How French Buyers Recovered NIS 276,700 After a Collapsed Israeli Sale

Result: NIS 252,000 of Israeli purchase tax refunded with linkage and statutory interest after the seller repudiated the contract · Timeline: 18 months from payment to refund · Challenge: Tax office treated the cancellation as a re-sale · Authority: Israel Tax Authority real estate taxation office, Ashdod · Financial Impact: NIS 276,700 recovered

Background

A retired pharmacist and his wife, a former schoolteacher, live outside Lyon. Like a good many French families with children who have settled in Israel, they had been looking at Ashdod for several years, partly as an investment and partly as somewhere to spend three or four months of the year.

In March 2024 they signed for a four room apartment near the marina at NIS 3,150,000. They paid a deposit of NIS 315,000, their lawyer registered a caution at the Land Registry, and in May they paid NIS 252,000 of purchase tax. A foreign buyer pays at the additional apartment rates in Israel, which start at 8% from the first shekel, so the tax on a modest Ashdod flat was larger than the French couple had budgeted for and considerably larger than any French buyer expects.

In September the seller stopped answering. He had received an offer of NIS 3,470,000 from another buyer, he had missed the completion date, and by October his lawyer confirmed in writing that he would not be signing the transfer documents.

The Challenge

The contractual part was the easy part. Our clients rescinded under Section 7 of the Contracts (Remedies for Breach of Contract) Law 5731-1970 and claimed the agreed damages clause. The seller, who wanted his caution removed so he could complete with the new buyer, settled quickly: the deposit returned in full plus NIS 245,000 in compensation, against removal of the caution.

The tax was the hard part, and it was worth more than the compensation.

Section 102 of the Real Estate Taxation (Betterment and Purchase) Law 5723-1963 says that the Director shall refund tax where it is proved to him that the sale of a right in real property on which tax was paid has been cancelled. The word carrying the weight is cancelled. Israeli law distinguishes a genuine cancellation, where the transaction is treated as never having taken root, from a re-sale, where rights genuinely passed to the buyer and were later transferred back. On the re-sale analysis there is no refund at all. There are two taxable events, and the buyer has bought and sold.

The leading authority is CA 307/85 Director of Land Appreciation Tax, Tel Aviv v Zamir, in which the Supreme Court held that the question is factual: whether the transfer of rights, even if formally completed, took root and found expression in reality on the ground. The burden sits on the party asserting the cancellation.

Ten weeks after our clients walked away, the seller sold the same apartment to the third party for NIS 3,470,000. The Ashdod real estate taxation office looked at that sequence and refused the refund. Its position was that our clients had acquired rights, given them back for NIS 245,000, and that the payment was consideration rather than damages.

In Practice: Section 102 of the Real Estate Taxation (Betterment and Purchase) Law 5723-1963 requires the Director of the Israel Tax Authority to refund tax paid on a sale that has been cancelled, and the refund carries index linkage together with statutory interest at 4% a year from the date the tax was paid. The application is made on Form 6130, an affidavit of cancellation of a sale verified by a lawyer, filed with the office holding the file, and the Tax Authority's Execution Instruction 8/2008 governs how those files are handled. Our clients had paid NIS 252,000 in May 2024. The refund, when it came in November 2025, was NIS 276,700, of which NIS 24,700 was linkage and interest that no one at the Ashdod office ever disputed.

There was a second obstacle that has nothing to do with law and everything to do with incentives. Form 6130 is normally signed by both parties to the cancelled transaction. The seller's own tax position was unaffected by whether our clients got their purchase tax back. He had no reason to sign anything, and every reason to be somewhere else.

What We Did

We made the seller's signature part of the settlement, not a favour to be asked afterwards. The compensation cheque and the removal of the caution were the two things he wanted. We drafted the settlement so that the caution came off and the compensation was released against, among other things, his signature on Form 6130 and a short declaration that the contract had been rescinded for his breach. He signed at the same table. Had we settled first and asked for the form afterwards, this file would have gone to court for a declaratory judgment that the contract was rescinded, which is the only realistic alternative when the other side has moved on.

We built the cancellation file on facts rather than on characterisation. The Zamir question is whether anything actually happened on the ground, so we evidenced that nothing had. Possession was never delivered and the keys never changed hands. No transfer was ever registered at the Land Registry, only a caution, which was removed. Our clients did no works, let nobody in, took no Israeli mortgage, and never opened an arnona account with the Ashdod municipality in their names. Every one of those points was documented rather than asserted: a certificate from the municipality showing the account had remained in the seller's name throughout, a Land Registry extract showing the chain, and the escrow account statements showing the deposit returning in full.

