Navigating Arnona: How it works and strategies for savings

Givati Law

Tax

Arnona, the closest Israel has to US property tax, has been a cornerstone of the country’s local taxation system. Unlike the property taxes in many other countries, such as the US, Arnona is not based on property value and ownership status. Instead, it centers around property size, location and usage. In this article, we delve into the distinct features of Arnona, its implications, and provide insightful tips for effectively managing this tax, achieving savings, and exploring the unique benefits it offers to new Olim.

Understanding Arnona vs. Property Taxes in the US

In the US, property taxes are typically assessed based on the value of the property and are paid by the property owner. In contrast, Israel’s Arnona tax takes a different approach. The basis for calculating Arnona is not the market value of the property, but rather its size, multiplied by its location (each city has varying rates). This means that a larger property might incur higher Arnona costs, irrespective of its value. And the tax is generally paid by whoever is using the property, including renters.

Size Matters: The Arnona Calculation

As mentioned above, the tax is calculated based on the size of the apartment. And each municipality has different rates per square meter. As such, the municipal authorities periodically send representatives to measure properties to ensure that the tax calculation accurately reflects the actual size. Funnily enough, they will calculate the size of the apartment irrespective of its legal status. So you might be charged Arnona even on areas which were enclosed illegally or were built without a permit [Note: The fact that Arnona is paid on such spaces does not make them kosher in any way]. This practice ensures that the Arnona payment is aligned with the property’s physical attributes, minimizing the potential for miscalculations or discrepancies.

Each municipality usually has different rates per square meter, and also may have different rates within zones of the city. For example, Jerusalem has 4 different zones, each with a different rate per square meter. Depending on which Zone your apartment is located in, you multiply the rate for that zone by the size of the apartment, and that’s how your Arnona payment is calculated.

The Fight Against “Ghost Apartments”

One of the significant challenges that municipalities in Israel face is the phenomenon of “ghost apartments” – properties that are unoccupied for extended periods (mostly by foreigners buying apartments as investments). Recognizing this issue, Israeli municipalities have taken measures to counteract it by imposing higher Arnona rates on such properties, which can amount up to three times the regular Arnona bill! This move aims to discourage property owners from leaving their apartments vacant, thus incentivizing the efficient utilization of available housing resources and renting them out.

Strategies for saving on your Arnona

Now that we’ve explored the key aspects of Arnona, let’s look at practical strategies for optimizing your Arnona payments:

  1. Rental Agreements: Unlike Property Tax which is paid by the owner, Arnona is most commonly paid by whoever actually uses the apartment. By renting out your apartment for a period of no less than 1 year, the responsibility for paying the Arnona is most commonly passed to the renters who pay it on top of the rent. This is not a unique feature but how most rental agreements are drafted. This offsets some of the financial burden while also ensuring tenants are aware of their contribution.
  1. Olim Benefits: New immigrants (Olim) to Israel have a noteworthy opportunity for significant Arnona savings. Olim can use a generous 90% discount on Arnona payments for properties up to 100 square meters in size, for a period of 12 months within the first two years of  Aliyah. If the rented or owned property is over 100 sqm, the discount will be prorated. This initiative aims to support Olim in their transition to life in Israel by providing a substantial reduction in their initial property tax burden.
  1. Periods of Non-Occupancy: Unlike a Ghost Apartment (mentioned above), which means long periods of time in which the apartment is not being used, there are instances  of shorter periods in which an apartment is not being used as well, but you can actually get a discount on the Arnona. For example, if you own a property and are out of the country and as a result not living there during that time, you might be eligible for a discount on the Arnona for up to 6 months. This discount can sometimes be claimed retroactively, leading to additional savings.
  1. Unusable Property Discounts: If your apartment is unusable for any reason, like if it’s under construction or renovations for an extended period of time, and you can prove that it’s not livable, you may be able to claim a discount on your Arnona payments. 
  1. There are other instances that entitle owners/renters to Arnona discounts, including lone soldiers, students and pensioners. It is best to consult with an expert to understand the intricacies of these instances.

In summary, Arnona is an ongoing tax for all housing in Israel. To ensure you’re making the most of the potential savings and benefits on Arnona, it’s highly advisable to consult with expert legal professionals who specialize in property taxation and local regulations. Knowledgeable lawyers are up-to-date with the latest changes, can help you explore every avenue for savings, and guide you through the process of claiming discounts that you may be entitled to. Their expertise can be a valuable asset in maximizing your Arnona savings and securing your financial well-being.

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