to the fund as part of the transfer of real property;
(3)the transfer was made after the date of registration for trading on the stock exchange, as provided in section 64a3(a)(2);
(4)the allotted shares shall be deposited with a trustee for the purpose of securing the payment of tax and compliance with the provisions of this section;

"the real property in respect of which shares were allotted" – the portion of the real property transferred to the fund as part of a transfer of real property that was transferred solely in consideration for the allotment of shares;

"sale date" – the earlier of the following:

(1)the date on which the allotted shares were sold;
(2)the date of the end of the deferral period;

"date of the end of the deferral period" – 60 months from the transfer of the real property;

"transferor" – one who carried out a transfer of real property to a real estate investment fund, provided that the transferor is not a substantial shareholder in the fund immediately after the transfer;

"allotted shares" – shares in a real estate investment fund allotted to the transferor in consideration for eligible real property transferred by the transferor to it;

"eligible real property" – income-producing real property or real property for rental housing purposes;

"trustee" – one who has been approved by the administrator as trustee for the purposes of this section;

"value at the date of the end of the deferral period" – the amount obtained by adding the value of the share on the stock exchange at the close of trading on each of the 30 trading days preceding the date of the end of the deferral period, divided by 30.

(b)The transfer of the portion of the real property in respect of which shares were allotted shall not be charged to appreciation tax as a sale at the time of the transfer, and the provisions of Part 5 shall apply with respect to the sale of the allotted shares, and the allotted shares shall be deemed to be sold on the sale date, and the consideration shall be computed as follows:
(1)where the allotted shares, all or part of them, were sold before the date of the end of the deferral period, the consideration shall be – the sale consideration;
(2)where the allotted shares, all or part of them, were not sold by the date of the end of the deferral period, the consideration shall be – the value of the shares at the date of the end of the deferral period;
(3)for the purposes of paragraphs (1) and (2), it shall be deemed as if –
(a)the original price of the allotted shares is the balance of the acquisition value of the real property in the hands of the transferor under the Land Taxation Law, proportionately to the real property in respect of which the shares were allotted;
(b)the acquisition date of the allotted shares is the acquisition date of the right in the real property in the hands of the transferor under the Land Taxation Law;
(c)the balance of the adjusted original price of the allotted shares shall be computed in accordance with the balance of the adjusted acquisition value as defined in section 47 of the Land Taxation Law, as it would have been had the transferor continued to hold the real property.
(c)Upon the sale of the shares by an individual, section 48a of the Land Taxation Law shall apply with respect to tax rates, as the case may be.
(d)In a transfer of real property, the acquisition value in the hands of the fund of the real property in respect of which shares were allotted shall be the value thereof immediately after their transfer to the fund, and the acquisition date of the said real property shall be the acquisition date of the right in the real property in the hands of the fund under the Land Taxation Law.
(e)Where the transferor sold the allotted shares after the date of the end of the deferral period, it shall be deemed that –
(1)the allotted shares were re-acquired at the date of the end of the deferral period;
(2)the consideration under subsection (b)(2) is the original price of the allotted shares.
(f)
(1)the trustee shall notify the assessing officer in writing of the date of the end of the deferral period;
(2)at the time of the sale, the trustee shall withhold tax in accordance with the provisions of subsections (b) and (c) from the consideration and transfer it to the assessing officer within seven days.

Holding in a Real Property Association§

64a7c.
(a)For the purposes of this Chapter –

"real property association" – as defined in the Land Taxation Law, including an association that owns real property which, had it been situated in Israel, would have been a real property association as defined in that Law, or a real property association whose rights were registered for trading on a stock exchange at any time prior to the acquisition but at the time of acquisition were no longer so registered, provided that all of the following conditions are met with respect to it:

