Since January 1, 2025, Israel is living to the rhythm of restructured tax reforms. The most visible measure remains the increase in VAT from 17% to 18%. A percentage point that seems trivial! But it immediately raises the cost of materials, construction sites, and fees related to real estate transactions. In an already tight market, this increase cuts into developers’ margins and prompts a reassessment of forecasts right from the planning phase.
Tax reforms, freeze on brackets, and disguised inflation
The freeze on property purchase tax brackets until 2027 is another major development. Officially, nothing changes. But with inflation, this freeze amounts to an implicit increase in the real cost of acquisitions: a buyer crosses a bracket more quickly and pays more. The result: the taxation of transactions becomes heavier without any apparent change in the scale.
Capital gains in the crosshairs
Capital gains are also in the sights. Until now exempt for properties acquired before 2014, owners will soon have to share more with the tax authorities. The timeline is clear: 10% tax in 2026, 20% in 2028, and 25% in 2030. Many holders of older properties are already considering selling before 2026 to avoid this gradual increase, which could trigger a wave of additional offers on the market as early as 2025.
Trapped profits and SMEs under pressure
The “ Law on Trapped Profits ”, adopted at the end of December 2024, completes the picture. An annual tax of 2% now hits the undistributed profits of private companies. To avoid it, they must distribute 5 to 6% of their earnings as dividends before the end of 2025. Exemptions for companies are limited: losses exceeding 10% or retained profits below 750,000 NIS. For small real estate companies, it’s a dilemma: protect cash flow for future projects or pay associates to escape this tax?
Silent increase in tax pressure
Additionally, there is a surcharge raised to 5% (instead of 3%) on passive income exceeding 721,560 NIS per year, as well as an increase in Bituach Leumi and health contributions. Finally, the freeze on income tax brackets and credit points until 2027 acts as a silent increase: inflation drives up nominal wages, but taxes rise faster than purchasing power.
First impacts in September 2025
By September 2025, the effects are already becoming apparent. In Sharon, developers are integrating thinner margins around Ra’anana or Kfar Saba. Local real estate companies are testing distribution strategies to avoid letting their profits sit idle.
See also: Focus on Sharon, September 2025
Private investors are weighing the options between selling early to secure a still lightly taxed capital gain or waiting at the risk of seeing taxes increase. For households, the combined effect of VAT + freeze on brackets weighs on the budget, which may dampen residential demand in the short term.
Government’s budgetary objective
At the macroeconomic level, the government aims to reduce the public deficit: from 6% to 8% of GDP in 2024. Furthermore, it hopes to return to around 4% in 2025. The savings generated by these tax reforms must finance a state under security and budgetary pressure. But this fiscal rigor is a gamble:
to generate immediate revenues without breaking the real estate and entrepreneurial dynamics that fuel growth.
Strategic advice for investors
In this climate, the key is timing. Accelerating the sale of properties acquired before 2014, distributing a portion of corporate profits before the end of 2025, and incorporating the increased VAT into construction projections are essential defensive moves. For buyers, targeting projects eligible for VAT reports or benefiting from government aid can offset the additional cost. Finally, prioritizing quality heritage investments that can withstand rising taxes remains the best way to secure both returns and long-term value.
