The return has been wiped out: The tax that destroyed the dream of office buyers

A weekend column in Globes claims that the taxation of retained earnings harms small commercial real estate developers, wipes out the return on office rentals, and may concentrate power in the hands of large corporations.

A weekend column in Globes by Dror Marmor claims that the taxation of retained earnings in closely held companies, which took effect in January 2025, severely harms small commercial real estate developers. The author explains that the law, originally intended to prevent tax deferral through shell companies, requires an annual tax payment of 2% on undistributed surpluses or a dividend distribution of at least 6%. According to him, the effective tax rate jumps to about 50%, and the net return on office rentals drops below 3%. The author warns that a planned increase of the tax to 8% could worsen the crisis. Yair Levy, a veteran in the industry, predicts that within a few years private players in the small office market will disappear, power will concentrate in the hands of real estate giants, and prices for small businesses will rise. The article notes that the harm is retroactive, as developers who took bank loans are now required to meet covenants while their capital base is eroded.