Free Consultation
Tax & Finance

Does an Israeli tax resident need to pay Israeli tax on rental income from property owned abroad?

Yes. Section 2(6) of the Income Tax Ordinance (New Version) 5721-1961 subjects Israeli tax residents to Israeli income tax on worldwide income, including rental income from foreign property. The preferential flat 15% tax track available under Section 122 of the Ordinance applies only to rental income from property situated in Israel — foreign property does not qualify. Foreign rental income is taxed at the individual's marginal rate (up to 47%), but a foreign tax credit is available for taxes already paid on the same income under the applicable double taxation treaty or under Section 200 of the Ordinance.

Israel moved to a worldwide taxation basis in 2003. Any person who qualifies as an Israeli tax resident — determined by the center-of-life test under Section 1 of the Income Tax Ordinance — must report all income from any source in the world on their annual Israeli tax return (Form 1301). Rental income from a UK apartment, a US condo, or a European property is therefore Israeli taxable income. Unlike Israeli rental income, which benefits from a choice between the flat 15% track or the standard marginal rate with deductions, foreign rental income is taxed exclusively at marginal rates. Expenses directly attributable to the foreign property — mortgage interest, management fees, local property taxes, and depreciation — may be deducted against the foreign rental income before applying the Israeli rate, provided the taxpayer keeps supporting documentation. The interaction with Israel's double taxation treaties is critical: most treaties assign primary taxing rights over rental income to the country where the property is located, and Israel then provides a credit for foreign tax paid.

New immigrants (*olim*) and returning residents who qualify for the ten-year tax exemption under Section 14 of the Income Tax Ordinance are exempt from Israeli tax on foreign-source income — including foreign rental income — during their exemption period. For everyone else, the foreign tax credit mechanism under Section 200 allows a credit of up to the Israeli tax that would be payable on the same income, eliminating double taxation in most cases but not providing a refund if the foreign rate exceeds the Israeli rate. Taxpayers who fail to report foreign rental income face back-tax assessments with interest and penalty surcharges, and Israeli banks increasingly share information with the Israel Tax Authority under Common Reporting Standard (CRS) frameworks — making voluntary disclosure far preferable to detection.

⚖ In Practice
  • Governing law: Section 2(6) and Section 200, Income Tax Ordinance (New Version) 5721-1961; Section 122 (Israeli property flat track — does NOT apply to foreign property)
  • Competent authority: Israel Tax Authority (Rashut HaMisim); reported on annual Form 1301
  • Tax rate: marginal income tax rate, up to 47% (2026), less foreign tax credit for taxes paid in the property's country
  • New immigrant exemption: olim and returning residents within their 10-year exemption window are fully exempt from Israeli tax on foreign rental income during that period
  • Deductible expenses: mortgage interest, local property tax, management fees, repairs, and straight-line depreciation on the foreign property are deductible against gross foreign rental income

From the full guide: Double Taxation Treaties with Israel: A Complete Guide

Related Questions

Related Guides

Need legal help with this topic?
Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

← Browse all Q&A