Tourism Investment Israel

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Tourism Investment

in Israel

Where Unique Heritage AssetsMeet a Solid Business Environment

2010

Tourism Investment

in Israel

Where Unique Heritage AssetsMeet a Solid Business Environment

2010


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.i.g.i

[email protected]

Tourism Investment

in Israel

Where Unique Heritage Assets

Meet a Solid Business Environment

2010


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table of contents

Israel overvIew .................................................................................................................................5

economIc context ...........................................................................................................................9

s Highigh .........................................................................................................................................10

G td ...........................................................................................................................................14

tourIsm .................................................................................................................................................17

ti a ............................................................................................................................................18

ti f d n ....................................................................................................................19

G I .....................................................................................................................................23

Di ti .......................................................................................................................................23

Government PolIcy on tourIsm Investment ...............................................................25

H r tg n ................................................................................................................26

mi G spp ch .......................................................................................................27

G ai n ti Pj .................................................................................. 28

cgi ai .................................................................................................................28

cpi eigi ai ..............................................................................................28

ahii Id i h app Pd ...........................................................................29

G ...............................................................................................................................................29

Tax Benets ......................................................................................................................................30


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Israel Overview


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6

Israel overvIew1

Ofcial languages: Hebrew, Arabic.

Currency: The New Israeli Sheqel (NIS), which is divided into 100 agorot

(as of January 1986).

Capital: Jerusalem

Governing system: Democratic parliamentary.

a h country: 22,072 sq. km.

Distance between farthest points: 465 km. (290 miles), north to south.

Coastline: Length of Mediterranean Sea coast 194 km.

Length of Red Sea coast about 12 km.

Lowest point: The Dead Sea, 420 m. below sea level (lowest spot on Earth).

Highest point: Mount Hermon, 2,224 m.

Climate: Israel is on a climatic crossroads, between an arid climate in the south and east and a temperate

Mediterranean climate in the rest of the country.

Population: In April 2010 - about 7.6 million inhabitants (Jews and others approx. 80%, Arabs approx. 20%).

1 Source: Israel Central Bureau of Statistics; Israel Ministry of Industry, Trade and Labor

ah pi i

Newsweekmagazines Best Countries survey has ranked Israel among the best countries to

live in, at the 22nd spot. Israel scored a total of 79 points out of a possible 100.

The magazine rated 100 countries by how well they scored in ve categories, namely:

education, health, quality of life, economic dynamism, and political environment. The

rankings were based on, among others, economic indicators, the Gini coefcient, the

Innovation Index, and the Global Peace Index.

Forbes magazine in its Gallup poll has rated Israel as the worlds 8th happiest country.


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7

Israel Overview


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Economic Context


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10

economIc context

s Highigh1

Israel joined the OECD in May 2010.

The Swiss Institute for Management Development (IMD) ranked Israel 17th out of the worlds 58 most

economically developed nations in its 2010 World Competitiveness Yearbook, raising it by seven spots from

its 2009 ranking. Israel holds the No. 1 position, among other things, in resilience of the economy.

The worlds three largest rating agencies, Moodys, Fitch, and Standard & Poors, in a vote of condence

in the Israeli economy, maintained a high credit rating for Israel at a time when the economys resiliencewas put to the test, mainly by the latest global economic crisis. While Israel is not immune to the effects

of the global credit crunch, as its main trading partners have been hit by the crisis, the countrys sound

macroeconomic fundamentals and strict scal policy have served as a buffer to dampen the impact of

nancial wobbles.

Level of Economic Activity,* 1998-2010**

(Index: 2005 average = 100)

75

80

85

90

95

100

105

110

115

120

125

130

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

** To April 2010.

* The Bank of Israel composite index, including the change in economic activity trend growth

Source: Bank of Israel - Research De artment

Though Israel is a small country with limited resources, it stands out as one of the worlds most competitive

economies. In fact, The World Economic Forum (WEF) ranked Israel as the 24th most competitive economy

(out of 139) in its 2010-2011 Global Competitive Index. In the criterion of favorable nancial environment,

Israel was ranked in the 14th place, and in availability of venture capital it came in 10th place.

