How Does Israel Tax Rental Income from Property Abroad for Israeli Tax Residents?
An Israeli tax resident is taxed on worldwide income, including rent received from property located outside Israel, under Section 4A of the Income Tax Ordinance [New Version] 5721-1961. The taxpayer may elect a flat 15% tax rate on foreign rental income under Section 121B, without deducting expenses, or may instead apply their marginal income tax rate while deducting actual expenses such as mortgage interest, depreciation, and maintenance. Foreign tax paid on the same rental income generally qualifies as a credit against Israeli tax under applicable double-taxation treaties. New immigrants and returning residents who qualify for the 10-year tax exemption on foreign-source income may be entirely exempt from Israeli tax on foreign rental income during the exemption period.
Israel taxes its residents on their worldwide income under the territorial-plus-residency model established in the Income Tax Ordinance. Rental income from a property located in the United States, France, or any other country is therefore reportable in Israel in the tax year it is received or becomes due. Section 121B of the Ordinance created a simplified election specifically for foreign residential rental income: the taxpayer pays a flat 15% tax on gross rental receipts and foregoes all expense deductions. This election is made annually on the Israeli tax return and can be advantageous when the property carries little leverage or depreciation. For more heavily mortgaged or high-maintenance properties, electing the regular marginal rate with full expense deductions may produce a lower Israeli tax liability, so the calculation should be run both ways before filing. See the full breakdown in the rental income tax guide for Israel.
For those who do not qualify for the new-immigrant exemption, double-taxation relief is the primary tool for reducing the combined tax burden. Israel has tax treaties with over 50 countries, and most allow a foreign tax credit: the Israeli resident deducts from their Israeli liability the income tax actually paid abroad on the same rental income. Where no treaty exists, Section 200 of the Ordinance provides a unilateral credit for foreign tax paid. New immigrants (*olim chadashim*) and long-term returning residents (*toshavim chozrim vatikkim*) who became Israeli residents enjoy a ten-year exemption on all foreign-source income under Amendment 168 (2008), which covers foreign rental income entirely for the exemption period. This exemption applies automatically and does not require an election, although the resident must still report the income to the Israel Tax Authority (*Rashut HaMisim*) unless they have been advised otherwise by a qualified tax professional.
- Governing law: Sections 4A and 121B, Income Tax Ordinance [New Version] 5721-1961; Amendment 168 (2008)
- Competent authority: Israel Tax Authority (Rashut HaMisim) — residential tax offices handle individual filings
- Flat-rate election: 15% on gross foreign rental receipts; no deductions permitted; elected annually on Form 1301
- New-immigrant exemption: 10 years from first becoming an Israeli resident; foreign-source income entirely exempt
- Foreign tax credit: Available under applicable treaty or Section 200 (unilateral credit) for tax paid in the country where the property is located
- Reporting deadline: Annual tax return due 30 April (individuals) or 31 May (with extension); late filing penalties apply from the first day after the deadline
For a comprehensive look at how Israel taxes domestic and foreign rental income, including worked examples comparing the 15% election against the marginal-rate method, see the full rental income tax guide.
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Prepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy