An Israeli developer offered to build me apartments instead of paying cash for my land. How does a combination deal work and what will it cost me in tax?

A family in Paris has held a plot in Netanya since a grandfather bought it in 1971. A developer writes offering four apartments in the eight-unit building he intends to put on it. No cash, no bank transfer, four apartments in three years. The offer looks like an inheritance turning into an income. Then the Israeli accountant explains that the Tax Authority will treat the day the contract is signed as a sale, and that the bill arrives long before the concrete does.

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Detailed Answer

A combination transaction (עסקת קומבינציה, iska kombinatzia) is a barter. The landowner transfers part of the land to the developer and the developer's consideration is building services on the part the owner keeps. Israeli tax law does not care that no money moved: consideration in kind is consideration, so the transfer is a sale of a right in land and betterment tax (מס שבח, mas shevach) is charged on it. In the usual structure, a partial combination, the owner sells a defined fraction of the rights and is taxed on that fraction only, with the taxable consideration measured by the value of the construction services the developer will supply on the retained part. The developer pays purchase tax on what it acquires. Where the land carries a qualifying residential apartment, Section 49A(b) of the Real Estate Taxation Law 5723-1963, in its form since 1 August 2013, governs how the residential exemption interacts with a combination deal, and getting that analysis wrong is expensive rather than academic. The declaration is due within 30 days of signature under Section 73, and the assessing officer's self-assessment machinery runs from that date, not from delivery.

For an owner abroad this creates a cash-flow problem with no natural solution. You owe Israeli tax on a transaction that produced no cash, in a currency you may not hold, and the apartments that are meant to fund it are two to three years away. Section 15(b) of the same law tells the purchaser to withhold an advance on the seller's account, 15% of the consideration where the land was acquired before November 2001 and 7.5% where it was acquired later, which in a barter deal means the parties must agree in the contract who funds that payment and when. Negotiate it as a term: developers routinely agree to pay the betterment tax, or to provide a bank guarantee for it, and a French owner who raises it after signature has lost the leverage. Two further points catch non-residents. The construction services carry VAT at 18% that a private owner cannot reclaim, so the four apartments cost more than they appear to. And the transaction runs on a notarial power of attorney executed in France, where apostilles have been issued by notaries rather than the cours d'appel since 1 May 2025, so the document chain is quicker than it used to be but the certification has to be right the first time. The eventual sale of the finished apartments is a separate Israeli tax event, with its own exposure, which we set out for French residents selling Israeli property.

In Practice: The signature date is the tax date. Section 73 of the Real Estate Taxation Law 5723-1963 requires the declaration to the Israel Tax Authority real estate taxation office within 30 days, betterment tax for an individual runs at 25% on the real gain, and Section 15(b) obliges the developer to withhold an advance of 7.5% or 15% of the consideration depending on when the land was acquired. On a Netanya plot valued at NIS 6M where half the rights are sold, the tax exposure on signature is commonly NIS 300,000 to NIS 600,000, against apartments that will be handed over 24 to 40 months later.

When to Consult a Lawyer

• The developer has drafted the agreement and it is silent on who pays the betterment tax and the Section 15(b) advance. That silence always resolves in the developer's favour once the contract is signed.
• The plot has more than one owner, or the owners are heirs who have not yet registered the succession order. A combination deal cannot be signed by some of the co-owners, and the registration gap is the single most common reason these transactions collapse mid-negotiation.
• There is an existing house on the land that has been the family's Israeli home. Whether the residential exemption is available, and at what cost to the rest of the deal, changes the arithmetic by hundreds of thousands of shekels and has to be modelled before signature.

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Speak With an Israeli Attorney

We model the tax on a combination offer before you answer it, negotiate who carries the betterment tax and the withholding, and secure the delivery obligations with guarantees that survive a developer's difficulties.

Contact us for a confidential initial consultation.