This article was written by Adv. Keren Kapel Shmueli, a leading partner in the Real Estate Department, with extensive experience advising on complex and international real estate transactions.
We regularly advise on real estate transactions in Israel where the buyer or the seller is aforeign resident. In these deals, verifying the property rights and the terms of the agreement still sits at the core of the process. But we also need to prepare in advance for residency and tax issues, financing, bank account management, cross-border transfers of funds, proof of source of funds,identification, remote signing, and registration.
These aren't just technical details we can leave until after signing. Each one can affect whether the deal is feasible, how the payment mechanism works, and whether the parties can actually complete the transaction. This article walks through the key issues we look at whenever one of the parties to a real estate transaction is a foreign resident.
How Is a Transaction Involving a Foreign Resident Different from an Ordinary Transaction?
The difference starts with the parties' status. “Foreign resident” is a legal and tax term,and the law determines it based on the circumstances of each individual case,including the person's center of life and how much time they spend in Israel,not just their citizenship or passport.
Even an Israeli citizen who splits their time between Israel and another country canend up classified as a foreign resident. On the other hand, an intention toimmigrate to or return to Israel can, in certain circumstances, change eligibility for tax benefits.
On top of that, we're often dealing with banks and authorities in two countries, foreign documents, authentication procedures, and translations. So, we plan the structure of the transaction and its timetable in advance, once we've properly as sessed the person's residency status.
When theBuyer Is a Foreign Resident
• Purchase Tax: Eligibility for the reduced tax brackets on asole residential property generally depends, among other things, on the buyer being an Israeli resident. A foreign resident may instead face the tax ratesthat apply to a property that isn't a sole residence. As of 2026, that means 8%on the portion of the property's value up to the statutory threshold, for properties valued at roughly NIS 6 million or less, and 10% on the portion above that threshold. Plans to immigrate to or return to Israel can change this out come in certain circumstances. That's why we examine the buyer's status before signing, not after the fact.
• Bank Financing: Banks generally cap financing for aforeign resident at up to 50% of the property's value. Their under writing process may call for tax returns, pay slips, bank statements, credit information, and translations. In some cases, they'll also require an Israeli bank account to make the mortgage payments from.
• Transfer of Equity Funds: Confirming the funds exist isn't enough for the bank; it needs to understand where they came from and how they're being transferred. An inheritance, a property sale, business activity,savings, or a gift each calls for different supporting documents. Leaving this review until late in the process can delay a transfer the agreement requires.
• Nature of the Property Rights: It should be determined whether the property is registered with the Land Registry, the Israel Land Authority, or a housing company. Where lease hold rights are involved, there maybe restrictions on the transfer of rights, and additional approvals may be required.
When the Seller Is a Foreign Resident
• Capital Gains Tax Exemption: A foreign resident seeking an exemption from Israeli capital gains tax on the sale of a qualifying residential property must, among other requirements, show they don't own aresidential property in their country of residence. Ideally, this starts with a certificate from the foreign tax authority. In practice, though, most foreigncountries won't issue one. When that happens, an alternative evidentiary route may be available, based on objective documents and an affidavit, so it's worth preparing that evidence in advance.
• Advance Payment on Account of Capital Gains Tax: The payment mechanism needs to account for the statutory provisions requiring the buyer to make an advance payment toward the seller's capital gains taxliability. Without proper planning, part of the purchase price can remain with held even after the buyer takes possession of the property.
• Transferof Sale Proceeds to the Seller: If the seller doesn't have an Israeli bank account in their own name, we arrange in advance to open a trust account to receive the transaction proceeds. The buyer's bankwon't transfer mortgage funds to an overseas account or to an account held byanyone other than the seller.
To transfer the sale proceeds to the seller's overseas bank account, the bank will alsorequire the sale agreement, tax clearances relating to the transaction,identification documents, and an explanation of where the funds are going before it makes the international transfer. So, we plan the process for moving funds out of Israel in advance too.
Challenges Common to Both Parties
• Entity Number and Reporting: A foreign resident who does not have an Israeli identity card may be required to obtain an entity number from the Israel Tax Authority for reporting purposes. The application issubmitted through the attorney representing the individual and includes, amongother things, an identification document and a power of attorney.
• Power of Attorney and Authentication of Signatures: When the client is not physically present in Israel, arrangements should be made for the client to sign a detailed and transaction-specific power of attorney. The power of attorney must be signed before a local notary and accompanied by an apostille, or alternatively before an Israeli consulate abroad.
• Property Due Diligence: Physical distance does not reduce the obligation to conduct the necessary due diligence. The parties should examine ownership, liens, attachments, registered notices, building rights,construction and planning irregularities, municipal debts, betterment tax, andthe manner in which the property rights are registered.
In a purchase from a developer, the parties should also examine the applicable security arrangements, schedules, and indexation mechanisms. Beyond the legal aspects,it is important to assess the physical condition of the property, it ssuitability for the buyer's needs, its surroundings, and the characteristics ofits location—factors that may materially affect the overall viability of the transaction.
• Currency and Timing: Currency fluctuations, differences in business days, and processing times at banks, consulates, and government authorities can affect the actual amount paid or received. The agreement should specify the payment currency, the applicable exchange rate, the date on which payment is deemed to have been credited, and who bears the risk in the event ofa delay.
The Role of the Attorney: Connecting All the Elements of the Transaction
In at ransaction in which one of the parties is a foreign resident, legal advice should begin even before a purchase offer is submitted. The attorney's role isto identify potential obstacles at an early stage and establish a practical framework in advance that will enable the transaction to be completed.
First, the parties should establish the individual's residency status, tax implications,and whether the foreign resident has an Israeli bank account. Based on these considerations, the attorney structures the contractual terms and payment mechanisms.
The attorney must also ensure that the power of attorney enables the transaction to be completed in full, with a clear definition of the actions authorized under it,and that documents originating abroad are properly prepared and authenticated so that they can be accepted in Israel, both by mortgage banks and by the relevant property registry.
Three Practical Recommendations Before Signing
1. Start with an assessment, not with the draft agreement. Residency status, tax implications, financing, source of funds, registration method, and signing arrangements should be clarified before committing to the price and time table.
2. Open thecommunication channel with the bank early and prepare the documentation. Preliminary mortgage approval, opening a bank account, obtaining anentity number, tax clearances, translations, and apostilles may take longerthan the negotiations themselves.
3. Structure the agreement around the actual circumstances of the transaction. Payment dates, delivery of possession, and registration should be linked to the approvals, security arrangements, and documents that can realistically be obtained, while establishing a clear mechanism for delays beyond the parties' control.
Fewer Surprises, Greater Certainty in the Transaction
A real estate transaction involving a foreign resident is not the same as an ordinary transaction. It requires integrated planning of legal, tax, banking, andr egistration matters.
When these issues are examined in advance and properly incorporated into the agreement, itis possible to reduce delays, protect the parties' funds, and facilitate the safe and efficient completion of the transaction.
The Real Estate Department at ABADI & CO. advises on transactions of this nature through a broad perspective, practical experience, and familiarity with the points of friction that characterize cross-border transactions.
Legal Disclaimer
The information contained in this article is provided in summary form for general information al purposes only. It does not constitute legal advice, a legal opinion, or a substitute for professional advice tailored to the specific circumstances of any particular case. In the event of any legal question or where a decision with legal implications is required, professional and qualified legal advice should be obtained.
