Selling a commercial property in Israel (an office, a store, a warehouse, or any income-earning unit) is taxed and structured very differently from selling your apartment. The standard VAT rate is 18% (since 1 January 2025), and a commercial sale by a registered dealer or a company generally carries that 18% VAT, while a private person selling their own apartment normally pays none. If a company owns the unit, the gain is taxed at the 23% corporate rate, not the 25% individual mas shevach rate, and any building depreciation taken over the years (typically about 2% per year, straight-line) is added back, which raises the taxable gain (depreciation recapture). On top of that you still face mas shevach on the gain, a possible betterment levy (50% of any planning-driven value rise), existing tenant leases that pass to the buyer, a current business license, and zoning that must match the actual use. Plan on a tax adviser and a lawyer from day one.
You own a store, an office, or a commercial unit and you assumed selling it works like selling a flat. It does not, and the gaps can cost you six figures if nobody flags them before you sign.
Why a commercial sale is not the same as a residential sale
The short version: a private apartment resale is usually outside VAT and can be fully tax-exempt, while a commercial sale is usually a VAT-able business transaction with no single-home exemption to lean on. A homeowner selling a sole apartment held about 18 months can fall under the single-apartment exemption up to a ceiling of NIS 5,008,000 (frozen 2025 to 2027). Commercial property gets none of that. The gain is taxed, VAT often applies, depreciation gets clawed back, and a sitting tenant can shape both the price and the timeline.
If you also own a home and want the residential rules, start with the main selling guide and the selling an apartment page. This page is only about commercial units. It sits under special situations, alongside selling a rented property and selling as a foreign resident.
VAT: the big difference on an office, store, or commercial unit
The sale of a commercial property is generally a VAT-able transaction at 18% when the seller is a registered dealer (osek murshe) or a company. That is the single largest structural gap from a residential resale, where a private person selling a used apartment is normally outside VAT entirely.
Worked example, my own estimate (basis: 18% VAT on a stated price): a commercial unit sold for NIS 5,000,000 by a registered dealer carries VAT of NIS 900,000. Per NIS 1,000,000 of price that is NIS 180,000 of VAT that a residential private seller would never see. The buyer normally funds the VAT, but it changes the cash math, the contract, and the financing, so it has to be priced in from the start, not discovered at closing.
One important mechanism: where the buyer is itself a registered dealer and the seller is not, a self-invoice (reverse charge) can apply, shifting the VAT accounting to the buyer. Whether VAT applies, who accounts for it, and whether the buyer can reclaim it as input tax all turn on the exact status of both sides. This is a question for a tax adviser before you quote a price, not a detail to settle later. For the residential contrast in one place, see the VAT on selling property page.
Income tax, mas shevach, and which one hits you
Who the seller is decides the tax track. An individual selling a commercial property pays mas shevach (land appreciation tax) at 25% on the real, inflation-adjusted gain, the same headline rate as on residential. A company selling the property is taxed instead under the corporate regime at 23% on the gain.
The gain itself is built the same way in both tracks: sale price minus the indexed purchase price and minus allowable costs (purchase tax, agent commission, legal fees, capital improvements, and any betterment levy paid). Only the real gain above CPI inflation is taxed. The deep mechanics of that calculation, including the indexation, live on the mas shevach page, so read that for the gain math and treat this page as the commercial overlay.
The trap that is unique to commercial and corporate sellers is depreciation, covered next.
Depreciation and depreciation recapture
If the property earned rent and you (or your company) claimed depreciation, that depreciation is added back when you sell, which raises your taxable gain. Buildings depreciate, commonly at about 2% per year straight-line; land does not depreciate. Every shekel of depreciation you took lowered your taxable income in past years, so the tax system reclaims it at sale by reducing your cost basis.
Worked example, my own estimate (basis: 2% per year straight-line over 10 years, then 23% corporate tax on the recaptured amount):
- Building portion bought for NIS 4,000,000.
- Held 10 years, depreciated at 2% per year, so 20% total, which is NIS 800,000 of depreciation taken.
- That NIS 800,000 comes off the cost basis, so the taxable gain is NIS 800,000 higher than the raw price-minus-cost figure suggests.
- At the 23% corporate rate, that recaptured slice alone adds about NIS 184,000 of tax.
This is why a residential seller who never depreciated and a commercial seller who did can show the same headline gain but very different tax bills. The numbers above are an illustration from the fact-bank rates, not your figures. Your real depreciation history sits in your accounts, which is exactly why the tax adviser is not optional here.
The tenant lease passes to the buyer
An existing lease does not end just because you sell. An ordinary commercial lease runs with the property: the buyer steps into your shoes as landlord for the remaining term, so a buyer who wanted the unit empty cannot simply remove the tenant. If you are selling vacant, you have to time the sale to the lease end or agree an early termination with the tenant in writing.
A sitting business tenant can be a feature (a steady-income unit appeals to investors) or a drag (an owner-occupier buyer pays less for occupied space). Either way, the lease terms, rent, remaining term, options to extend, and any deposit or guarantee become part of what the buyer is actually buying. Hand your lawyer the full lease early. The general principle for rented property is on the selling a rented property page; the commercial point is that the lease and its income are central to pricing the deal.
