Tax & Finance

How does betterment tax (mas shevach) work when a non-resident sells Israeli property?

Q: How does betterment tax (mas shevach) work when a non-resident sells Israeli property?

When a non-resident sells Israeli real estate, betterment tax (mas shevach) is levied at 25% on the real capital gain under the Land Taxation (Betterment and Acquisition) Law 5723-1963. Non-residents can claim the single-apartment exemption only with a certificate from their home tax authority confirming that they own no home in their country of residence (Section 49A(a)); otherwise the sale is taxable, although the share of the gain on a qualifying apartment that accrued before 1 January 2014 is exempt. The gain is calculated by adjusting the purchase price and eligible costs (purchase tax, improvement costs, legal fees) for CPI inflation and deducting that from the sale price. A self-assessment return must be filed with the Israel Tax Authority Real Estate Tax Office within 30 days of the sale, and tax payment is due within 60 days. The purchaser also pays the Tax Authority an advance on account of the seller's tax under Section 15(b): 7.5% of the price, or 15% where an individual seller bought before 7 November 2001, unless the Director reduces it.

      When a non-resident sells Israeli real estate, betterment tax (mas shevach) is levied at 25% on the real capital gain under the Land Taxation (Betterment and Acquisition) Law 5723-1963. Non-residents can claim the single-apartment exemption only with a certificate from their home tax authority confirming that they own no home in their country of residence (Section 49A(a)); otherwise the sale is taxable, although the share of the gain on a qualifying apartment that accrued before 1 January 2014 is exempt. The gain is calculated by adjusting the purchase price and eligible costs for CPI inflation and deducting that from the sale price. A self-assessment return must be filed with the Israel Tax Authority Real Estate Tax Office within 30 days of the sale, and tax payment is due within 60 days. The purchaser also pays the Tax Authority an advance on account of the seller's tax under Section 15(b): 7.5% of the price, or 15% where an individual seller bought before 7 November 2001, unless the Director reduces it.
    

The eligible cost base includes the original purchase price adjusted for CPI inflation from purchase to sale, plus the following documented expenses: purchase tax paid at acquisition, legal fees for the purchase and sale, real estate agent commissions, documented improvement costs (invoiced renovations with building permits), and mortgage arrangement fees. Costs without documentary evidence — receipts, contracts, and bank transfer records — cannot be deducted. For properties acquired before January 2014, a linear calculation applies: for a qualifying residential apartment, the portion of the real gain attributed to the period before 1 January 2014 is exempt under Section 48A(b2), and only the later portion is taxed at 25%. Other property bought before 2012 is split into periods taxed at different rates under Section 48A(b1). The Israel Tax Authority's Real Estate Tax Office (Mas Mekarke'in) administers the tax, and each sale requires a self-declaration form filed within the statutory deadlines.

The most important practical concern for sellers is the buyer's advance. Section 15(b) of the Land Taxation Law requires the purchaser to pay the Israel Tax Authority 7.5% of the price (15% where an individual seller acquired the property before 7 November 2001) on account of the seller's tax, whether the seller is a resident or not. A seller who expects the actual tax to be lower, because the gain is small relative to the price or deductible costs are large, can file a reasoned request to reduce the advance under Section 15(e) by the deadline for the sale declaration; the Director must answer within 20 days or by the self-assessment deadline, whichever is later. Any excess advance is refunded with linkage and interest after the assessment. Double taxation treaties between Israel and the seller's country of residence may reduce or eliminate the Israeli tax, but the treaty benefit must be claimed proactively through the tax return.

⚖ In Practice

Governing law: Land Taxation (Betterment and Acquisition) Law 5723-1963, Sections 47–57 and 49a; Income Tax Ordinance for treaty relief
Competent authority: Israel Tax Authority Real Estate Tax Office (Mas Mekarke'in / Misrad HaMisim)
Tax rate: 25% of real (CPI-adjusted) gain; linear calculation for assets held partly before January 2014
Filing deadline: self-assessment within 30 days of sale; tax payment within 60 days — late payment triggers statutory interest plus CPI linkage
Buyer's advance: 7.5% of the price (15% for an individual seller's acquisition before 7 November 2001) under Section 15(b); the Director can reduce it on request under Section 15(e)

From the full guide: Betterment Tax in Israel (Mas Shevach): A Complete Guide for Property Sellers

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How does betterment tax (mas shevach) work when a non-resident sells Israeli property?

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