(1)the number of its shareholders does not exceed ten;
(2)if it is a resident of Israel – it is not a transparent corporation, unless it has been a transparent corporation from the day of its establishment and one of the following applies to it:
(a)none of its shareholders is a transparent corporation that has the ability to elect, in any tax year, its mode of taxation, except for one of the following:
(1)a family company as its meaning in section 64a, provided that it has notified the assessing officer within 30 days of the date of acquisition of the shares of its request that, from the commencement of the tax year in which the shares were acquired onwards, the provisions of section 64a shall apply to it, and it shall not be entitled to retract its notification as long as it is a shareholder in the real property association;
(2)an agricultural cooperative society as its meaning in section 62, provided that it has notified the Director in writing within 30 days of the date of establishment or acquisition of the house company of its election that its status, from the commencement of the tax year in which the notification was given onwards, shall be that of a partnership or shall not be that of a partnership, and it shall not be entitled to retract its notification as long as it is a shareholder in the real property association;
(b)none of its shareholders is a family company or an agricultural cooperative society, as the case may be, that gave notification as referred to in sub-paragraph (a), and which, after selling its shares in the real property association, elected that its status shall differ from that stated in that notification;

in this section, "transparent corporation" – a body of persons whose income is attributed to the holders of rights therein;

(3)it holds rights in real property directly only;
(4)the provisions of the Capital Investment Encouragement Law do not apply and have not applied to it;
(5)the provisions of Part 5-B and section 70 of the Land Taxation Law shall not apply to a real property association under this section;

"date of acquisition" – the first date on which the matter referred to in subsection (b)(1) applies.

(b)The provisions of subsection (c) shall apply to the holding by a real estate investment fund in a real property association, where all of the following conditions are met:
(1)at least 50% of the means of control in the real property association were acquired by the fund otherwise than by way of allotment, and the provisions of Part 5-B and section 70 of the Land Taxation Law did not apply to the acquisition, and they are held by it;
(2)where the real property association is a foreign resident, the fund shall hold rights therein only if it has received the prior approval of the Director, subject to the conditions and adjustments he has prescribed, provided that the real property association is a transparent corporation for tax purposes in the state or states in which it is resident.
(c)Where a real estate investment fund holds a right in a real property association as referred to in subsection (b), the following provisions shall apply to the fund:
(1)for the purposes of the provisions under this Chapter, the taxable income and losses of the real property association, from the date of acquisition, shall be regarded as the taxable income and losses of the fund, and all assets and liabilities of the association shall be considered the assets and liabilities of the fund, in proportion to its share of the holding in the real property association;
(2)where the fund acquired a right in a real property association during the tax year, the provisions of paragraph (1) shall apply with respect to the taxable income and losses of the real property association proportionally to the part of the year from the date of acquisition until the end of the tax year, in relation to the whole of the tax year;
(3)a loss incurred in the real property association prior to its acquisition by the fund may be set off only against income from that same association;
(4)a loss incurred in the association after its acquisition, originating from outside Israel, shall be subject to the provisions of section 29, with the necessary modifications;
(5)where the real property association had, at the time of its acquisition by the fund, undistributed profits that had accumulated in the association from the day of its establishment until the date of acquisition, they shall be regarded as a dividend at the time of their transfer to the shareholders of the fund, and the tax rates prescribed in section 125b or 126, as the case may be, shall apply to them; in this section, "undistributed profits" – profits that accumulated in the association and had not been distributed, from the day of establishment of the association until the date of acquisition, that were subject to tax including land appreciation tax during that period, less the tax thereon and dividends distributed therefrom, and less any loss incurred in the association whose shares are being sold that was not set off, and together with profits that would have been subject to tax as aforesaid had they not been exempt therefrom;
(6)an amount paid by a real estate investment fund for the acquisition of a right in a real property association shall not be regarded as a residual original cost or a residual acquisition value, as the case may be, for the purpose of calculating depreciation, capital gain or appreciation, and the residual original cost or the residual acquisition value, as the case may be, and the date of acquisition of the assets of the association shall be regarded as the residual original cost or the residual acquisition value, as the case may be, and the date of acquisition, as they stand in the hands of the real property association;
(7)the provisions of section 64a4(g) shall apply to foreign taxes paid by a real property association;
(8)upon the sale of a share in a real property association, for the purpose of calculating capital gain, the amount of the losses attributed to the fund in the benefit years shall be added to the fund's consideration; for this purpose –

"losses" – an amount equal to the taxable income attributed to the shareholders of the fund less the losses attributed to the fund in the benefit years, provided that it is a negative amount;

"benefit years" – the years during which the provisions of this subsection applied to the real property association;

