Encouraging Urban Renewal and Long-Term Rental Ventures – the Draft Arrangements Law

Newsletter 07/2021

Encouraging Urban Renewal and Long-Term Rental Ventures – the Draft Arrangements Law


Tax benefits for urban renewal ventures


In recognition of urban renewal’s numerous benefits, from economic, urban, and social standpoints, and in light of the recent increase in prices and the need to increase the housing supply, inter alia through urban renewal ventures, the draft Arrangements Law published recently includes several recommendations intended to remove barriers and shorten urban renewal processes.

The recommendations related to amending various taxation barriers involved in urban renewal ventures, some of which have already been subject to dispute with the Tax Authority for several years, are as follows:


  1. Should the entrepreneur sell its engagements with apartment owners in a pinui -binui[1]

/TAMA 38[2] complex to another entrepreneur, before the deferred “date of sale” has arrived, the sale shall be considered as the sale of land rights, and the “sales value” for the purpose of determining the tax on this transaction would be equal to the value of the contractual consideration. Upon arrival of the “sales date”, the entrepreneur who holds the rights at that date would pay the purchase tax applicable to the full transaction.

  1. A resident that sells their rights in a residential apartment would be viewed as the residential apartment’s owner throughout the period when the project is executed, provided it was a “qualifying residential apartment” prior to signature of the TAMA Thus, the land rights owned by the resident would be considered a “qualifying residential apartment”, even if they already signed a contract transferring the rights in the apartment to the entrepreneur, and even if the apartment was demolished as part of the project.
  1. In pinui -binui transactions signed starting on the date of the proposed amendment to the law, the tax exemption set forth in Section 49V of the Real Estate Taxation Law, which applies to the residential unit sold to an entrepreneur in a pinui-binui transaction, would apply to all residential units belonging to the seller of the apartment, subject to meeting the remaining conditions set forth in Section 49V of the Law, with respect to any of the residential units.
  1. It is proposed to stipulate that, in pinui-binui/TAMA 38/2 transactions, in calculating the appreciation applicable in the sale of the replacement unit received, construction expenses borne by the entrepreneur would not be deductible. This is because the exemption for such transactions is actually tax deferment, and the seller did not bear these construction expenses.
  1. It is proposed to amend the Real Estate Taxation Law and to stipulate that the real estate tax and value added tax benefits shall be granted for transactions entered into during the period when TAMA 38 was in force.

Encouraging the long-term institutional rental market

According to the draft Arrangements Law, due to a renewal in the trend of increasing housing prices, an acute need has arisen to promote diverse steps to increase the housing supply in Israel and make it available to the entire population, including through development of the institutional long-term rental market, which is expected to lead to an increase in the supply of apartments in high-demand areas.


In order to increase economic feasibility and provide an incentive for entrepreneurs to promote long-term rental projects, the Arrangements Law proposes to adjust the existing tax benefit in the Encouragement of Capital Investments Law 5719-1959 (hereinafter: the “Encouragement Law”) to long-term rental projects.

According to the currently existing benefits track in the Encouragement Law, a reduced 11% company tax rate applies (instead of a regular 23% company tax rate), as well as accelerated depreciation at a rate of 20% per year, for new buildings that include at least six residential apartments and with respect to which at least half of their floor area is designated for rental for an average period of five years.


In order to incentivize long-term rental projects, it is proposed to cancel the existing track and define a track for “construction for long-term rental”, while deepening the tax benefits through a temporary order.

In order to be eligible for tax benefits under the new track, the long-term rental building (or part thereof) must have at least 20 apartments, 80% of which are rented for at least 15 years within long-term rental, and for which the rental contracts are for five-year periods with an option for an additional period as detailed in the bill.

The benefits to be granted to those who meet the criteria set forth are a 9% company tax rate and accelerated depreciation at a rate of 20% per annum. A long-term rental building which was rented for a period of at least 20 years would be eligible for an additional reduction in company tax, such that the company tax rate would stand at 6%, from the sixteenth rental year onwards.

Within the existing benefits track in the Encouragement Law, an entrepreneur can step into another entrepreneur’s shoes and receive the existing tax benefits, as long as they undertake to continue to meet the rental conditions set forth in the Encouragement Law. However, no suitable amendment was made within the past legislative amendment, nor concurrently within the Value Added Tax Law, which would make it possible to apply the VAT exemption to the sale of the building to a new entrepreneur, and rental by the new entrepreneur who steps into the first entrepreneur’s shoes. Within the draft Arrangements Law, it is proposed to make an amendment and clarify that the VAT exemption applies to sale of the rental building, with respect to which the conditions stipulated in Section 53B(c)(2) of the Encouragement Law are met, as well as application of the VAT exemption to a long-term rental building within the new benefits track.

For additional information, contact Adv. Sagiv Ron from our firm.

[1] Pinui Binui -enables demolition of an old, existing building which does not meet the up-to-date Engineering Standards and construction of a new building in its place.

[2] National Zoning Plan 38 for strengthening existing buildings for earthquake protection.