Considering Buying Land for Construction? Key Information About Land Purchase Tax

Land Purchase Tax for Land Designated for Construction

Important to Know:

When purchasing land where development expenses have not yet been fully paid, the purchase tax (6%) will also apply to the development costs of the land.
This could amount to additional costs ranging from thousands to tens of thousands of shekels, which must be factored into the total transaction expenses.

Reporting and Paying the Purchase Tax

The law requires buyers to report the real estate transaction to the tax authorities within 30 days of signing the purchase agreement.
It is highly recommended to ensure that your attorney prepares and submits all required documents before the signing date.

Documents Required for Paying Purchase Tax:

1. Land Details: A document including details like plot and parcel numbers.
2. Land Value: A document specifying the purchased value of the land.
3. Transaction Details: A document containing all relevant transaction details.
4. Professional Tax Assessment: A document estimating the expected tax amount.
5. Exemption Eligibility: Proof of tax exemption (if applicable).

After submitting the documents, your attorney will issue a purchase tax payment slip, which must be paid within 60 days of issuance.

How to Pay the Purchase Tax:

• Online: Via the Israel Tax Authority website.
• Banks or Post Offices: At any branch, preferably at your bank.
• Real Estate Tax Offices: Direct payment at the tax offices.

Important Notes:

You may request to split the payment into up to six installments. However, this is not recommended, as you cannot transfer ownership in the Land Registry (Tabu) until the entire amount is paid.

Refund of Purchase Tax:

Eligibility for Refund:

If you obtain a construction permit within two years of purchasing the land, you may qualify for a 1% tax refund, effectively reducing the tax rate from 6% to 5%.

Conditions for Refund:

1. A construction permit must be obtained within two years.
2. The land must be designated for residential purposes, allowing for the construction of at least one housing unit.

How to Apply for a Refund:

• Submit a copy of the signed construction permit to your regional real estate tax office.
• Refunds are typically processed within 30 days and deposited into your bank account.

Saving on Purchase Tax in Cases of Partial Development:

If the land’s development is not fully completed (less than 100%), you may reduce the purchase tax or request a refund for any overpaid amount.

Steps to Take:

• Contact the company responsible for the development work and request a written document specifying the percentage of development completed.
• If the development percentage is less than 100%, you can either reduce the purchase tax or apply for a refund of any excess payment.

Steps for Claiming a Purchase Tax Refund on Land:

1. Prepare the Required Documents:
   • Copy of the signed construction permit.
   • Original construction permit document.
2. Submit the Application:
   File the necessary documents with the real estate tax office in the region where the land is located.
3. Processing Time:
   Refunds are generally deposited within 30 days of submitting the application.

Why Submit the Application Promptly?

• Refund amounts can be significant, often exceeding 10,000 ILS.
• Obtaining the construction permit and submitting it to the real estate tax office promptly will accelerate the process and ensure timely receipt of the refund.

Planning Ahead for Savings:

Early planning, understanding tax laws, and working with a specialized attorney can help you save substantial amounts and make your transaction more profitable.

For professional advice and assistance in maximizing your savings, contact an experienced real estate attorney today!