Strategy and regulation for Israeli real estate companies investing in international markets: European holding structures, taxation and tax treaties, the CFC rules, exit strategies, and dispute resolution, from Greece, Cyprus and Portugal to reconstruction in Ukraine.
Israeli real estate groups are increasingly turning outward, from a demanding local market toward international targets. The reasons are structural: heavy planning and building regulation and long permit timelines at home, the effect of higher interest rates on the viability of local projects and on land prices, and a high real estate tax burden, from purchase tax to betterment tax, that erodes margins.
Against this, foreign markets offer geographic diversification across several currencies and economies, a yield gap in favour of selected European destinations, and, in the Western countries, relative regulatory transparency and stability.
Greece and Cyprus serve as a Mediterranean gateway. Their residency through investment programmes drew capital, and economic recovery after years of crisis affected asset prices and rental demand. The special legal aspects deserve attention: due diligence in Greece, property registration, title problems, and the validity of documents all demand care.
Portugal became prominent for its urban rehabilitation potential, with government incentives to renovate old buildings in Lisbon and Porto, alongside local tenant protection laws that shape any long term rental model, and recent changes to the Golden Visa and to the special tax regime that must be verified against the current position.
The guiding rule across all of these is that attractiveness is not fixed in time. A destination that offered generous incentives when prices were low can tighten its rules once foreign demand drives local political pressure. A sophisticated group reads that cycle correctly and builds its model on the law and policy in force now, not on a flattering picture of the past.
Financing a foreign asset as an Israeli public company usually combines sources: Israeli equity, raised as shares or bonds in Tel Aviv; local bank financing abroad, on a non recourse or limited recourse basis through a European holding entity, with the foreign asset as the main security, where local banks tend to require a higher debt service coverage ratio than is customary in Israel; and intra group loans from the parent to the European entity, with careful attention to transfer pricing rules so as to meet the tax requirements of the authorities in both Israel and Europe.
On the reporting side, a public company carries disclosure duties to the Israel Securities Authority regarding holdings and assets abroad. These are not formalities: incomplete or late disclosure carries its own exposure, separate from the economics of the asset itself.
An Israeli real estate company seeking to invest in assets with a high political and legal risk, such as Ukraine, cannot rely on direct investment from the Israeli parent. That choice exposes the company to double tax risk, structural inflexibility, and needless regulatory risk. The strategic solution lies in the considered use of an international holding structure, routing the investment through a special purpose vehicle (SPV) located in a European territory with tax and legal advantages.
Such jurisdictions offer meaningful benefits. A participation exemption means dividends received from the operating subsidiary flow to the European SPV and are often fully or almost fully exempt. Broad tax treaties with the target country significantly reduce withholding tax on dividends, interest and royalties.
Cyprus is a popular choice for a low corporate tax rate (12.5%) and a wide treaty network, attractive as a gateway to Eastern Europe, and offers an effective exemption from capital gains tax on the sale of shares, provided genuine local economic substance is maintained to avoid claims of an artificial structure.
The Netherlands offers a sophisticated and reliable legal system, a broad treaty network, and a reputation for stability, suited to more complex investments that require international financing through intra group loans.
Even after the European structure is set up, the Israeli company must contend with Israeli tax law, chiefly the Controlled Foreign Corporation (CFC) rule. If the European SPV accumulates passive profits, such as dividends or interest, and does not run an active business with genuine economic substance, and it is controlled by Israeli residents (above 50%), those profits may be attributed to the Israeli shareholders and taxed in Israel even before they are distributed.
To overcome the rule, the SPV must not be passive: this is achieved by proving substance, meaning employing local staff, holding board meetings in the relevant country, and actively managing the assets from within the European country. Precise legal work at the planning stage is critical to avoid a double tax liability.
Choosing the right holding structure is not only a question of tax saving; it is first of all a tool for managing legal and political risk for long term investments in a dynamic and challenging market.
Responsible planning sets the exit in advance. A sale to a local developer raises the legal aspects of transferring rights and title. A listing on a foreign exchange raises the legal and regulatory considerations of floating European real estate activity on the local exchange in Tel Aviv or on a foreign exchange such as London or Frankfurt.
On risk management, political and war risk insurance has a real role, particularly in the Ukrainian context, and international arbitration is preferred over local courts for resolving disputes: an arbitral award enjoys broad international recognition and enforcement, which sharply reduces the risk to the foreign investor.
Should one invest in Ukraine now or wait for a formal ceasefire? As a rule we recommend cautious optimism and early preparation. The most significant advantage today is the ability to secure attractive deal flow and build strategic partnerships with reliable local parties before the large wave of investors.
Yet the closing of deals and the transfer of funds should be done with strict legal conditions precedent that protect the money until the security and legal situation in the specific area clears. The investment now is mainly in rights and in due diligence, not necessarily in actual construction.
What is the biggest risk of investing in Greece or Portugal compared with Israel? While the security and political risks in Greece and Portugal are far lower than in Ukraine, the most significant risk is changing regulation. These countries, particularly Portugal, recently changed the Golden Visa rules and the rental laws, which directly affected investment viability and the exit model.
A current legal review of the local rental and tax laws is essential before entering the market.
How can an Israeli public company finance real estate abroad? Usually through combined financing: Israeli equity raised in Tel Aviv; local bank financing abroad through the European SPV, with the foreign asset as the main security and a higher debt service coverage ratio than is customary in Israel; and intra group loans from the parent to the SPV, with careful attention to transfer pricing to meet the tax requirements in Israel and Europe.
How important is proving economic substance in the European SPV? It is critical, on two planes, Israeli tax and European tax. Both the European and Israeli authorities act against aggressive tax planning. If the European SPV is a shelf company with no employees, office or real management activity, it may be treated as a CFC in Israel, or the European tax authorities may disregard it and tax the venture as if managed from Israel, subject to the MLI and BEPS rules.
The investment must be actively managed from abroad.
What is the best way to resolve real estate disputes with local partners in Ukraine? Litigation in local courts in a market undergoing reconstruction may be long, expensive and unpredictable. The broad legal recommendation is to include a detailed international arbitration clause in the contract, preferably before recognised institutions such as the International Chamber of Commerce (ICC) in Paris, or institutional arbitration in Vienna (VIAC) or London (LCIA).
These awards enjoy broad international recognition and enforcement under the New York Convention, which significantly reduces the risk to the foreign investor.
Note: this is a general professional analysis of trends and risks in the international real estate market. It is not a substitute for individual, current legal, economic or tax advice from a specialist lawyer familiar with the client's specific circumstances. Regulatory and tax data change frequently, especially in markets such as Greece, Portugal and Ukraine.
Do not rely on this article alone for business or legal decisions.
נושא: נדל״ן והתחדשות עירונית, בארץ ובחו״ל
Real estate advisory & opinion · AI advisory & opinion · Advisory · Mediation & dispute resolution · Articles · Q&A · Readiness assessment · Book a call