Your Taxes: Is a hotel a real estate play in Israel?
The Israeli Supreme Court ruled in the Nitsba case that purchasing shares in a hotel company is subject to real estate purchase tax, casting doubt on Tax Directive 38/07. The case involved the acquisition of Lexan, owner of the Princess Hotel in Eilat, for NIS 285 million. The court applied an asset test, deeming Lexan a real estate entity. The ruling may affect investors in Israeli hotel properties.
The Israeli Supreme Court has ruled in the Nitsba case that buying shares in a hotel company is liable to real estate purchase tax, potentially overturning a previous tax ruling. The case involved Nitsba Holdings purchasing the shares of Lexan, which owned the Princess Hotel in Eilat, for NIS 285 million in 2015. The hotel was closed for renovations, then burned down in 2019, and had not reopened by the time of the hearing. The court applied an asset test, determining that Lexan was a real estate entity because its assets were primarily real estate. The ruling also addressed management contracts, suggesting that management fees may be considered passive rental income if the owner hedges risk through revenue share or fixed minimum fees. This decision has significant implications for investors in Israeli hotel properties, as it clarifies the tax treatment of such investments.