By Shai Raveh, Attorney at Law. The article was published in Yediot Aharonot,  10/10/2005

There is great confusion among the general public, at times, even among those who deal in the real-estate sector, with regard to taxes, levies and charges in real-estate transactions. There is no doubt that this confusion arises, inter alia, from the extremely large number of taxes and levies, which derive from different laws, apply in different contexts and are imposed on various parties to the transaction.

The aim of this article is not to delve into the field in depth, which should be left up to the relevant professionals, including attorneys, accountants and land appraisers. The aim is merely to create a basic glossary of terms, while classifying the taxes and levies into categories which are easier to understand and remember – for the convenience of the user, who is not a professional.

One form of classification which will make things easier to understand is to classify the taxes and levies according to their application to the transaction, as opposed to their application to the asset in respect of which the transaction is being made. Another form of classification is according to the application of payment to the seller, on the one hand, or to the buyer, on the other:
Property tax, municipal taxes and levies, including a betterment levy, apply to the asset in respect of which the real-estate sale transaction is being made.
Land appreciation tax, sale tax, purchase tax and VAT apply to the transaction for the sale of the rights in the real-estate.
When we examine the payments applicable to the asset which is the subject of the transaction, then the payments which apply to the asset up until the date of the transaction apply, primarily, to the seller, and the payments applicable thereafter, apply to the buyer.
With regard to payments applicable due to the transaction, land appreciation tax, sale tax and VAT apply to the seller, and purchase tax applies to the buyer.

This division is a guideline in accordance with the provisions of the law, however, naturally, a different division may be agreed upon in the sale transaction, and of course, this is only a general principle, which is not exact. For example, if we are talking about the division of the obligations applicable to a certain asset prior to the transaction and after the transaction, it is necessary to be precise with regard to the relevant date in relation to the transaction – at times, the relevant date is the date of the signing of the agreement, and at times, the relevant date is the date of delivery of possession of the asset, and at times, the date of the transfer of the rights, or even the registration of the asset into the buyer's name.

Let us relate, briefly, to each of the taxes and payments and what they entail – in a kind of abridged glossary of terms:

"Real-Estate Taxation Law" – the main law dealing with the taxation of a real-estate transaction. In the past, this law was called by the general public, the "Land Appreciation Tax Law". The law and the regulations enacted pursuant thereto are the source for the imposition of the obligation of land appreciation tax, sale tax and purchase tax.

"Land Appreciation Tax" – a tax which applies to the seller in the sale of rights in real-estate, where the tax applies to the appreciation, in other words, it is a tax on the gain between the value of the purchase and the value of the sale, less various deductions. In certain transactions, there is an exemption from Land Appreciation Tax – full or partial, and in certain transactions, the payment of Land Appreciation Tax is deferred upon certain conditions. The exemption most well-known by the general public is the exemption in the sale of a residential apartment. In this field, there is a great deal of confusion and many mistakes are made, even by attorneys. What is important to stress is that one should not rely, in this matter, on personal knowledge or on one's memory, but rather, it is necessary to check the entitlement to the exemption in the sale of what is currently called an "entitling residential apartment", in consultation with an attorney, prior to the making of the transaction (incidentally, the most common expression used by the general public of "an individual's apartment" – is only an expression – it has no meaning whatsoever).

"Sale tax" – the tax which applies to the seller in the sale of rights in real-estate, where the tax is tax on the value of the sale, in percentages, in other words, it is a turnover tax. Here, too, in certain transactions, there are special rates of tax and/or an exemption upon certain conditions. The sale of an entitling residential apartment is exempt from sale tax.

"Purchase tax" – the tax which applies to the buyer in the sale of rights in real-estate, where the tax is tax on the value of the purchase, in percentages, in other words, it is a turnover tax. Here, too, in certain transactions, there is a full or partial exemption from tax upon certain conditions. As for a residential apartment, there are special tax brackets for the purchase tax.