Israeli authorities negotiate tax regulation for Airbnb

Airbnb is facing even more regulations in the wake of its global expansion. Last month, the Israel Tax and Tourism Ministry and Airbnb began negotiating a plan that will require Airbnb hosts in the country to pay taxes directly through the company’s website.  

As part of the proposed plan, Airbnb will collect income taxes on payments made to hosts through the service. The intention for the new tax regulations will squash any possibility of tax evasion and some of the discrimination claims coming from traditional lodging businesses, including traditional hotels and hostels. 

Airbnb collects a similar occupancy tax in many locations around the world. In Amsterdam, Paris and major U.S. cities, the company collects the tax automatically to send off to authorities without collecting them from hosts. 

Airbnb has the authority to decide when and how to collect taxes, which many countries disagree with. For example, Airbnb's European segment collects all charges through its Irish arm, allowing the company to pay Ireland's low corporate tax rate at 12.5 percent on earned income and dodge higher rates in other countries. In response, France and Germany have banded together to lead a proposal in the European Commission to pass EU-wide legislation allowing each country to tax Airbnb rentals with their own tax rates. 

David Shilon, senior Israeli tax authority official, explained that the tax authority is also negotiating another regulation that would require new Airbnb hosts to register for a small business license within the first year. After a year, those hosts would be required to change their license if they are operating as a business. Meanwhile, full-time renters would be required to register as a business.

Short-term home-rental services, like Airbnb, create a complex tax issue, as hosts become potential business owners without needing to hold a business license. The tax authority in Israel is tackling this issue as part of its crackdown on the local real estate black market over the past two years. The main focus has been on hosts considered full-time business operators that rent out apartments to tourists alone. However, the authority ran a sting operation through the Airbnb website in 2018. While posing as clients, officials targeted all renters evading taxes and discovered renters who failed to report the income they earned, which was close to $40,000 a year. According to the authority, Israel has approximately 20,000 homes rented out through home-sharing services, about half of which are in Israel's central district. The proposed tax plan is forecast to raise rental prices for these homes.