We attacked the compensation point directly. The office's theory required the NIS 245,000 to be a price paid for a transfer back of rights. Money paid by a defaulting seller to an innocent buyer under a liquidated damages clause runs in the wrong direction for that theory, and the actual purchase money for the apartment was paid by the third party to the seller, not by anyone to our clients. We set that out with the correspondence trail showing the seller's repudiation preceding any discussion of money.

We filed the appeal rather than negotiating past the deadline. A decision of the Director refusing to recognise a cancellation is appealable under Section 88 of the Real Estate Taxation Law 5723-1963 to the appeals committee, chaired by a district court judge, within thirty days of the decision being delivered. Clients abroad routinely lose this right by continuing to correspond with the assessing office while the clock runs. We filed inside the thirty days and continued the discussion afterwards. The office revised its position four months later, before any evidentiary hearing.

In Practice: Section 88 of the Real Estate Taxation (Betterment and Purchase) Law 5723-1963 allows a person aggrieved by a decision of the Director, including a decision made in the exercise of discretion such as a refusal under Section 102, to appeal to the appeals committee within thirty days of the decision being delivered to him. The committee sits under the chairmanship of a district court judge. Filing preserves the position for a few thousand shekels in court fees and professional time, and in this file the Israel Tax Authority reversed itself four months after the appeal was lodged and eleven months after the original refusal, without a hearing. Total Israeli legal costs on the tax dispute were NIS 41,000 against NIS 276,700 recovered.

The Outcome

The refund of NIS 276,700 reached our clients in November 2025, eighteen months after the tax had been paid and thirteen months after the contract collapsed. Together with the returned deposit and the NIS 245,000 of compensation, they came out of a failed purchase with more money than they put in, which is not the normal outcome and was not guaranteed at any point.

Two things on the French side needed attention and are easy to forget once the Israeli file closes.

Their impôt sur la fortune immobilière declaration for 2025 had included the Ashdod apartment among their real property assets, on the basis that they had contracted to buy it. Once the sale was cancelled there was no such asset and never had been, and a corrective declaration went to the DGFiP. The compensation is a different question again, and we provided their French adviser with a characterisation letter setting out what the NIS 245,000 was under Israeli law, namely contractual damages for breach, and confirming that our clients never acquired a right in Israeli real property at any point. That distinction matters in France, and it is not one an Israeli file makes on its own.

The last practical point nearly cost them the refund. A Section 102 refund is paid into an Israeli bank account in the taxpayer's name. Having decided that the Israeli adventure was over, our clients had already started closing the non-resident account they had opened to fund the purchase. We stopped that in the same week. Reopening a non-resident account at an Israeli bank takes longer than closing one, and the Tax Authority does not wire refunds to Lyon.

Key Takeaways

What this case illustrates for non-residents in similar situations:

1. Israeli purchase tax falls due long before completion, and a foreign buyer pays at the higher brackets. Tax on this NIS 3,150,000 flat was NIS 252,000 at 8% from the first shekel, payable within sixty days of signing, on a transaction that never completed. Our guide to Israeli purchase tax for non-residents sets out the brackets and the payment timetable.
2. Cancellation and re-sale are different things and the difference is factual. Under CA 307/85 Zamir the test is whether the transfer took root in reality, so keep and file the evidence that it did not: no possession, no registration, no works, no letting, no municipal account in your name, consideration returned in full.
3. Get the counterparty's signature on Form 6130 while you still have leverage. The other side has no tax interest in your refund. Tie the declaration to whatever they want from the settlement, because once the caution is removed and the money has moved, your remaining route is a court declaration.
4. A refusal under Section 102 is appealable, and the window is thirty days. Section 88 of the Real Estate Taxation Law 5723-1963 runs from delivery of the decision, not from the point at which correspondence with the assessing office runs out of road. Non-residents lose this right more often than Israelis do, because the decision arrives at an Israeli address while the client is abroad.
5. Keep the Israeli bank account open until the money lands. Refunds under Section 102 carry index linkage and 4% annual interest and are paid only into an Israeli account in the taxpayer's name. Closing the account before the refund clears converts a solved problem into a new one.

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Facing a Similar Situation?

If an Israeli purchase has collapsed after you paid purchase tax, the refund is a separate fight from the contractual one, and the evidence that wins it is gathered while the deal is falling apart rather than afterwards.

Contact us for a confidential consultation about your Israeli legal matter.