1 Source: Invest in Israel Investment Promotion Center, Ministry of Industry, Trade & Labor; Ministry of Finance, International Affairs Department


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11

Economic Context

The effectiveness of Israels scal and monetary policy is reected in the performance of its economy. Since

2003, gross public debt has been on a consistent downward trend, interrupted only by the global economiccrisis in 2009, and it stands at about 80% of the GDP. At the same time, unemployment has declined and

price stability has been maintained. The annual ination rate in the last several years has remained steady

around 3%, in line with expectations.

Economic growth has been fueled by a steady increase in exports and foreign investment. In 2008 foreign

direct investment in Israel was close to $10 billion.

The Bank of Israel forecasts 3.8% growth for 2011.

Israel is a preferred choice among leading global players. After the United States, Israel has the largest

number of companies listed on the NASDAQ of any country, and more than 60 Israeli companies are traded

on various European exchanges. The long list of multinationals that run core activities in Israel includes:

Microsoft, Motorola, Intel, HP, Siemens, Samsung, GE, Philips, Lucent, AOL, Cisco, Applied Materials, IBM,and many others.

Israel became the rst non-European state to head the EUREKA Network, the leading industrial R&D initiative

in Europe and the largest of its kind in the world, with investments of 1.5 billion euros every year. Israels

Chief Scientist assumed the chairmanship of the organization in June 2010 for the year 2010-2011.

The World Intellectual Property Organization (WIPO), a specialized agency of the United Nations, has recently

recognized Israel as an international center for the search and testing of patents. Israel will be added to

the list of 15 leading countries in this eld, and patent applications recognized in Israel will be accepted

internationally as well.

I ei Idi

cii 2006 2007 2008 2009 2010e

GDP (current prices in $ B) 144.0 164.1 191.8 193.1 201.0

GDP Real Growth Rate (%) 5.2% 5.4% 4.0% 0.7% 4.1%

GDP per Capita

(PPP adjusted)$24,271 $27,395 $28,473 $28,160 $28,800

GDP per Capita Growth Rate(%, Current prices)

3.3% 3.5% 2.1% -1.1% 2.3%

Exports (Goods & Services) $B 62.6 71.2 80.4 70.35 81.9

(As Percentage of GDP) (43.5%) (43.4%) (40.3%) (36%) (40.7%)

Imports (Goods & Services) $B 62.2 74.0 84.1 72.3 84.8

(As Percentage of GDP) (43.2%) (45.1%) (42.2%) (37.4%) (42.2%)

Unemployment Rate (%) 8.4% 7.3% 6.1% 7.6% 7.2%

Source: Ministry of Finance, Bank of Israel and Central Bureau of Statistics


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12

Economic Context

Weizmann Institute of Science


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13

Economic Context


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14

Economic Context

G td1

Development towards a modern and open business environment in Israel has been underpinned by comprehensive

deregulation across all sectors of the economy.

Legal frameworks have been reformed in areas that affect conditions for operating a business. There are no

special approval requirements or operating permits for foreign-controlled enterprises2. In the past several years,

the Israeli economy has been undergoing a comprehensive pro-market, pro-competition structural reform

program: reducing government expenditures, cutting taxes, breaking up monopolies, privatizing state-owned

companies and banks, promoting competition, reforming the pension system, reforming the capital market, and

dozens of other reforms.

As a result, according to the World Banks Doing

Business in 2006, Israel was found particularly attractivefor investor protection legislation, and for ease in trading

across borders, getting credit and starting a business. On

January 19, 2007 the IMF (International Monetary Fund)

Executive Director for Israel published the following

statement: The economys high degree of development

together with the authorities commitment to maintain

a market-based economy, good governance and

democratic pluralism, place Israel as a natural candidate

for OECD membership In 2010, Israel has indeed

joined the OECD.

Israel enjoys high levels of freedom in trade, investment,

monetary controls and labor. The economy is open to

foreign investment in almost all sectors. Tariff rates are

low, so is ination, and the labor market is highly exible.