(9)where a real estate investment fund ceases to hold a right in a real property association, the provisions of subsection (c) shall not apply, and the provisions of this Ordinance or the provisions of the Land Taxation Law, as the case may be, shall apply to the real property association.
(d)Where a real estate investment fund holds a right in a real property association as referred to in subsection (b), the provisions of subsection (c)(3) and (4) shall apply to other shareholders in the association, as well as the provisions of subsection (e).
(e)The taxable income and losses of the real property association shall be regarded, from the date of acquisition, as the taxable income and losses of its shareholders, in accordance with their share in the rights to the profits of the association, and the following provisions shall apply:
(1)profits of a real property association that were charged at the individual tax rates under this section and were distributed, whether during the period in which the provisions of this subsection applied to the association or after they ceased to apply, shall be regarded as if they had not been distributed;
(2)for the purpose of advance payments of a shareholder, as referred to in section 175, the shareholder's proportionate share in the income of the real property association shall be added to the turnover that constitutes the basis for advance payments;
(3)undistributed profits attributed to the other shareholders according to their share in the holding in the association, which, had they been distributed as a dividend, would have been subject to tax under section 125b of the Ordinance, and which accumulated in the association until the date of acquisition (in this subsection – the transition date), shall be regarded as if they had been distributed as a dividend to the shareholders;
(4)the date for payment of tax in accordance with the provisions of paragraph (3) shall be no later than the end of four years from the date of acquisition (in this subsection – the deferral period), and linkage differentials and interest shall not apply thereto for that period; where the tax has not been paid by the end of the deferral period, linkage differentials and interest, as their meaning in section 159a(a), shall apply thereto for the period commencing after the end of the deferral period until the date of actual payment;
(5)where the real property association sold assets, including a right in real property as defined in the Land Taxation Law, that were in its ownership on the transition date, a shareholder who is an individual or a body of persons that is a foreign resident, or one to whom a tax exemption under section 9(2) applies, shall be liable to tax at the rates set out hereunder:
(a)on the real capital gain or the real appreciation, as the case may be, multiplied by the ratio between the period from the date of acquisition of the asset until the date of acquisition and the period from the date of acquisition of the asset until the date of its sale (in this paragraph – real capital gain until the transition date or real appreciation until the transition date, respectively) – tax at the highest rate prescribed in section 121, and in respect of one to whom section 9(2) applies – tax under section 126(a);
(b)on the difference between the real capital gain and the real capital gain until the date of acquisition, or the difference between the real appreciation and the real appreciation until the transition date – tax at the rate prescribed in section 91(b)(1) or (2), or tax at the rate prescribed in section 48a(b)(1) or (1a) of the Land Taxation Law, or tax under section 126(a), as the case may be;
(6)upon the sale of a share in a real property association or in a corporation that was a real property association, the following provisions shall apply:
(a)for the purposes of section 88, an amount equal to the portion of profits that were charged at the individual tax rates under this section and that accumulated in the association and were not distributed until the date of sale of the share shall be deducted from the consideration in respect of the seller and from the original cost in respect of the purchaser, in the ratio that the share of the share being sold in the rights to the profits of the real property association charged at the individual tax rates under this section bears to the total rights to its profits charged at the said tax rates; for this purpose, "purchaser" – including one who purchased shares from the real property association;
(b)the provisions of section 94b of this Ordinance and section 71a of the Land Taxation Law shall not apply in respect of profits that were charged at the individual tax rates under this section;
(c)for the purpose of calculating capital gain, the amount of the losses attributed to the shareholder in the benefit years shall be added to the consideration; for this purpose –

"losses" – an amount equal to the taxable income attributed to the seller of the share less the losses attributed to the seller in the benefit years, provided that it is a negative amount;

"benefit years" – the years during which the provisions of subsection (c) applied to the real property association;

(7)losses incurred by shareholders prior to the date of acquisition by the fund may not be set off against the taxable income of the shareholder originating from the real property association.
(f)Notwithstanding the provisions of this Ordinance, the following provisions shall apply with respect to assessment, objection and appeal for the purposes of this section:
(1)where an assessment has been determined for the real property association, the assessing officer may determine the assessment of a shareholder or amend it accordingly, within two years from the end of the tax year in which the association's assessment was determined or at the time at which the assessing officer is entitled to assess the income of the shareholder, whichever is later;
(2)a real property association may object to or appeal against the assessment determined for it in accordance with the provisions of sections 150 or 153, as the case may be; a shareholder may object to or appeal against the attribution of the taxable income or losses of the association and against the effect of the assessment determined for the association on the shareholder's income, but not against the assessment determined for the association.

Set-off of Loss Incurred by a Shareholder§

64a8.

