Owning Israeli Property Through a French SCI: Guide

A retired couple in Lyon decide to buy a two-bedroom apartment in Netanya for their visits and, eventually, for their children. Their French notaire suggests the obvious vehicle: an SCI, the société civile immobilière that French families use almost by reflex to hold property, keep control, and pass it down. It works so well at home that using it abroad feels like common sense. In Israel it can quietly become the most expensive part of the purchase, and the reason has nothing to do with whether it is permitted.

Israel lets a French SCI own an apartment. What it does not do is honour the French logic behind it. Once an SCI holds Israeli real estate, the Israeli tax system re-characterises the whole structure and strips out the reliefs a French owner assumes come with it. This article works through that mismatch, the tax on the way in and the way out, and the French-side reporting that follows an Israeli asset home. If you are comparing this against the corporate route more generally, our guide to holding Israeli rental property through a company covers the operating-tax layers this article does not repeat.

Why French Buyers Reach for the SCI

At home the SCI earns its keep. It is tax-transparent in France, so the partners are taxed on their shares rather than at a company level. It lets parents transfer the property to children gradually by gifting shares, using the €100,000 per-child allowance that refreshes every fifteen years, while keeping management control. And it smooths the friction of French forced heirship, letting a family plan a succession that rigid default rules would otherwise dictate.

None of those benefits is imaginary. They simply operate on French real estate inside the French system. Carry the same vehicle across to an apartment in Israel and each assumption has to be tested against Israeli law, which was not written to accommodate it.

How Israel Re-Characterises the SCI

Under the Real Estate Taxation Law 5723-1963, a company whose assets are mainly rights in Israeli real estate is a real estate association, an igud mekarkein (איגוד מקרקעין). Section 1 of the law defines it broadly: an entity most of whose assets, directly or indirectly, are Israeli real estate rights, setting aside narrow exceptions for listed securities and real estate investment trusts. A French SCI holding a single Israeli apartment falls squarely inside that definition.

That one classification drives everything that follows. It means Israel does not see a French property-holding company with all its French tax attributes. It sees a real estate association, and it taxes actions in that association as though they were dealings in the land itself.

Start with the purchase. When the SCI buys the apartment, it buys as a company, not as an individual, so it cannot reach the graduated single-home purchase-tax bracket that an Israeli resident buying their only home enjoys, and like any non-resident investor it pays at the higher rates from the first shekel.

In Practice: An SCI buying an Israeli apartment pays purchase tax (מס רכישה, mas rechisha) as a non-individual, so on a NIS 3 million home (roughly €750,000) the charge runs at 8%, about NIS 240,000, with no single-residence relief, declared to the Israel Tax Authority within 30 days of signing under Section 73 of the Real Estate Taxation Law 5723-1963. Registering a foreign-company purchase and its supporting documents at the Land Registry (tabu) typically adds several weeks over a straightforward personal purchase, because the SCI's statutes and signatory authority must be apostilled and translated.

The Trap Sits at the Exit

The purchase is only where the extra cost begins. The real difference between an SCI and personal ownership shows up when the shares move, whether by sale, gift, or inheritance.

In France, transferring SCI shares is a share transaction, taxed lightly, subject to a 5% registration duty on the share value. A French owner reasonably expects Israel to treat a share transfer as a securities disposal too, and to look to the securities regime. It does not. Because the SCI is an igud mekarkein, a transfer of its shares is an action in a real estate association, and Israel taxes it as if the underlying apartment had changed hands. The securities capital-gains exemption that can shelter a non-resident's ordinary share sale does not rescue a real-estate association, and the individual residence exemption from land appreciation tax is out of reach because the seller is a company.

In Practice: A transfer of the SCI's shares is an action in a real estate association under the Real Estate Taxation Law 5723-1963, so the buyer pays purchase tax at 6% of the underlying property value, about NIS 180,000 on a NIS 3 million apartment, while the seller pays land appreciation tax (מס שבח, mas shevach) at 25% on the real gain as though the property itself were sold. Both are declared to the Israel Tax Authority within 30 days, and the assessment is finalised over roughly 8 to 12 months. Neither the securities exemption nor the individual single-home exemption applies.

