Things just got more complex if you rent out properties or sell tickets in Israel. The Israel Tax Authority has issued limited relief for landlords who receive prepaid rent in advance of the period of occupation.
On the one hand, receiving property rent upfront removes the problem of nonpayment of rent or even rent-free squatting in your property.
On the other hand, prepaid rent is taxable as soon as it is received. But what if expenses are incurred by the landlord, such as painting, repairs, and maintenance, in a subsequent year?
In this case, the tax law sends the landlord on a wild-goose chase. It’s permissible to deduct such expenses from any other source in the year the expenses were incurred. Failing that, the expenses may be carried back and deducted from the prepaid rental income.
Does this also apply to professional rental business operations? In the Kiryat Yehudit case, the court ruled that rental business operations must report and pay tax immediately on prepaid rent.
Again, this can cause administrative hassle and timing mismatches between income and expenses. The result can be nondeductible expenses.
The ITA issued a position paper earlier this month that allows businesses that keep double entry books (debits and credits) to report rental income for tax purposes on the accrual basis, i.e., over the rental occupation period and not when cash is received. Expenses are not mentioned, but presumably, the accrual basis applies to rental expenses too.
What is a business operation? The ITA has said more than 10 rental properties is a rental business, and five to 10 rental properties might be a business, depending on the circumstances. Case decisions suggest a business involves a “business mechanism” such as a property management agent or a secretary who does property management.Comment: To sum up, if you are in the rental property business, keep double entry books to more easily offset expenses against prepaid rent.
Package tours abroad
Normally, flight tickets are subject to zero-rate VAT, but a district court has ruled the standard rate of VAT (18% in 2025) applies to packages that include flights, hotels, and perhaps a concert or soccer match or other sporting event. What’s going on here?
The court debate revolved around “commercial papers,” which have different rules in the Israeli VAT Law. Commercial papers are normally thought to mean securities, such as stocks and shares. But is that all?In this case, the taxpayer company acted as a wholesaler buying up tickets for an event abroad and selling them to the Israeli resident public as part of a travel package.
Up until 2017, the company paid VAT apparently as a wholesaler on its profit margin but not on its full revenues. Then, in 2017, the company retroactively switched its approach from supplying commercial papers to supplying overseas services to Israeli residents, meaning zero-rate VAT going back several years.
The company issued a credit note and demanded a big VAT refund for those years. The VAT Authority refused, leading to the court case.
The court ruled that VAT does apply to the added value under VAT Law, which says if a business sells securities or “other commercial papers,” it shall be considered an agency service that it provides by connecting the buyer and seller of them.
In other words, tickets to a soccer match or concert are “commercial papers” like securities. This is because “the ability to transfer with ease represents a material element in determining that these are marketable documents.” The tickets can be sold and passed from hand to hand “all day every day,” and the name of the ticket holder can be changed as needed.
Given that, how much is liable to VAT? The VAT law says the VAT “price” of the agency service is sales minus purchases of the tickets in the VAT reporting period – usually monthly.
Comment: In this case, the judgment only concerned VAT on sports and entertainment tickets. Presumably, any related flight tickets remain subject to zero-rate VAT. Unfortunately, this is not specified in the judgment.If you are in the business of buying and selling tickets to anything abroad, check out this case.
As always, consult experienced professional advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.
