Distribution of Wine in Israel

Israel is one of the smallest countries in the world in terms of land, and yet, in the last 10 to 15 years it has been developing an extraordinary wine industry, exploiting the variety of landscape from the hills to the valleys, which have been used for wine production since biblical times.

The rising industry is rather young, and still, although originally dominated by a few dominant corporations with mediocre wine, nowadays the industry includes various boutique vineyards and wineries, that have been winning international awards. To the date there are roughly 300 wineries in Israel.

While the major brands keep their strength, many locals have been opening up to the upgraded quality wines. Mass sales are still shaped by the sales of mediocre basic wines, but quality sales are on the rise and awareness is too. At the same time, many wines from Italy and Spain are sold in the country and are somewhat popular, especially due to the rather low pricing policies.

As per distribution, to enter Israeli market one would have to work with the main importers and distributors or bypass them by creating a very own line of supply.

Although a brand might be protected under Israeli law without any further registration formalities, an active application, regarding either the Logo and the name of the producer or product, for registration is well advised. This could avoid struggles in defending both brand and product – e.g. trying to prove bad faith etc..

Therefore, register your brand name and figurative marks (the logo or the label as a whole, if it has any distinctive character) upon or prior to entering the Israeli market according to the adequate sections of trademark.

The process to register a trademark in Israel is rather simple, not lengthy and once confirmed, an annual fee is owed and registration needs to be confirmed once every 5 years.

The regulation concerning wine production and import is quite minimalistic, nevertheless it includes specific licensing and definitions of what may be included in the product and what may not. In 2017 new alcohol production regulations were enacted, effecting mostly the new boutique wineries, due to mandatory business licensing and production requirements provided by an extend of food regulations to wine, such as imposing inspections of the manufactured wine in authorized laboratories.

To the date the following represent the ground rules concerning labelling and distribution, joined by considerable limitations on advertising.

Wine bottle labels must include the name and the type of wine, alcoholic content, a list of ingredients, the country of origin, name and address of the producer and the distributor, bottling date and conservation conditions.

The law - in order to protect most vulnerable groups, such as minors - provides for various limitations on promotional communications for wine. Some of these also apply to advertising by iconic figures, sports stars, models etc.. Manufacturers may not provide alcohol as prizes on TV or Radio or be mentioned as producers of such, and any allowed advertisement will include warnings of risks of consumption.

Thus it is advisable to consult a local distributor or importer in order to be able to abide by all involved regulation.

It will be also necessary to provide adequate labelling in Hebrew.

All wine producers and importers need to obtain a distribution license (both for distribution and for end-customer sales) by submitting various data about: the company, the production or the importer, the type of produced/imported goods and the production/import methods.

Alcoholic beverages regulations provide definitions and limitations as to what may be included in the beverage and what not – as for instance, no flavour extracts are allowed.

Therefore, before starting any export, it is advisable to check that the importer is correctly registered, as a failed or incorrect registration can even lead to the block of the goods at customs.

Prior to the arrival of the goods at customs, the importer must have already prepared and filed an application for customs clearance as well as presented the licensing. As the products arrive at the port of destination they are subjected to customs inspection, which verifies the content and the labelling.

Tax legislation is somewhat complex, and Israel is a member to GATT, but, in general, the taxation of wine products in Israel depends if it’s a local wine or an imported one – and is different for wine than for other alcoholic beverages.

Custom Duty Tariff for imported wine is 12 %, whereas domestic wine does not entail such tax; however, this taxation may vary depending on the origin of the wine, since certain countries have signed specific treaties with Israel exempting certain amounts per year.

Nevertheless, further kinds of taxation apply to all alcoholic beverages including wine, such as a 45% sales tax (although there are some exemptions) and thus it is greatly advised to be accurately informed with respect to any specific import or manufacturing - prior to importing or investing in the domestic production.

In addition, a value added tax of 17% will also apply based on the import/sales price.

The Israeli market is increasingly moving towards export of Israeli quality wine abroad, aiming to reach considerable wine consumers worldwide. Thus it seems that rather than importing wine into Israel, which is a relatively small market (population of 8 million in total) and only an average of around 7 liters of wine per year, getting involved in the export of quality Israeli wine seems to bear serious potential.

Below are some of our main advices for negotiating a distribution contract:

• know your counterpart – whether you aim at importing or investing for export of Israeli wine, it is important to know thoroughly who exactly is your counterpart and what is his/her exact authority – is he/she a middleman, a distributor, an owner, a partner or else – in Israel this might turn out to be rather confusing and unclear sometimes, simply because the common business atmosphere is in some degree less formally oriented.
  
  
• the importance of clearly defining the business -when dealing in Israel, it is advised to leave nothing to chance, and any important part of the business relationship should be adequately described in writing to avoid misunderstandings or, what may happen commonly, different expectations from the involved transaction. You will probably meet up and discuss in person before any contract is issued, because that is the Israeli way. Still, you should insist on a coherent written contract prior to any actual engagement in the business.
  
  
• make sure you define Exclusivity in complete manner – Israel is a small market, so if you are an importer, you should seek exclusivity and attempt to define it as binding as possible. On the contrary, if you are a foreign exporter, you should be sure to grant exclusivity only if you are sure that the distributor has the appropriate means to cover adequately all the territory.
  
  
• applicable law and jurisdiction – unless otherwise provided by the parties Israeli law and jurisdiction would apply to any contract or business relationship involving Israeli based business or Israel as the location where the business has to be carried out. This provisions are in accordance with the standards of private international law of acquiring jurisdiction.

Israeli domestic State courts are generally fair, productive and tend to decide on a matter on a factual basis rather than on the basis of the involved entities. Costs are relatively low, and the proceedings are usually efficient, although a full case may take as long as two years. In order to avoid disputes over the actual jurisdiction, Arbitration can be an adequate solution, even more as Israel is a member of the New York Convention of 1958 and the enforcement of an arbitral award is in most cases easier and faster (although not cheaper). In order to avoid disputes over the actual applicable law, you may agree, within such an arbitration clause, upon implementing general principals such as the UNIDROIT principals.

As per termination of a business relationship or contract, it would be best to establish it in the outset, both the specified relationship and the termination possibilities, since, if this is left vague, a termination dispute and the involved compensation might be considerable and could end up quite dramatic– as further detailed on Legalmondo.