Why does the Law encourage tourism?

Capital Investments Law (hereinafter – The Law), provides, inter alia, for significant tax benefits such as low tax rates on dividends, reduced corporate tax rates and accelerated depreciation.

The purpose of the law is, inter alia, to encourage capital investment and economic initiative, in a manner that will give priority to innovation and activity in development areas, in order to develop the production capacity of Israel’s economy; improve the ability of the business sector to compete under conditions of competition in international markets and create an infrastructure for new and sustainable workplaces.

For the above reasons, Israel encourages, through grants and other tax benefits, tourism businesses as detailed below.

The Encouragement of Industry Law is another law which encourages, inter alia, Israeli companies with at least 90% of their income resulting from operating a hotel.

In order to be entitled to the tax benefits under the Law the following conditions should be met:

  • The company should own a “tourism plant” which the Law defines as an accommodation facility or a tourist attraction. In this newsletter we will discuss tax benefits for accommodation facilities. An accommodation facility shall include at least 11 rooms and provide accommodation services for fixed periods of time, as well as additional services including catering, recreation and leisure.
  • In order to establish or expand the site, investment in productive assets was required.
  • The above is subject to additional terms. One of the main conditions is that at least 25% of the total overnight stays each tax year are undertaken by non-Israeli residents.

The Law separates two areas of Israel for which tax benefits are granted: Area A and Areas other than A. The following table summarizes the main tax benefits for tourism businesses, subject to fulfillment of all conditions specified in the Law.

 Area AOther Areas
Benefits period10 years7 years
Extended period for companies invested in by non Israeli residentsThe benefits period will be extended for a site owned by a company invested in by non Israeli residents, depends on the level of the foreign investment.
Reduced corporate tax rateThe company can choose:

Tax exemption for the entire benefit period or tax rate of 11.5%

Tax exemption for the first two years.


Depreciation rateAll areas are entitled to accelerated depreciation for productive assets:

200% for machinery / equipment – that may reach 18%.

400% for buildings (up to 20% per year) – that is usually depreciated at 16%.

Alternatively, depreciation rates according to Encouragement of Industry Law are as follows:

20% for machinery/ equipment

5% for buildings which are usually depreciated at 4%

Consolidated Financial StatementsA parent company in which the subsidiary company that owns the accommodation facility (provided the above conditions fulfilled) may prepare consolidated financial statements in which the subsidiary’s income and losses are consolidated with the parent.

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