Things just got more complex if you rent out properties or sell tickets in Israel.

Prepaid property rent and expense deductions:
The Israeli Tax Authority has issued a limited relief for landlords who receive prepaid rent, in advance of the period of occupation.

On the one hand, receiving property rent upfront removes the problem of non-payment of rent or even rent-free squatting in your property

On the other hand, prepaid rent is taxable as soon as it is received (ITA Sec 8B). But what if expenses are incurred by the landlord, such as painting, repairs and maintenance, in a subsequent year? Here the tax law sends the landlord on a goose-chase. It’s permissible to deduct such expenses from any other source in the year the expenses were incurred. Failing that, the expenses may be carried back and deducted from the prepaid rental income.

Does this also apply to professional rental business operations? In the Kiryat Yehudit case, the court ruled that rental business operations must report and pay tax immediately on prepaid rent. Again, this can cause administrative hassle and timing mismatches between income and expenses. The result can be non-deductibility of expenses.

So it is notable that the ITA has now issued Position Paper 3/25 (on May 6, 2025). This position paper says the ITA will allow businesses that keep double entry books (debits and credits) to report rental income for tax purposes on the accrual basis i.e. over the rental occupation period, not when cash is received. Expenses are not mentioned but presumably the accrual basis applies to rental expenses too.

What is a business operation? The ITA has said that over 10 rental properties is a rental business, and 5-10 rental properties might be a business, depending on the circumstances. Case decisions suggest a business involves a “business mechanism” such as a property management agent or a secretary who does property management.

Comment: To sum up, if you are in the rental property business, keep double entry books in order to more easily offset expenses against prepaid rent.

Package tours abroad:
Normally flight tickets are subject to zero rate VAT (VAT Law Sec 30(10)), but the District Court has ruled the standard rate of VAT (18% in 2025) applies to packages that include flights, hotel and perhaps a concert or football match or other sports event. What’s going on here? (Issta Sport Ltd, Civil Appeal 5469-03-23).

The court debate revolved around “commercial papers” which have different rules in the Israeli VAT Law. Commercial papers are normally thought to mean securities – stocks and shares, but is that all?
In this case, the taxpayer company acted as a wholesaler buying up tickets to event abroad and selling them to the Israeli resident public as part of a travel package.

Up to 2017, the company paid over VAT apparently as a wholesaler on its profit margin, not on its full revenues. Then in 2017 the company retroactively switched its approach from supplying commercial papers to supplying overseas services to Israeli residents (under VAT Law Section 30(a)(7)), meaning zero rate VAT going back several years. The Company issued a credit note and demanded a big VAT refund for those years. The VAT Authority refused, hence the court case.

The court ruled that VAT does apply to the added value under VAT Law section 19(b). Section 19(b) says that if a business which sells securities or “other commercial papers”, its sale shall be considered as an agency service which it provides by connecting the buyer and seller of them.

In other words, tickets to a football match or concert are “commercial papers” like securities (VAT Law Sec. 19(b)). This is because “the ability to transfer with ease represents a material element in determining that these are marketable documents”. The tickets can be sold and pass from hand to hand “all day every day” and the name of the ticket holder can be changed as needed.

Given that, how much is liable to VAT? The VAT law says the VATable “price” of the agency service is sales minus purchases of the tickets in the VAT reporting period – usually monthly (VAT Law Sec 9(b)).

Comment: In this case the judgment only concerned VAT on sport and entertainment tickets. Presumably, any related flight tickets remain subject to zero rate VAT, but unfortunately this is not spelt out in the judgement. If you are in the business of buying and selling tickets to anything abroad, check out this case.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

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© Leon Harris 20.5.2025