Israels relatively advanced high-technology sector was

largely responsible for the countrys annual average

GDP growth of 5% during the 1990s. In its December

13, 2006 issue, The Economist published its emerging

markets survey which placed Israel as one of the ve

fastest growing emerging markets in the past 20 years.

Foreign direct investment (FDI), insignicant before the 1990s, has taken on a signicant role in the development

of the Israeli economy. Towards the mid-1990s, rapid expansion of the countrys high-tech sector, in conjunction

with the opening up of the nancial and telecommunications sectors, attracted large amounts of both foreign

direct and portfolio investment. Direct investment was boosted by a number of large acquisitions, including

Warren Buffets US$4.4 billion acquisition of an 80% controlling stake in Iscar Metalworking Companies.

Israel has developed into one of the worlds leading technology hubs. Home-grown innovations in high-tech

industries especially software, telecommunications, and Internet technologies and bioscience have driven the

countrys economy over the past two decades.

1 Source: Israel: Ready for the OECD, Ministry of Finance International Affairs Department, April 2007.2 OECD Investment Policy Reviews: Israel, September 2002 OECD Directorate for Financial, Fiscal and Enterprise Affairs, p.7

Photo:IlanMalester

Photo:AlexKaplan


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15

Economic Context

Israel is a worldwide leader in water resource management, and it is taking a signicant place in the world of

biotechnology. Israel also has one of the highest patent-to-GDP and patent-to-population ratios1

.

In 1988 Israel launched its rst satellite, using an Israeli-built launcher. By independently building and launching

its own satellite, Israel joined an exclusive club, which includes a few countries only.

Israel is a member in most international organizations, including the United Nations and its main bodies and

commissions, the OECD, the World Bank Group, the International Monetary Fund, the European Bank for

Reconstruction and Development, and the Inter-American Development Bank. Israel has been a signatory to the

General Agreement on Tariffs and Trade (GATT) of 1947 since 1962, and is a founding member of the World

Trade Organization (WTO), since its inception in 1995. In addition, Israel actively participates in multilateral

initiatives conducted within the framework of the WTO, such as the Government Procurement Agreement (GPA)

and the Information Technology Agreement (ITA).

Israel benets from strong ties with the worlds major economic powers and trading blocs. Israel has concludedfree trade agreements (FTAs) with its major trading partners and belongs to a small group of countries having free

trade agreements with the United States and the European Union. In addition, Israel has free trade agreements

with the EFTA countries, Turkey, Canada, Mexico, Bulgaria, and Romania.

In recent years, Israel, together with the US, has developed new regional trade agreements that stimulate

economic cooperation between Israel and its neighbors in the Middle East.

In order to step up its international economic cooperation and promote Israeli investments in emerging markets,

Israel has entered into 40 Agreements for the Promotion and Protection of Investment and 44 Agreements on

the Avoidance of Double Taxation, largely based on OECD models.

Israel has undertaken to share its experience in nation-building with other states, by way of cooperation programsand technology transfer as well as by active participation in international forums.

Real** and Nominal NIS/$ and NIS/ Exchange Rates2005-2010*

* To April 2010.

** The real effective exchange rate is the weighted geometric average of the exchange rate ofthe shekel against 28 currencies, representing 38 of Israel's main trading partners (weightedby the extent of Israel's trade with those countries), adjusted for the difference between therate of ination in Israel and the rates of ination in those countries.

NIS/NIS/$

1.35

1.30

1.25

1.20

1.15

1.10

1.05

1.00

5.0

4.8

4.6

4.4

4.2

4.0

3.8

3.6

3.4

3.2

31/01/201031/01/200931/01/200831/01/200731/01/200631/01/2005

Dollar rate

Real exchange rate

Nominal NIS/$ and NIS/ Exchange Rates2005-2010*

NIS/NIS/$

6.50

6.30

6.10

5.90

5.70

5.50

5.30

5.10

4.90

4.70

4.5

5.0

4.8

4.6

4.4

4.24.0

3.8

3.6

3.4

3.2

201020092008200720062005

NIS/$ rate

NIS/ rate

* To April 2010.

