Real estate properties in Israel: New Temporary provisions offer an exemption from real estate transfer tax

Real estate properties in Israel: New Temporary provisions offer an exemption from real estate transfer tax as part of a company’s liquidation as well as partial liquidation

  A new temporary provision enacted on 31 December 2024, offers a significant tax relief opportunity for the liquidation of ‘closely held companies’ during 2025. Under these provisions the transfer of a liquidating company’s funds and assets to its shareholders will be exempt from tax, except for dividend taxes on the distribution of the company’s retained earnings. Importantly, the transfer of real estate held by the company to its shareholders will also qualify for the tax exemption, including exemption from transfer tax (also known as “Purchase Tax”). The temporary provision presents a unique opportunity to address the deemed distribution implications and exposures under Section 3(I1) of the Income Tax Ordinance, particularly for companies holding residential real estate which is used by shareholders for personal purposes. The temporary provisions are drafted in a very broad way, and also allow:

• Transfer of specific assets without liquidating the company.
• Transfer of loans that were used to the purchase of the real estate.

Please note that the temporary provisions apply only to companies initiating the liquidation process in 2025, and provided that all applicable taxes are settled by December 31, 2025. Additional conditions and terms apply. When the asset that was transferred from the company is being sold by the individual, the gain will be apportioned on a linear basis in a way that the gain accumulated until the date of transfer will be subject to the highest marginal tax rate (up to 52%), whilst the reminder will be subject to the applicable taxes on individuals. We encourage all clients – (i) who own real estate properties in Israel and especially residential apartments, through corporate structures; as well as (ii) clients who wish to split their companies;  to seeks professional advice regarding the potential impact of this legislation on their specific arrangements. Should you have any questions or require assistance in exploring this opportunity please do not hesitate to reach out to us.