November 27, 2013 - In August 2013, the Israel Tax Authority (ITA) launched a targeted enforcement operation to detect tax evaders among the owners of luxury apartments in Tel Aviv. This operation resulted in the findings of hundreds of thousands of shekels of unreported annual income. Many of these apartment owners were foreign residents who rented out their apartments without reporting the rental income to the ITA.

Due to the success of the initial operation, the ITA decided to tighten the enforcement and in the middle of November launched a further raid, this time, over 200 luxury apartments in Ashdod owned mostly by foreign residents. The ITA teams requested from the tenants to produce the rental agreements and information regarding the rental payments.

About 30 tenants immediately cooperated and provided the requested information. Another 80 tenants were required to produce the information in the following days together with the remaining tenants that were not present during the time of the raid.

The ITA announced that foreign residents who are leasing apartments and not reporting the rental income will be summoned via their representatives, for further investigation.

Important to note:

Nonresident individuals are liable to pay tax on their income and capital gains derived from Israeli sources. Rental income can be taxed in two ways;

1. The gross rental income is taxed at a flat rate of 10%. No deductions are allowed when this option is chosen.

2. The other option is to be taxed at progressive rates. This option allows deducting the income-generating expenses from the gross income. At the moment, if the aggregated monthly rental income is lower than 4,980 NIS, no tax will be due.

This article is not a substitute for legal consultation. Legal advice should be sought in accordance with the particular circumstances.