Source: Bank of Israel, Research Department

1 Global overview of innovative activities from the patent indicators perspective, STI Working Paper 2006/3.


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Tourism


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tourIsm

ti a

Israel has some of the most important tourism sites in the world, ranging from religiously signicant i

such as Jerusalem, with all its attractions, through national and ii hig i such as Masada,

to unique i like the Dead Sea.

Leading tourism centers in Israel are:

J the 3000-year-old city which is signicant to billions across the globe. The New York-based

Travel and Leisuremagazine named Jerusalem as h i i ai d h midd e i 2010 ,based on criteria such as sites, culture and arts, restaurants and food, people, shopping and value. In

addition, readers of the popular travel website TripAdvisorranked Jerusalem among the p 10 d

ighig dii i h d.

t ai the exciting, non-stop urban center of business, culture and entertainment. The Lonely Planet

travel guide named Tel Aviv as the hid i i h d. The National Geographic magazine

included Tel Aviv among the worlds p 10 h ii. The city was also voted the hid i i

ai d h midd e by the New York-based Travel+ Leisuremagazine and one of the worlds p

p ii by Forbesmagazine, and was included in the Louis Vuitton 2010 European Cities Guide.

ei the ever-sunny modern recreation city on the Red Sea coast.

tii a town on the Sea of Galilee (Lake Kinneret) shore, dating back to the times of Jesus, who livedand preached in its surroundings.

th Dd s which ranks among the wonders of nature, due to its special attribute as the lowest place

on Earth, as well as the enormous mineral wealth of its waters and the therapeutic qualities attributed to

its waters, mud and air. The Dead Sea is indeed one of the 28 nalists in the New 7 Wonders of Nature

international online competition.

Several more hii ii (Acre, Nazareth, Safed, Jaffa) and id ii (Haifa, Netanya, Herzliya, etc.)

join this list as well.

Israel is h H ld, regarded as holy by all the monotheistic religions. The country abounds in archeological

and historical sites, and offers a wealth and diversity of culture, including hi .

Though very small in area, Israel has a d g dp d i. Its small size facilitates the

ii i ih i i. In addition, Israel is a Western country with

a dpd hg and with i d ii.


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Tourism

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ti f d n1

The majority of visitors arrive in Israel by air and use tourist accommodation facilities.

Israel had about 2.5 million inbound tourists in January-September 2010. The expected number for the

whole year is 3.35 million.

About 41% of incoming tourists in the rst half of 2010 came on organized tours.

In January-September 2010, 16.2 million overnight stays were recorded in hotels. By the end of the year

about 21.8 million are expected to be recorded.

Room occupancy in hotels in the rst nine months of 2010 stood at an average of 65%. Average 2010

annual occupancy is estimated at about 66%.

Annual revenue per hotel room averaged about $45,000 in 2008.

Hotel workers wages average about $1,600 per month.

According to the Ministry of Tourisms 2009 tourist survey, foreign tourists graded general satisfaction with

their visit to Israel at 4.2 on a scale of 5.

Visitor Arrivals in Israel, 2001-2010*

0

500

1,000

1,500

2,000

2,500

3,000

3,5003,350

2,740

3,034

2,293

1,8311,916

1,063

862

1,206

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1,505.7

*2010 estimate

1 Source: Israel Central Bureau of Statistics; Ministry of Tourism Research and Statistics Department


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Tourism

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Tourism

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Tourism

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USA, 21% Other, 23%

Netherlands, 2%

Spain, 2%

Nordic countries, 2%

Ukraine, 3%

Poland, 4%

Itaiy, 5%

Germany, 5%

Canada, 2%

U.K., 7%France, 10%

Russia, 15%

Inbound Tourism by Country of Origin, 2009

Tourists come to Israel for four main purposes: holiday and touring, pilgrimage, family visits, business/duty visits.

