Your Taxes: Is a hotel a real estate play in Israel?

Israel's Supreme Court has issued a significant ruling that could reshape how hotel companies are taxed, determining that the purchase of shares in such entities is liable for real estate purchase tax. The landmark Nitsba case, decided on June 10, 2026, casts doubt on prior Israeli Tax Ruling 38/07, which had suggested the opposite.

The case centered on Nitsba Holdings 1995 Ltd., a property developer that acquired shares in Lexan, the owner of the Princess Hotel in Eilat, for NIS 285 million in 2015. Lexan's hotel was immediately closed for extensive renovations and was later destroyed by fire in late 2019, remaining non-operational. The Israeli Tax Authority assessed purchase tax of NIS 17 million, classifying Lexan as a real estate entity.

Nitsba contested this, arguing Lexan operated a hotel business, not merely holding real estate. However, the Supreme Court applied an asset test, ruling that if all a company's assets are real estate, purchase tax is due. The court noted that the hotel was not "alive and kicking" at the time of purchase but was slated for closure and renovation, aligning it with the definition of a real estate entity.

This ruling has broad implications for investors and financial professionals dealing with Israeli real estate. Purchases of Israeli real estate typically incur purchase tax of up to 10%, plus Value Added Tax (VAT). The court's decision clarifies that this tax liability extends to the acquisition of shares in companies whose primary assets are real estate, reinforcing anti-avoidance rules designed to treat real estate entities similarly to the properties they hold.