Read that against the French plan to gift shares to children every fifteen years. Each of those gifts, so efficient in France, is an Israeli-taxable action on the apartment. The vehicle chosen to make succession cheap in France makes each generational transfer a taxable event in Israel.

What the SCI Does Not Shield

French owners often expect the SCI to solve three problems at once. On the Israeli asset, it solves none of them cleanly.

It does not remove the apartment from French wealth tax. For a French tax resident, the impôt sur la fortune immobilière reaches worldwide real estate where the net taxable base exceeds €1.3 million, and interposed companies such as an SCI are looked through, so the Israeli apartment stays inside the IFI base whether you hold it directly or through the company.

It does not route the Israeli property through French succession law. Under Section 138 of the Succession Law 5725-1965, succession to immovable property situated in Israel is governed by Israeli law regardless of where the deceased was domiciled. The apartment follows Israeli succession rules on the property, and there is no France-Israel inheritance-tax treaty to reconcile the two systems, so a family relies on Israel levying no estate duty since 1981 rather than on any treaty relief.

And it does not reduce French reporting. A French resident holding a foreign SCI and a foreign bank account for it carries French filing obligations, including the declaration of foreign accounts on form 3916, where a missed account draws a €1,500 penalty. The SCI itself has French return obligations on its results. On the Israeli income side, rent from the apartment is taxed in Israel at source under the France-Israel tax treaty signed on 31 July 1995 (with its 2013 avenant), with relief given in France, and holding through a company changes the character of that income without removing Israel's primary right to tax it.

When an SCI Earns Its Place

None of this makes the SCI a mistake in every case. It makes it a deliberate choice rather than a default. The structure begins to pay when there is a genuine portfolio of several Israeli properties, when a group of co-investors needs clean transferable shares instead of a crowded tabu entry, or when a family is planning a real multi-generational transfer and both countries' advisers have sat down together and modelled it. In those situations the association wrapper does work that direct ownership cannot, and the Israeli tax is a known cost of a considered plan.

For the Lyon couple buying one apartment, it is almost always the wrong tool. Direct personal ownership, paired with a properly drafted Israeli will, gives them the reduced purchase-tax brackets on the way in, keeps the residence exemptions available on the way out, and avoids turning every future gift to their children into an Israeli land-tax event. Our guide to buying property in Israel for French residents sets out that direct route in full.

Common Mistake: A French family forms an SCI for a single Israeli apartment on their notaire's advice, expecting French transparency and the €100,000 gifting allowance to carry across. Because Israel treats the SCI as an igud mekarkein under the Real Estate Taxation Law 1963, each later gift of shares to a child is taxed as a transfer of the apartment, drawing 6% purchase tax and land appreciation tax at the Israel Tax Authority every time, so a structure meant to save succession costs instead multiplies them, and unwinding the SCI is itself a taxable sale of the property.

Practical Checklist

• Before buying, have an Israeli adviser model both the purchase tax on the way in and the land appreciation tax on any future share transfer, treating the SCI as an igud mekarkein.
• Compare that against direct personal ownership with an Israeli will, which preserves the individual reduced brackets and residence exemptions.
• Do not assume the SCI shields the apartment from French IFI; for a French resident it does not.
• Remember that succession to the Israeli apartment is governed by Israeli law under Section 138 of the Succession Law 1965, whatever the SCI's French statutes say.
• Account for the French reporting the SCI carries, including form 3916 for its foreign account and the SCI's own French returns.
• Appoint an Israeli lawyer under a notarised and apostilled power of attorney, and have the SCI's statutes translated by a sworn translator for the French side and under Section 15 of the Notaries Law 1976 for the Israeli side.

Speak With an Israeli Attorney

Whether to hold your Israeli apartment directly or through an SCI is a decision to make once, correctly, with both tax systems on the table, because Israel taxes you to exit a structure it should never have entered. We model the igud mekarkein consequences on your actual numbers, align the Israeli position with your French notaire's succession plan, and tell you plainly when direct ownership is the cheaper answer.

Contact us for a confidential initial consultation.