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20 October 2014

The "House Company" - חברת בית

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In the previous post, we saw an example of how a company can, under certain circumstances, have its income treated as taxable in the hands of the shareholders.

The one other example under Israeli law is the "house company". In order to qualify as such a company, there are two conditions that must be met:

1. The company is owned and controlled by no more than 5 people. For these purposes, first-degree family members and business partners count as a single petson.

2. The company deals primarily in the property business. The type of property and the type of income (i.e. rentals, capital gains etc) are not relevant.

At the request of the company, the company profits can be taxed in the hands of the shareholders (as property income - and taxed accordingly as passive income for both Income Tax and Bituach Leumi purposes), according to each shareholder's share of the profits. This is different to a "Family Company" wherby only one of the shareholders is taxed on the entire profit.

Furthermore, the application to be a "house company" need not be made in advance, and can be changed every year - as per the choice of the company and the shareholders. Again, this is different to a "Family Company" where the status must be requested soon after incorporation and once the status has been changed by the Company, it cannot reaquire such a status.

The "Family Company" can therefore, potentially, be a very attractive option for those who want to invest in property across the world, but without owing the property outright (e.g. for inheritance tax purposes).

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