Israel Tax Authority Proposes Higher Taxes on Companies and Landowners

Israel's Tax Authority is considering two significant tax increases that could directly impact wealthy individuals and companies. The proposals, presented by Tax Authority Director Shai Aharonovich at a conference in Eilat, aim to generate revenue amid high defense spending and are presented as alternatives to raising VAT or income tax.

The first proposal involves increasing the required annual distribution rate from trapped profits in companies from 6% to 8%. This change, set to take effect in early 2025, would affect a limited number of companies controlled by up to five shareholders that have accumulated over 750,000 shekels in profits. Currently, these companies can retain profits taxed at the corporate rate of 23% or distribute dividends. The proposed increase would raise the annual dividend distribution requirement, leading to higher taxes for some owners. For example, a company with 10 million shekels in accumulated profits would need to distribute 800,000 shekels instead of 600,000, resulting in an additional 60,000 shekels in taxes annually.

The second proposal seeks to reinstate property tax on vacant land, which has been at zero since 2000. The government previously proposed a uniform annual tax of 1.5% on vacant land, with exemptions for land valued below 60,000 shekels per dunam and a total cap of 250,000 shekels per taxpayer. This measure is intended to incentivize construction or sale of land rather than holding it for price appreciation. According to Treasury data, companies hold approximately 500 billion shekels worth of land, and private individuals hold about 300 billion shekels. A simple calculation suggests a plot valued at 2 million shekels could incur around 30,000 shekels in annual tax.

Both proposals face significant hurdles before becoming law. They will need to pass through the next government and be included in a future Arrangements Law, where they are expected to encounter strong opposition from professional bodies, contractors, and Knesset members. Contractors argue that bureaucratic delays, not land hoarding, cause construction delays and that the tax would be passed on to homebuyers. Electric Company has also warned that taxes on its land could lead to increased tariffs.