Receiving Rental Income in Israel? Planning to Invest and Rent Out Later? Here’s What You Need to Know About Taxes
Whether you’re a resident or a foreign investor, all rental income in Israel must be declared—and the Israeli Tax Authority is highly vigilant.
For example, in 2015, over 100,000 notices were issued to individuals owning two properties, with the assumption that one was used personally and the other was rented out.
Three Tax Options for Residential Rental Income
1. Full Tax Exemption
If your monthly rental income does not exceed a specific threshold, you may qualify for full exemption from rental income tax.
| Year | Monthly Exemption Limit (₪) |
|---|---|
| 2022 | 5,196 |
| 2021 | 5,074 |
| 2020 | 5,100 |
| 2019 | 5,090 |
| 2018 | 5,030 |
| 2017 | 5,010 |
| 2016 | 5,030 |
| 2015 | 5,070 |
Important Notes:
- The exemption is monthly, not annual.
For example, earning ₪15,000 in two months does not qualify. - It applies to the entire household, not per property.
2. Flat 10% Tax Rate
You can opt for a 10% tax on gross rental income, regardless of the amount or expenses.
This option is ideal for:
- Owners of multiple rental properties.
- Those with minimal deductible expenses.
3. Progressive Tax Scale (31%–50%)
Rental income can also be taxed under a progressive income tax system, ranging from 31% to 50%, based on total income.
However, this method allows deductions for relevant expenses, including:
- Real estate agent fees
- Legal costs
- Mortgage interest
- Property depreciation
- Renovation and repair costs
This option is best for landlords who:
- Have significant expenses or renovation costs.
- Have a large mortgage on the rental property.
Special Case: Mixed Taxation for Seniors and Non-Residents
If you’re 60 or older or a non-Israeli resident, you may benefit from a hybrid system—10% tax after deducting expenses, combining features of the 10% flat rate and the progressive tax method.
Short-Term Rentals (e.g., Airbnb)
Short-term rentals are treated as a business activity under Israeli law. As such:
- You cannot claim the 10% rate or exemption.
- Income is taxed as active business income, per the regular tax scale.
- You must:
- Register as a self-employed business.
- Maintain formal accounting records.
- File an annual tax return.
VAT Alert:
Income from short-term rentals is subject to 17% VAT, unless your tenants are mostly tourists, in which case exemptions may apply. In specific scenarios, a 10% rate could be used.
In Summary
Choosing the right tax regime can significantly impact your rental income’s profitability. Each case is unique, so it’s strongly advised to consult a tax expert who can:
- Analyze your individual situation
- Optimize your tax exposure
- Ensure full compliance with current Israeli tax law
This article is intended for informational purposes only and does not constitute legal or tax advice. Please seek professional guidance for your specific case.
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