Tax & Finance

Does Israel tax owners of vacant or third apartments?

Q: Does Israel tax owners of vacant or third apartments?

There is no national vacancy tax in force. Israel did enact a third-apartment tax in the Economic Efficiency Law 5777-2016, but the Supreme Court annulled it in HCJ 10042/16 in August 2017 because of defects in the way the Knesset passed it, and the sums collected were refunded. What remains are ordinary charges: full arnona on an empty apartment, a limited one-time exemption for a genuinely unused property, and a higher purchase tax rate on any apartment beyond the owner’s first. A number of municipalities also apply a surcharge to homes left empty most of the year.

      There is no national vacancy tax in force. Israel did enact a third-apartment tax in the Economic Efficiency Law 5777-2016, but the Supreme Court annulled it in HCJ 10042/16 in August 2017 because of defects in the way the Knesset passed it, and the sums collected were refunded. What remains are ordinary charges: full arnona on an empty apartment, a limited one-time exemption for a genuinely unused property, and a higher purchase tax rate on any apartment beyond the owner’s first. A number of municipalities also apply a surcharge to homes left empty most of the year.
    

Arnona is levied on the holder of a property, the machzik, under the Municipalities Ordinance and the annual arnona regulations. Vacancy does not remove the charge, because an owner who leaves an apartment empty is the holder and pays in full. The regulations do allow a one-time exemption for a building that is empty and unused, generally capped at six months across the ownership period, and the municipality will inspect before granting it. Beyond that relief, the Interior and Finance ministries have approved bylaws in several cities, Tel Aviv-Yafo among them, permitting a higher tariff on apartments occupied only briefly each year. These local surcharges are municipal instruments, not a national tax, and they vary considerably from one authority to the next.

For a foreign owner the real cost sits in purchase tax rather than in holding the property. A buyer who already owns a residential apartment anywhere pays the additional-apartment rate, currently 8 percent on value up to roughly NIS 6.05 million and 10 percent above it, against a first-home ladder that begins at zero. A foreign resident is treated as owning an additional apartment unless they can show they hold no home in their country of residence, which is a narrow route. Once the property is held, the ordinary rules on rental income tracks and on betterment tax at sale apply as usual. Owners planning a long vacancy should read the guide to arnona for foreign property owners and apply for any relief in advance.

⚖ In Practice

Governing law: Chapter 12, Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for 2017 and 2018) 5777-2016, annulled by HCJ 10042/16 (2017); arnona under the Municipalities Ordinance [New Version]
Competent authority: the local municipality (iriya) for arnona; Israel Tax Authority (Rashut HaMisim) for purchase tax
Empty-property relief: up to six months of arnona exemption for a genuinely empty and unused property, generally available once over the ownership period
Purchase tax on an additional apartment: 8 percent on value up to approximately NIS 6.05 million and 10 percent above that (2026)
Practical point: arnona discounts and empty-property relief must be applied for in writing and are never granted automatically

From the full guide: Arnona in Israel: A Complete Guide to Municipal Property Tax for Foreign Owners

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Does Israel tax owners of vacant or third apartments?

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