Chapter 4 (Taxation in the Housing Market), excluding sections 8-10 (Urban Renewal), 11(3), 12(b), 12(c), and 13 from the Economic Efficiency Bill (Legislative Amendments to Achieve Budgetary Goals for the 2023 and 2024 Budget Years), 5783-2023

The changes concern the taxation of Real Estate Investment Trusts (REITs) engaged in rental housing. In the Income Tax Ordinance, the definition of "exceptional income" for a REIT is redefined. Income from the sale of real estate intended for rental housing will now be considered exceptional income if it exceeds 10% of the fund's total income in the tax year. Additionally, the definition of "sale to a lessor" has been amended so that the income threshold from it is 10% instead of 15%. The definition of "real estate for rental housing purposes" has been expanded. A REIT may now sell such real estate without being subject to income tax as exceptional income, provided that the government rental housing company has confirmed that the apartments will be used for long-term rental only and has provided an annual certification to that effect. The conditions for defining such real estate include: the purchase or construction of at least 20 residential units in a contiguous complex. In certain cases, such as real estate for which an application for additional rights has been submitted, the period for completing construction is extended. Construction of at least 20 residential units within seven years from the date of purchase, if the real estate was purchased in a tender by the state or the government rental housing company, and it was proven that a building permit could not be issued within 36 months. Purchase or construction of at least 15 residential units in a contiguous complex, if they are located in the Negev or Galilee regions. Furthermore, under the Value Added Tax Law, the sale of real estate for rental housing purposes by a REIT will be exempt from VAT, provided that the real estate was used for rental for at least five years, and the income from its sale was not considered exceptional income under the Income Tax Ordinance.

Source: חומר רקע