How does Israel tax rental income from an Israeli apartment owned by a foreign company?

Under the territorial sourcing rules in the Income Tax Ordinance, rental income derived from property situated in Israel is always treated as Israeli-source income, regardless of where the owning entity is incorporated or where its management sits. Section 2(6) of the Ordinance brings this income within the Israeli tax net for any entity — individual, Israeli company, or foreign company — that receives it. For a foreign company, the applicable tax rate is the standard corporate rate of 23% (as of 2026) on net rental profit after allowable deductions. Allowable deductions include mortgage interest on an Israeli loan, depreciation at the statutory rate of 2% per year for residential buildings, building management fees, maintenance costs, and municipal property tax (arnona) paid by the landlord. The 10% gross-income flat-rate election under Section 122 was introduced specifically for individual taxpayers and expressly excludes companies, so a foreign company holding an apartment cannot benefit from it even if the economics would favor that approach.

The compliance obligations for a foreign-owned company begin with registration as a foreign company doing business in Israel with the Companies Registrar and separate registration with the Israel Tax Authority (Rashut HaMisim). The company must file an annual corporate tax return by April 30 (or by the extended deadline if represented by a licensed tax agent). Quarterly advance tax payments are required from the second year of activity. A tenant paying rent to a foreign-owned company may be required to withhold tax at source under Section 164 of the Ordinance, at a rate determined by a withholding authorization the company obtains from the Tax Authority. For investors who originally held an Israeli apartment personally and are considering transferring it to a company structure, the transfer itself triggers significant tax analysis, including betterment tax on any unrealized gain and purchase tax on the company's acquisition.

From the full guide: Rental Income Tax in Israel: A Complete Guide for Property Owners

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