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New Amendment to the Sales Law – A Developer May Not Deposit a Value Added Tax (VAT) Guarantee

The Knesset passed a new amendment (Amendment 9) to the Sales Law (Apartments), whereby developers who build apartments for sale are permitted not to deposit sureties for the VAT component of the transaction, thus decreasing the sum deposited by them.

 

Until the latest amendment, the surety was deposited at a sum equal to the amounts actually paid to the developer/contractor, including the VAT component. This was despite the fact that the VAT was actually paid by the contractor to the State. Now, with the new amendment to the Sales Law, the VAT component will be deducted from the sum of the surety deposited by the developer to the purchaser of the apartment.

 

The Sales Law (Apartments), which concerns the transaction of a purchase from a contractor, provides that purchasers of apartments shall transfer payments to the bank accompanying the project through vouchers. The Law also requires developers to supply bank guarantees or an insurance policy known as a “Sales Law Guarantee.” The sum of the guarantee is transferred to the purchasers of the apartments should the developer fail to complete construction. Prior to the amendment, developers would deposit a sum equal to the total amount of payment made by the purchaser for the apartment, including the VAT component.

 

The new amendment alters this and provides that the guarantee given to purchasers is the monies paid by them, without the VAT component.

 

The new amendment establishes that this provision shall apply to developers who meet the following conditions:

  1. The first sale agreement in the project was executed 45 days after the publication of the new amendment.
  2. The agreement for the bank’s accompaniment of the project was executed after the publication of the amendment.

The amendment is a temporary provision that shall be in effect for five years.

Tags: Sales Law | VAT