Business license, zoning, and the building’s permitted use
A commercial unit only earns if its use is legal, so a buyer (and the buyer’s bank) will check the business license and the zoning before they pay. Two things must line up: the local zoning and outline plan (taba) must permit the commercial use, and the operating tenant or buyer needs a valid business license for that activity at that address.
This is where commercial diverges from residential most quietly. A flat is a flat. A unit listed as a store but used as a small workshop, or an office floor running a use the plan never approved, is a problem that surfaces during due diligence and can collapse the price or the deal. The same exposure applies to construction: any addition or change of use needs a building permit (heter bniya), and unpermitted work carries demolition and fine risk that passes to the next owner. See building permits and illegal construction for how that works, and reconcile the actual unit against the approved plans before you list.
Management-company debts and the building committee
Commercial buildings carry shared running costs, and unpaid management dues can block your closing. In a commercial or mixed building, a management company or building committee (vaad) collects fees for shared systems, security, lifts, and common areas. Those dues are often higher than a residential vaad bayit, and any arrears attached to your unit must be cleared so the buyer takes over clean.
At handover you settle the management-company account, transfer the utility meters and arnona into the buyer’s name, and record final readings in a handover protocol, the same discipline used on any sale but with larger commercial numbers. The handover mechanics are on the handover and key transfer page.
Betterment levy and municipal clearance
The betterment levy (heitel hashbacha) is 50% of any rise in the property’s value caused by a planning action, and by default the seller pays it. If a town-plan change, rezoning, relief, or added building rights lifted your unit’s value during your ownership, the local committee can levy half of that uplift, and it must be cleared to get the municipal certificate (ishur iriya) that the Land Registry requires before it will record the transfer.
Worked example, my own estimate (basis: 50% of a stated value uplift): if a plan change lifted your commercial unit’s value by NIS 1,200,000, the betterment levy would be about NIS 600,000. Commercial rezonings (for example, added floors or a use upgrade) can create large uplifts, so this levy can be far bigger here than on a quiet resale apartment. The full mechanics, disputes, and deadlines are on the betterment levy for sellers page. Note the levy you pay is itself deductible against your mas shevach gain.
Alongside the municipal clearance you still need the Tax Authority clearance confirming mas shevach (or corporate tax) is paid or covered before the transfer can register. Until both clearances are in hand, money is typically held back in the lawyer’s escrow.
Corporate sellers: the approvals before you can sign
If a company owns the property, the company has to authorize the sale before any contract binds it. A commercial property is often the company’s main asset, so selling it usually needs a board resolution and, depending on the company’s documents and the deal size, shareholder approval. The lawyer must confirm who has authority to sign and that the corporate approvals exist, because a contract signed without them can be challenged.
Corporate sellers also face the 23% corporate rate on the gain, the depreciation recapture described above, and VAT in the company’s own account. That mix is exactly why a company sale needs the tax adviser and the corporate lawyer working together.
The tax adviser’s role: not a luxury here
On a commercial sale the tax adviser earns their fee before you list, by modelling the real net. The interacting layers (VAT at 18%, mas shevach at 25% or corporate tax at 23%, depreciation recapture, betterment levy at 50% of any uplift, and deductible costs) mean two sellers with the same sticker price can keep very different amounts. A residential seller can often estimate net proceeds from a single page. A commercial seller cannot.
Bring the adviser the purchase contract and purchase-tax receipt, the depreciation schedule, all improvement invoices, the current lease, the company’s corporate documents (if a company owns it), and any planning history that might trigger a betterment levy. The adviser models the after-tax number and flags whether a self-invoice, a reduced-withholding certificate, or a different deal structure changes the result. For how net proceeds are built, see what sellers keep.
Commercial-sale checklist before you list
- Confirm the seller’s status: private individual (25% mas shevach track) or company (23% corporate track plus VAT in the company account).
- Get the tax adviser to model VAT at 18%, the gain tax, and depreciation recapture together, not separately.
- Pull the depreciation schedule from your accounts so recapture is quantified, not a surprise.
- Gather the current lease and its remaining term, rent, options, and any tenant guarantee.
- Verify zoning and the permitted use against the taba, and check the business license matches the actual activity.
- Reconcile the physical unit against the approved building permit; flag any unpermitted work early.
- Check for any planning change that could trigger a betterment levy (50% of the uplift).
- Clear or quantify management-company and arnona arrears for the municipal clearance (ishur iriya).
- If a company owns the unit, line up the board (and any shareholder) approvals before signing.
- Plan the escrow holdback so funds release only once tax and municipal clearances are issued.
Selling a commercial unit well is a tax-and-structure exercise first and a marketing exercise second. Get the adviser and the lawyer in before the price goes out, and you avoid the expensive surprises that hit owners who treated it like selling a flat.
Talk to us about selling your commercial property in Israel and get a clear net-proceeds estimate.