A loss incurred by a shareholder in a tax year upon the sale of a share in a real estate investment fund may be set off as referred to in section 92, or against the taxable income transferred by the fund to the shareholder in that same year, except from exceptional income transferred to the shareholder.

Transfer of Taxable Income to Shareholders and Distribution of Profits§

64a9.
(a)The taxable income of a real estate investment fund shall be transferred to the shareholders in accordance with the provisions of paragraphs (1) or (2), as the case may be, at the time prescribed therein:
(1)at least 90% of the taxable income of the fund, excluding land appreciation or capital gain upon the sale of income-producing real property, plus exempt income and less non-deductible expenditure – by 30 April of the year following the year in which the income was derived or accrued;
(2)capital gain or land appreciation arising to the fund upon the sale of income-producing real property – by the end of 12 months from the date of sale of the real property; this provision shall not apply in respect of land appreciation upon the sale of a right in real property, where both of the following conditions are met:
(a)the appreciation was exempt from tax as referred to in the provisions of Chapter V-3 of the Land Taxation Law, by reason of the exchange of the right sold by the fund for a right in other income-producing real property;
(b)the exchange was effected within the period prescribed in those provisions.
(b)
(1)Notwithstanding the definition of "profits" in section 302(b) of the Companies Law, a real estate investment fund may effect a distribution also from income in the amount of depreciation expenditure, provided that the distribution was effected by 30 April of the year following the year in which the income was derived or accrued;
(2)where the fund has distributed income as referred to in paragraph (1), the income shall be reduced by the amount of the depreciation expenditure distributed from the profits that may be distributed to shareholders under the provisions of the Companies Law, and also from the capital gain or land appreciation upon the sale of that same income-producing real property.

Provisions Regarding a Company that Has Ceased to Be a Real Estate Investment Fund§

64a10.

Where a company has ceased to be a real estate investment fund, the following provisions shall apply:

(1)the provisions of this Chapter shall apply to taxable income derived or accrued by the fund up to the day on which it ceased to be a real estate investment fund (in this section – the cessation date) and to taxable income transferred to shareholders by 30 April of the year following the year in which it was derived or accrued;
(2)the provisions of this Chapter shall not apply to income derived or accrued by the company after the cessation date.

Purchase Tax upon a Sale to a Lessor§

64a10a.
(a)Where a real estate investment fund sells, in a sale to a lessor, the dwelling units referred to in paragraph (4) of the definition of "real property for rental housing purposes" in section 64a2, before the expiry of a period of at least 20 years during which the dwelling units served for the purpose of residential rental in accordance with that paragraph, the purchaser shall be liable, in respect of the acquisition of the dwelling units, to pay purchase tax at the rate of 15% of the sale value of the right being sold, unless the Government Housing Rental Company has confirmed that the dwelling units will serve exclusively for the purpose of residential rental for a period of at least 10 years, and has issued, at the end of each tax year, confirmation that all the dwelling units served for residential rental in the tax year that has passed, except for temporary interruptions.
(b)A purchaser as referred to in subsection (a) shall pay, at the time prescribed in section 90a of the Land Taxation Law, the purchase tax that would be payable by the purchaser if the purchaser rents out the dwelling units acquired for a period of at least 10 years in accordance with the provisions of that subsection, and shall furnish security for the payment of purchase tax at the rate referred to in that subsection, if so liable, to the satisfaction of the Director.

Power of the Minister of Finance§

64a11.

The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe, in respect of the income of a real estate investment fund and in respect of income transferred to a shareholder therein, including in respect of land appreciation, provisions on the following matters:

(1)taxation of taxable income received by a shareholder in respect of the period during which the share was held by another person, including a determination that there shall be no entitlement to tax exemption in respect of such income and including a determination of the rate of tax that shall apply to the profits, all or part, and the rate that shall apply to the tax deduction notwithstanding the provisions of section 64a5;
(2)classification of a part of the capital gain upon the sale of a share in a real estate investment fund as income to which the provisions of Part 2 apply, subject to the conditions and adjustments prescribed;
(3)the transfer of taxable income to shareholders, the order of its transfer and its attribution to the income of the fund, to its profits or to land appreciation to which it is entitled, as well as provisions for the denial of the set-off of losses;
(4)other conditions and adjustments required for the implementation of this Chapter, including in respect of a company that has ceased to be a real estate investment fund.

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