Incentivizing Foreign Film Productions in Israel

Pick & Weiss Legal Offices
May 26, 2013
January 10, 2019

Lior Pick, Adv. (CPA) and Shiri Weiss, Adv.


Israeli cinema has gained favor and recognition in the world in recent years, especially thanks to the talented cinematographers and actors, as well as higher investments in productions. Sadly however, this is not enough. It is well known that cinema requires great input into the assessments; and without public support and aid it cannot run properly, especially in a state with limited audiences.

Studies show that investments in the film industry generated a financial boom, jobs, improved activity levels in the film industry and in related fields, and more.

Recently, the Israeli legislative authority made an additional step towards promoting Israel’s film industry worldwide and incentivizing international productions and producers to work in Israel, by giving foreign productions in Israel benefits.

It is common knowledge that Israel is not an attractive spot for foreign film productions even though it has many advantages in the film industry, such as diverse landscapes in geographical proximity, a comfortable weather, unique historical locations, a good infrastructure of facilities and production services, efficient services systems, skilled professionals and an available pool of leading film school graduates.

In light of that said, the committee appointed by the Ministry of Finance submitted its recommendations for incentivizing foreign film productions in Israel in November 2007. The incentivizing methods the committee proposed took all considerations the film producers must make when deciding upon filming location for their films into account and the report includes recommendations that enable reduced costs, optimization of governmental treatment of the film industry and taxation recommendations, aiming to make Israel a more attractive destination and attract foreign producers to produce their films in Israel too. In addition, the committee discussed incentivizing co-productions by Israeli producers and foreign producers, and recommended ways to make co-productions in Israel cheaper.

Based on the committee’s recommendations as said, the Law to Incentivize Film Productions in Israel (Temporary Order and Legislative Amendment), 5768-2008 (hereinafter: “the New Law“) was published on 11.5.2008. Let it be stated that the benefits according to the New Law apply both to foreign productions in Israel and to Israeli/international co-productions.

The New Law offers tax benefits relating to film productions in Israel, whereas the productions by a foreign resident or to which a foreign resident was a partner will be entitled to the benefits. As a rule, the definition of a foreign resident in the law refers to the definition in the Income Tax Ordinance (New Version), 5721-1961 (hereinafter: “the Ordinance“), meaning, non-Israeli residents, other than corporations that are controlled by Israeli residents or that Israeli residents are entitled to 25% or more of their income / profits.

The provisions of the New Law and the benefits it confers were determined as temporary orders for the time being, so they shall apply to production payments in Israel that will be paid by the end of the 2013 tax year. However, the amendment to the Value Added Tax Law contained in the Law, as specified above, will be permanent as a part of the services given to foreign residents, for whom the determined VAT rate is 0%.

Benefits according to the law are conditioned upon “foreign productions” being productions in which the production payment amount paid to produce the movie in Israelis at least ILS 8 million, and on the condition that it was not performed with assistance from a state-supported budget.

“Production payments in Israel” – payments made to an Israeli resident for buying or renting assets or services in Israel that are required to produce the film; provided only that the use of these assets will be made in Israel. This refers to all expenses in the film production budget, meaning not only direct production expenses such as lighting, filming, make-up and wardrobe expenses, but other expenses as well such as board, meals and travel.

Let it be clarified that payments that were made to purchase an asset that is naturally intended for use after completing the production, such as payments towards purchasing the land the production offices used, office furniture, filming supplies that shall be used to film other films in the future, etc., will not be included among the payments that will confer the benefit.

However, payments to purchase clothes that actors will use in filming the film will also be included as “production payments in Israel”.

“Joint production” – producing a film in which an Israeli resident and foreign resident share the budget investment in at least 50% of the investment in the film’s budget and in which the foreign resident invested at least ILS 4 million.

“Film production” – all activities intended to generate a first complete copy of a film that is prepared for commercial screening, including some of the activities mentioned above. This only refers to activities that are a part of the film-making process, not film duplicating and/or marketing activities. The explanations to the New Law demonstrate that determining that “film production” refers to some of the activities as said enables offering the tax benefits the law offers when some of the production activities are performed in Israel, provided only that the production effort that was performed in Israel meets the terms in the New Law, meaning a “foreign production” or a “joint production” are concerned, and that the required terms for receiving the benefits are fulfilled.

It is worth noting that this only concerns to “film” productions (as opposed to TV shows). A “film” is defined in the Cinema Law, 5759-1999 is an artistic audiovisual piece, including a scripted, documentary or an experimental film, composed of a series of moving, photographed or recorded pictures, with or without a soundtrack, that may be defined on a screen including a TV screen; and copied.

The Tax Benefits

An Israeli production company that makes production payments in Israel for a foreign production or a joint production that has duties to deduct taxes at the source as stated in section 164 of the Ordinance is entitled to the benefit in order to lower production costs and incentivize film productions in Israel, according to the rate of the production payments made in Israel as specified below; provided only that it keeps admissible income books that contain containing a separate account for each film it produces –

For a foreign production – benefit will mount to 17% of all production payments in Israel.

For a joint production in which the foreign residents’ share in the investment in the film’s production budget is at least 75% – benefit will mount to 13% of all production payments in Israel.

In a joint production, otherwise – benefit will mount to 9% of all production payments in Israel.

The benefit rate is calculated according to the production payments in Israel as paid by the Israeli production company, including VAT, conferring another benefit.

In addition, the law gives additional benefits in providing services to foreign residents in connection with producing non-Israeli films in Israel, according to which the applicable VAT rate is zero, even if the foreign resident is staying in Israel to produce the film.

The Conditions for Receiving the Benefits

Two simple technical conditions must be met as follows to gain the benefit the New Law confers:

   (a) The Israeli production company must keep admissible books and keep a separate account for each film.

   (b) An Israeli productions company wishing to receive a benefit as said will notify the assessment officer of it before beginning production in Israel and will state the film name, details of the foreign production company or joint production partner, as the case may be; and the entitling tax rate as it applies to the film production. Let it be stated that a production company that will fail to deliver such notice to the assessment officer will be considered to have chosen not to exercise its right to the benefit.

It appears that Israel took an additional if insufficient step to incentivize foreign film productions in Israel – which is a highly praiseworthy act.

We will be happy to assist you with any question and/or inquiry on exercising the benefits according to and by the power of the New Law.

This is a general document and does not constitute counseling, and it may not be used as said in any case without receiving specific legal counseling and/or an opinion according to particular circumstances. In any case, we believe it is advisable to examine the legal repercussions ahead of time, prior to taking any action.


Get in Touch

Thank you!
We will contact you soon