Pursuant to the Income Tax Ordinance in Israel, rental income is taxable at the regular tax rates (between 30% and 48% on the “net” income). Despite this, an individual who had income from renting a residential apartment may choose to pay tax at the rate of 10%, without the right to deduct expenses (including depreciation) and without the right of offsetting, credit or exemption, if the other conditions of the section are met. Many foreign residents choose this alternative, since by choosing it, they are not required to submit an annual report.
According to the wording of the Ordinance, the tax must be paid within 30 days of the end of the tax year in which the individual had such rental income, and accordingly, the tax authority maintains that the payment of the tax on time constitutes a condition for receiving the benefit. In July 2013, the matter of M.A.C.L. Strictly Kosher Foods Ltd. was received by the Jerusalem District Court. The court ruled that starting from the 2007 tax year, payment of the tax on time does not constitute a condition for the right to choose the 10% tax track, even if it did not pay the tax within 30 days of the end of the tax year. The position of the tax authority in the matter following the above decision is still unclear, and its position may be different.