How to trump Trump – and the new Israeli Tax Law – Tel Aviv Event Feb 11, 2025 (Publicity)
Dear Clients and Friends,
The times they are a changin’, as Bob Dylan sang.
With this in mind, we present below an article on Trump’s Building Plan. There are notable Israeli tax breaks for residential projects in Israel and potentially in Gaza….
For businesses, there is a new tough Israeli tax law on past and present “trapped” profits of companies – in Israel and elsewhere. We are presenting an event on the new law and its flaws! Be among the first to exploit them….
Location: Israeli Conservatory of Music, Louis Marshall 25, Tel-Aviv:
7.30pm February 11 – in English. For tickets: https://eventbuzz.co.il/lp/event/lsdjg
Agenda:
- Presentation on the “trapped profits” tax law and how to deal with it.
- Superb Israeli/Jewish classical music from the Eden Ensemble.
- Presentation on investment visa requirements abroad – for busy business people and others – from Daniel Knopov of Henley & Partners
At a similar event last Thursday Feb 6 (Jerusalem/Zoom) there were over 70 participants and a lively Q&A about expected tax issues.
We will be delighted to see you in person (no Zoom) on Tuesday in Tel-Aviv.
Article: Trump’s Building Plan – Israeli Tax Breaks!
US President Donald Trump is proposing to build beautiful new homes for Gazans. It is not yet clear whether the homes will be in Gaza or in neighboring Arab countries. But the Trump Organization has developed many real estate projects in the US since 1973. In the 50 years before that Trump’s father Fred did so. So, it seems an economic solution to the war is under consideration. It won’t be easy, but housing is a necessity.
Suppose Israelis were able to participate in Trump’s construction projects, what would the anticipated Israeli tax consequences be? And how does the new Israeli tax law regarding “trapped profits” fit in?
This is not a political article, it merely discusses Israeli tax aspects if Israelis are able to join in Trump’s proposed building project. The same rules apply to residential building projects within Israel…..
Territorial issue:
Israel taxes its residents on their worldwide income. Israel also taxes its residents and citizens as well as those entitled to become Israeli citizens on their income from an administered “Area” as if such income was derived in Israel (ITA Section 3A). Such an Area includes: Judah and Samaria and the Gaza Strip. Any tax due to a local authority in such an Area is creditable against Israeli tax as a foreign tax credit.
Trapped Profits Law Exception:
The new “trapped profits” tax law (Income Tax Ordinance Amendment 277) became effective in Israel on January 1, 2025. It increases Israeli taxes on past and present corporate profits. But the new law preserves existing substantial Israeli tax breaks for “Institutional Rental Buildings” (IRB) in the Encouragement of Capital Investments Law, 1959.
This is because an IRB is excluded from the definition of “special assets” which would otherwise trigger a 2% surtax on past retained profits of a closely held company. Investing in non-special assets (i.e. business assets) is therefore a way of mitigating this surtax.
About the IRB:
An IRB should have at least 10 homes for rent generally, or 6 homes if the building is in a prescribed peripheral area. Size rules aim to prevent artificial splitting of homes. Approval of an IRB must be requested from the Israeli government’s Investment Center before the end of construction, by the end of 2031.
The Investment Center board must be satisfied that the homes are to be rented out on average 15 years out of 18 years after the end of construction.To obtain tax breaks, the homes must be rented out on average 5 years out of 6 after rental begins.
Companies: IRB rental and sales gains of companies in qualifying cases may be initially taxed at 11%, potentially decreasing to 9% after 5 years rental, 7% after 10 years rental, 5% after 15 years rental. Dividends are taxable at 20% subject to any applicable tax treaty.
Individuals: IRB rental and sales gains of individuals in qualifying cases may be initially taxed at 29%, potentially decreasing to 27.5% after 5 years rental, 25.5% after 10 years rental, 24% after 15 years rental.
There are also rules facilitating long term rentals of homes for at least 20 years, but capable of termination annually and each 5 years by the tenant apparently.
Onward sales:
To preserve future IRB tax breaks after a sale, it seems at least 50 homes must be sold to a purchaser who undertakes to continue with these conditions and is approved by the Investment Authority. Sales should be exempt from VAT. Purchasers who continue with these conditions may pay only 0.5% purchase tax on their purchase.
Comments:
Developers and investors in Israeli residential real estate should consider these tax breaks for helping Israeli evacuees who lived in Northern or Southern Israel. Rebuilding Gaza would obviously be more difficult. Foreign investors should also check the tax situation in their home countries.
Is the Trump rebuilding plan realistic?
We tried visiting www.trump.com and got the reply: Thank you for visiting. We’re currently experiencing a high volume of traffic, please check back soon.
To sum up, after the war, an economic solution is called for. Rebuilding homes as proposed by Trump is one possibility. Developing the Gaza Marine gas field, as proposed in the past, might help pay for it all.
Next step:
Please contact us if you would like to discuss the above or any other matter.
As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax
© Leon Harris, February 9, 2025