Israeli Airbnb Hosts to Feel the Long Arm of the Taxman

A government panel is proposing rules for taxing income earned in the shared economy

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Airbnb co-founder and CEO Brian Chesky speaking in San Francisco, February 22, 2018.
Airbnb co-founder and CEO Brian Chesky speaking in San Francisco, February 22, 2018. Credit: Eric Risberg / AP

The number of overnight stays at Airbnb apartments in Israel has doubled since 2014 and the number of local listings on the site has tripled. More and more apartments that were once rented to tenants are now being rented to tourists, in effect turning their owners into small-scale hoteliers.

Israel’s taxman, however, isn’t getting his take from the Airbnb phenomenon, not to mention lots of other income being generated in the emerging shared economy. Officials are getting ready to do something about it.

A committee chaired by Ofri Shalev of the Israel Tax Authority has drafted a set of recommendations for Finance Minister Moshe Kahlon. If approved, they will go to the Knesset to be approved as law.

The good news is that the proposed tax rate is low and involves little red tape, similar to the tax regime that exists for people renting out homes on a long-term basis.

The tax will be between 15% and 20% of turnover, without any deductions for expenses. Payment will be done over the internet. The rate compares with 10% of revenues on ordinary apartment rentals when the income exceeds 5,000 shekels a month per unit and the landlord has no more than 10 (or in some cases five) properties.

The bad news for Airbnb landlords who hoped to remain under the taxman’s radar is that officials are negotiating with the company to deduct the tax at source. Negotiations with Airbnb, which are being conducted with the Tourism Ministry, are still in the early stages.

Airbnb has a similar agreement to collect income, value-added and hotel taxes with various countries, but the company doesn’t disclose them.

A tax official who requested anonymity said deducting at source would benefit Airbnb entrepreneurs. “If the platform reports and deducts the tax at source, the taxpayer won’t have to report at all,” he said.

But, he added, for now the Shalev recommendations are a “general statement” about future policy for the shared economy and may undergo changes. “There may be different tax rates for different segments based on estimated expenses,” he said. “When the team begins drafting the legislation, they will detail the regulations.”

In any case, the proposed 15%-20% rate will only apply to those whose income doesn’t exceed 25,000 shekels ($7,260) a year and whose shared-economy business isn’t the person’s sole source of income.

If the taxpayer’s income exceeds 25,000 shekels or is a full-time business, he or she will be taxed at the same marginal rate as other self-employed income earners. On the plus side, the taxpayer can deduct expenses.

The new regime won’t change the legal status of ride-sharing services like Uber and Lyft, which are effectively banned in Israel right now unless a driver has a taxi license.

The Transportation Ministry, though, does permit so-called carpool services that can be coordinated by drivers and riders over apps like Waze and Moovit. Those services, which have yet to catch on big, let drivers collect on expenses but not profit.

Thus it’s not clear whether the government plans to tax drivers or whether the recommendations are there to form the basis for taxing drivers in the future if and when the regulatory situation changes.

Apart from landlords and Airbnb entrepreneurs, the tax authority recognizes a third category of rental income — from people who rent their personal residence to tourists. While people who engage in “home sharing” are liable for ordinary tax rates, the phenomenon is so small that officials don’t spend much time policing it.

The Shalev committee recommendations appear to include home sharing as well.

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