France-Israel Tax Treaty: Impact on Your Real Estate Investment

The 1995 Bilateral Agreement: Key Principles

The tax treaty between France and Israel, signed on July 31, 1995 and effective since 1996, forms the legal framework governing the taxation of income and assets between the two countries. Its main objective: to prevent taxpayers residing in one country and earning income in the other from being taxed twice on the same amounts.

For French buyers investing in real estate in Israel, this agreement is a fundamental text that determines: in which country rental income is taxed, which country taxes capital gains on resale, how tax credits are coordinated to neutralize double taxation, and what reporting obligations apply in each country.

The general rule for real estate is simple: income derived from real estate is taxable in the country where the property is located. Real estate in Israel is therefore taxed in Israel first, then declared in France with a mechanism to eliminate double taxation.

Rental income: where do you pay your taxes?

If you invest in an apartment in Israel and rent it out, your rental income is taxable in Israel. There are three possible tax regimes:

Flat-rate regime 10%: you pay 10% of the gross rental income, with no deduction of expenses. This is the simplest regime and often the most advantageous for small rental incomes. No annual declaration is required in Israel — payment is made by semi-annual installment.

Simplified real regime 15%: you pay 15% of the net income, after deducting operating expenses (property management, maintenance, insurance) but without depreciation. Interesting if your expenses represent more than 33% of the gross rent.

Progressive regime: your rental income is added to your total income and taxed according to the Israeli progressive scale (10% to 50%). This regime allows you to deduct property depreciation, mashkanta interest, and all expenses. Advantageous for large real estate portfolios with high expenses.

In France, this same income must be declared on your annual tax return (form 2047 for foreign income). France then applies a tax credit equal to the French tax corresponding to this income, which neutralizes double taxation. You do not pay twice.

Capital Gains Tax: Applicable Regime

When reselling your property in Israel, the capital gain is subject to Mas Shevach (real estate capital gains tax) in Israel. The standard rate is 25% on the net gain, with reductions for holding period and possible exemptions.

In France, the tax treaty provides that capital gains on properties located in Israel are taxable in Israel. France grants a tax credit corresponding to the French tax that would have been due on this gain, thus eliminating double taxation.

Important note: the calculation of the capital gain differs between the two countries. In Israel, it is calculated in shekels, from the purchase date, with indexation. In France, it would be calculated in euros, at the exchange rate of each transaction. Your lawyer and accountant must coordinate the declarations to optimize the overall result.

Tax Credits and Elimination Mechanisms

The central mechanism of the agreement is the tax credit. In practice, it works as follows: you pay tax in Israel on your real estate income, you declare this same income in France, France calculates the theoretical tax on this income, then grants you a tax credit equal to the amount of this theoretical French tax (and not the tax actually paid in Israel).

This system means you are never taxed twice, but you always pay at least the tax of the country with the higher rate. If the Israeli tax is lower than the theoretical French tax, the tax credit covers the entire French tax. If the Israeli tax is higher, the excess is not refunded in France.

Declaration in France: Forms and Deadlines

As a French tax resident owning property in Israel, you must complete the following forms each year:

Form 2047 (income received abroad) to declare your Israeli rental income. Form 2042-C (additional income) to report the amounts and the tax credit. Form 3916-bis if you hold a bank account in Israel (mandatory declaration of foreign accounts). And, if applicable, form 2048 to declare a capital gain on sale.

The filing deadlines follow the standard French tax calendar (May-June each year). It is strongly recommended to consult an accountant or tax lawyer familiar with both systems to avoid any mistakes that could lead to a tax adjustment.

Legal Tax Optimization: Our Advice

Several legal strategies can help minimize the overall tax burden of your real estate investment in Israel:

Choose the rental income tax regime best suited to your situation. The 10% flat rate is optimal for most non-resident investors with a single rental property. If you have a mashkanta with high interest, the progressive regime with interest deduction may be more advantageous.

Plan the resale while considering tax allowances. In Israel, holding period allowances significantly reduce the Mas Shevach. In France, capital gains on foreign properties benefit from the same elimination mechanisms through the convention.

Anticipate the impact of a change in tax residency. If you are considering Alyah, switching from French to Israeli tax residency profoundly changes your tax regime, often in your favor for real estate. Olim Hadashim benefit from specific exemptions for 10 years.

Summary Table by Income Type

For a comprehensive tax analysis tailored to your personal situation, contact our team to be connected with a tax specialist familiar with both systems.

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