Airbnb in Talks to Deduct Tax at Source on Israeli Apartments in Bid to Stop Tax Evasion

Similar deal already in place in the United States, where the website deducts 28% from U.S. rental fees and pays it to the IRS unless renter opts out

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An Airbnb rental apartment in Tel Aviv.
An Airbnb rental apartment in Tel Aviv.Credit: Airbnb

The Israel Tax Authority is holding initial talks with Airbnb over a deal that would see the company deduct tax at source on behalf of Israelis who rent out apartments via its website.

This means Airbnb would deduct the tax from the money it owes to landlords and send it directly to the authority. Currently, it transfers the full rental fee to the landlords and they are then responsible for paying any taxes on it.

The Tourism Ministry is also involved in the talks.

If an agreement is reached, the tax would apparently be set at a fixed percentage of the rental fee rather than being dependent on the individual’s income, in order to make life easier for the company.

The number of Israeli apartments rented through Airbnb has doubled over the past two years, and the number of apartments on offer via the site has tripled since 2014. The result, especially in Tel Aviv, is that many long-term rental apartments have become short-term tourist rentals.

In 2015, 177,000 tourists – both foreign and Israeli – rented apartments in Israel through Airbnb. That number climbed to 240,000 in 2016, and it’s expected to roughly double this year. In the first seven months of the year alone, 300,000 people rented apartments in Israel through Airbnb: 25 percent higher than the total for all of 2016.

Israelis are also increasingly using Airbnb rather than hotels for domestic tourism.

Israeli law requires anyone renting out an apartment to determine whether or not he owes tax on the income and declare it if he does. But most people who rent apartments through Airbnb don’t report the income to the Tax Authority – a fact that upsets hoteliers, who complain of unfair competition. No one knows just how big this underground economy is.

Airbnb has already signed agreements with many countries worldwide to deduct taxes such as value-added tax or tourism and hotel taxes at source and pass them onto the tax authorities. But it has generally been loath to report or deduct income tax.

However, it does have an agreement with the U.S. Internal Revenue Service under which it deducts tax from the rental fee and transfers it to the IRS unless the landlord fills out a tax form available on the website.

The deduction is 28 percent for American citizens, and 30 percent for foreigners who own property in the United States but whose countries don’t have tax treaties with America.

Britain’s tax authorities also receive information from Airbnb (just as they do from banks and other financial institutions), which they use in preparing tax assessments. Last year, they sent letters to 10,000 people who had failed to report additional income on their tax returns, and some of those letters related to income from Airbnb.

In Britain, rental income of up to 7,500 pounds sterling a year is currently tax free. But this spring, the government proposed restricting that exemption to long-term rentals. If this proposal becomes law, Britons who rent out property via Airbnb and are currently exempt from paying taxes on the income may end up having to pay.

Ireland has already enacted a similar law, so its tax exemption for rental income applies only to long-term rentals.

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