Inbound Tourism by Purpose of Visit, 2009

VFR (visiting

relatives &

friends, 25%

Pilgrimage, 27%

Touring &

Sightseeing, 8%

Holiday &

Leisure, 23%

Other, 4%Business, 13%


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Tourism

23

G I

The bulk of inbound tourism arrives through the new, modern

Ben Gurion Airport, which is located in the center of the country,

between Jerusalem and Tel Aviv.

Eilat airport also handles international ights, especially winter

charters from Europe.

Other gateways for inbound tourism are the seaports of Haifa

and Ashdod, as well as the land crossings: the Jordan River and

Taba (near Eilat).

Di ti

Domestic tourism shows every sign of thriving. Most Israeli families regularly go on excursions throughout the

country, using all accommodation types.

There are thousands of small businesses that produce and market home-made food, such as olives, cheeses, oil,

wine, breads and more, located mostly in the rural regions in the north and south of the country and constituting

tourist attractions, especially for domestic tourism.

The stable domestic tourism market has provided a security net for the tourism industry in years of crisis,

compensating to a great extent for the decrease in revenues from inbound tourism.

Night Stays in Hotels (millions), 2001-2010*

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3.8

11.3

2.6

12.0

3.3

11.8

4.8

12.2

6.8

12.3

6.9

12.5

10.2

11.4

8.4

12.1

8.1

11.8

Tourist Israelis

9.7

12.1

Source: Israel Central Bureau of Statistics

* 2010 estimate


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Disk-In-Pro, smart visual communication


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Government Policy on

Tourism Investment


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Government PolIcy on tourIsm Investment

H r tg n

Among the targets set by the Ministry of Tourism for the coming years is the arrival of 5 million tourists per year

beginning in 2015. This target, juxtaposed against the existing supply of hotel rooms, translates into a need for

19,000 additional hotel rooms (to reach a total of 65,000 rooms) by 2015.

rqid h di i h ig (g 2015) a total of 19,000 additional

rooms:

9,500 rooms in Jerusalem and its environs (all room levels)

4,000 rooms around the Sea of Galilee (Lake Kinneret) and in the Galilee region

(mostly lower and middle levels)

3,800 rooms in Tel Aviv and the surroundings (mostly middle and higher levels)

1,700 rooms in the Mediterranean Sea coast towns (mostly middle and higher levels)

In order to reach these target numbers, the Ministry of Tourism is actively encouraging the establishment of

additional accommodation facilities.


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Government Policy on Tourism Investment

mi G spp ch

The Israeli Ministry of Tourism is working to develop a unique and variegated tourism product, by pidig

i p h i h d i, and through i

i h dp j ii i (archeological, religious, historical and scenic) and

development of tourism centers.

The ministry is looking to consolidate Israels image as a tourist destination by conducting kig

pig d pi.

The ministry is working to facilitate access to Israel through the iizi i p pi,

g ih h d ii, d diii ipdi h

h d i.

The ministry holds , gi d i kig pig for domestic tourism and promotes

the staging of i-dig .

The ministry holds pd d i qi k in the various tourism sectors, in

order to promote high standards.

The ministry has prepared a strategic plan for i dp, which is being implemented instages.


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G ai n ti Pj

Projects which conform to government policy for the development of tourist accommodation facilities, and

prove to be economically viable, are eligible for government assistance according to the Encouragement of

Capital Investment Law.

cgi ai

Government assistance for the construction of tourist projects includes:

1. Granting approved enterprise status, making the project eligible for grants during construction and for tax benets in

the course of operation.

2. Allocating or leasing state-owned land which is administered by the Israel Lands Administration. Foreign investors may

be eligible for land allocation without a tender, under special conditions.

cpi eigi ai

Any entity whose legal corporate form meets the requirements of the law is eligible for government assistance

under the Encouragement of Capital Investment Law. This includes:

1. A company, as dened in the Companies Ordinance, possessing equity capital.

2. A cooperative society, as dened in the Cooperative Societies Ordinance.

3. A partnership registered under the Partnerships Ordinance as a foreign limited partnership, in which all Israeli partnersare corporations.

