Reporting on rental income derived by a foreign resident in Israel

Like an Israeli resident, non-resident can also choose between three routes taxation of income from rent:

1. Golf exemption, subject to a ceiling, and fulfillment of other conditions
2. Route of taxation on taxable income, according to the marginal tax brackets laid down in Article 121 of the Ordinance, if not rise to business
3. Track of a final tax rate of 10%, without the possibility of deducting depreciation or amortization, or other expenses incurred for the purpose of producing income from rents.

In our view, a foreign resident who owns several homes in Israel, who chose the route of the exemption, does not have to report tax on all income from fee-lease on the same path taxation, but choose for each apartment separately tax track is different - that track the steps of the marginal tax rate or tax track final 10%.

In addition to taxation in Israel, you can also tax the income of even the state of residency to foreigners, less a credit for the tax paid in Israel, as domestic law in the state of residency of the foreign resident provides it, or in accordance with the provisions of the tax treaty.

Model Convention of the OECD states that in the case of income from immovable property, the taxation right given initial state in which are the land, and other state, has the right to residual taxation. There is provision in this spirit, for example, in Article 6 (1) of the Tax Treaty between Israel and Italy. Notwithstanding the above, the two tax treaties which Israel is party - with Sweden and France - have the right to taxation exclusively to the state which are in the land, that is, Israel would have the right to exclusive taxation taxation of income rents and income from rentals will not be taxable in France or Sweden, according to interest.

On a side note, that the tax authorities are expanding their efforts to trace foreign residents who reported rental income generated in Israel, in the context of the tax authority to act against tax evaders and black capital in general, and against income from rent-particular. See also in this regard ransom IRS decision 27/12 which was imposed on nonresidents ransom of 400 thousand ₪ due to failure to report aggregate revenues of 2.7 million ₪ over a period of 10 years.