Grants for renovating hotels

Visitors to Israel cannot help noticing that a few hotels may have lost their shiny new look.

Hotel Cinema (photo credit: LYDIA AISENBERG)
Hotel Cinema
(photo credit: LYDIA AISENBERG)
Visitors to Israel cannot help noticing that a few hotels may have lost their shiny new look and seen better days.
Fortunately, help is at hand. The director-general of the Tourism Ministry recently issued Circular (6/2010) regarding the procedure for giving grants to improve, adapt and upgrade active hotels that haven’t been renovated for 10 years.
This is within the framework of the Law for the Encouragement of Capital Investments, 1959.
The aim is to meet the anticipated shortage of hotel rooms in the coming years and prevent the dwindling of hotel resources in the long term.
The ministry’s target is 5 million inbound tourists by 2015, resulting in a need for 19,000 additional hotel rooms.
A budget of NIS 30 million is being set up in 2010- 2011. This is notable because no budget has been allocated to hotel improvement/ upgrade grants since 2000.
What grants are on offer?
Grants are available at the rate of 20 percent of recognized investment in a project and up to 20% of overall investment in planning, infrastructure, building works, furniture and equipment.
Implementing the improvement/upgrading of a hotel should not exceed two years after an approval certificate is issued.
How will the budget be applied?
Budgetary priority will be given first to hotels in Jerusalem that meet the terms of the Circular. Secondary priority will be given to the Jerusalem area, the Galilee area including Tiberias, and Nazareth. Tertiary priority will be given to Acre and Safed. Fourthlevel priority will be given to other areas.
For each area, the following priorities also apply: first, building designated for preservation; second, buildings not managed by an operator chain; third, proximity to an existing or planned tourism site; fourth, ratio of renovated rooms to the final number of rooms in the hotel.
Grants may be awarded to improve a section of a hotel if it has at least 15 rooms, or 10% of the rooms, whichever is higher.
What are the key conditions?
Applicants will be required to operate the hotel for at least 15 years continuously. Once conditional approval is issued that the project is an “approved enterprise,” the applicant will need to lodge an irrevocable non-recourse bank guarantee of 15% of the amount of the approved grant, index linked, for 30 months.
Grants won’t be given to hotels that received a grant pursuant to the Law for the Encouragement of Capital Investments until at least 10 years after that investment was completed.
Likewise, no grant will be given to a hotel unless at least 10 years have elapsed between completion of any renovation done outside the Law for the Encouragement of Capital Investments and the deadline for claims under the present Circular.
Applications for approved enterprise status must be filed by August 31 with the Tourism Ministry’s Economic, Investment and Budget Committee. That doesn’t allow much time. Let’s hope Israeli hotels aren’t too busy dealing with tourists in August to deal with a renovation grant claim.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
Leon Harris is an international tax specialist at Harris Consulting & Tax Ltd.