4. A partnership, registered under the Partnerships Ordinance, in which the partners belong to any of those specied in the

foregoing paragraphs 1, 2 and 3.

5. A partnership registered under the Partnerships Ordinance, includinga foreign partnership, in which the partners are

individuals, subject to recognition as an approved enterprise.


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ahii Id i h app Pd

th mii ti

The ministry sets the policy for the encouragement of investments in the tourism industry, and recommends

specic projects to the Israel Lands Administration, when allocation of land is needed.

As of January 2010, the ministry is legally empowered to grant approved enterprise status, and it is now

responsible for handling applications through the whole procedure of grant disbursement.

I ld adiii

The authority responsible for the management, allocation and leasing of state-owned land. In rare instances the

land may be allocated to a foreign investor without a public tender. In tourism matters, decisions are based in

part on the Ministry of Tourisms recommendation.

G

The grant disbursed to projects which are granted approved enterprise status is determined as a xed rate of

the recognized investment as approved by the Ministry of Tourism in accordance with its cost guidelines.

The recognized investment for the construction of a new

hotel is derived from the product of the approved number of

rooms multiplied by the maximum xed recognized investment

per room as set by the ministry, or the actual cost, whichever is

less. For the adjustment or upgrading of an existing building,

the nancial and physical extent of the approved project

plan is determined by the investment board at the ministry,according to its engineers estimates. The approved cost of the

project constitutes the recognized investment limit for the

purpose of grant disbursement.

At present, grants are provided for:

ci/pi h

ri/i idig h

The grants are provided in priority areas designated in the Law,

among them Jerusalem and the Galilee region, and according

to criteria xed by the Ministry of Tourism. The grant amountsto 20% of the recognized investment. Additional special

incentives for hotel projects in Jerusalem are planned starting

in 2011.

One of the preconditions for obtaining approved enterprise status is ownership of, or possession of a lease on,

the land on which the project is to be carried out, for a period of 15 years at least. Other preconditions include

the presentation of an effective zoning plan permitting hotel use, and presentation of a banks conrmation of

nancial capacity to provide equity capital at 30% at least of the total required investment in the project.


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Tax Benets1

An Automatic Tax Benets program is administered by the Israel Tax Authority.

To qualify, investment projects must meet certain criteria, including registration of the company in Israel.

Once the criteria are met, the enterprise is recognized as a preferred enterprise by the tax authority. It is then

eligible for reduced tax rates, tax exemptions and other tax-related benets.

Tax benets are determined by the percentage of foreign control: the more foreign control in the enterprise,

the higher the benets.

An approved/preferred investment is entitled to accelerated depreciation on its property and equipment for tax

purposes.

Investors choosing one of the automatic tax programs may apply to the Israel Tax Authority for a pre-ruling to

ascertain the scope of the benets they will be entitled to if they meet the investment conditions as stated in

the Law.

For further details regarding tax benets, see: http://www.investinisrael.gov.il

1Source: Invest in Israel Investment Promotion Center, Ministry of Industry, Trade and Labor

For further information please contact:Business Projects Promotion CenterMinistry of Tourism5 Bank of Israel St., Jerusalem 91009, IsraelTel: 972-2-6664344Fax: 972-2-6664445Email: [email protected]@gov.il / www.tourism.gov.il

WELCOME TO ISRAEL

BOTH AS A GUEST AND AS AN INVESTOR!
http://www.investinisrael.gov.il/mailto:[email protected]://[email protected]/http://[email protected]/mailto:[email protected]://www.investinisrael.gov.il/


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TOURISM INVESTMENT IN ISRAEL

=

YESTERDAYS UNIQE HERITAGE ASSETS

+

TODAYS SOLID BUSINESS ENVIRONMENT


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All rights reserved Israel Ministry of Tourism

Published by the Israel Ministry of Tourism /

Infrastructure Development & Investments Administration /Business Projects Promotion Center

Editor: Merav Peleg, Ministry of Tourism

Documents

Tourism Investment Israel