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Is Israeli purchase tax payable on a long-term lease of property?

Yes, once the lease term passes 25 years. Section 1 of the Land Taxation (Appreciation and Purchase) Law 5723-1963 defines a right in land to include a lease for a period exceeding 25 years, and the count includes every extension option the tenant holds. Crossing that line converts the lease into a taxable acquisition: the tenant pays purchase tax and the landlord may face betterment tax. Shorter leases sit outside the land taxation regime entirely and produce only ordinary rental income tax.

The Israeli legislature treats a very long lease as economically equivalent to ownership, and taxes it that way. The statutory test looks at the maximum period the tenant can occupy under the contract, so a 20-year lease with two five-year options runs to 30 years and is caught, even though the tenant may never exercise the options. Once caught, the transaction must be reported to the Real Estate Taxation Office and both sides are assessed as if a sale had occurred. Purchase tax on a non-residential right, which covers most commercial and office leases, is charged at a flat 6% of the capitalised value of the lease. Residential rights follow the graduated scale, with a non-resident tenant assessed on the higher-rate bands.

This matters most to foreign businesses taking long premises in Israel and to buyers of Israel Land Authority leasehold property, where a capitalised 49-year or 98-year lease is the standard form of tenure and is taxed exactly like a freehold purchase. The practical safeguard is to draft the term deliberately. Keeping the aggregate period, options included, at 25 years or below leaves the arrangement outside the land taxation system, at the cost of losing long-term security. Where a longer term is genuinely needed, the tax should be budgeted from the outset rather than discovered at signing, and the declaration filed on time to avoid interest and penalties. See the full guide to Israeli purchase tax for non-residents.

⚖ In Practice
  • Governing law: definition of a right in land, Section 1, Land Taxation (Appreciation and Purchase) Law 5723-1963; reporting under Section 73
  • Competent authority: Israel Tax Authority, Real Estate Taxation Office (Misui Mekarke'in)
  • The threshold: a lease exceeding 25 years, counting every extension option available to the tenant, not only the initial term
  • Purchase tax rate: flat 6% of the capitalised lease value for non-residential rights; the graduated residential scale otherwise, starting at 8% for non-residents (2026)
  • Reporting deadline: 30 days from signing the lease, with interest and penalties for late filing
  • ILA leasehold: capitalised Israel Land Authority leases of 49 or 98 years fall squarely within the definition and are taxed as acquisitions

From the full guide: Real Estate Purchase Tax in Israel (Mas Rechisha): A Complete Guide for Foreign Buyers and Non-Residents

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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