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EVENTS
STARTING A BUSINESS IN ISRAEL
Guide to Starting a Business in Israel

Establishing a business in Israel is a relatively straightforward matter. This guide explains the variety of ways in which a company can be structured, the key steps which are required in order to do so and other useful information for operating a business in Israel.                                                                                           

 

1. Business Entities

 

The following information offers a general overview of what is involved in establishing a business presence in Israel. The actual prices, conditions and details vary greatly in practice depending on a variety of factors, including the foreign entities specific needs, intended location, nature of the operation and other details.

Foreign Company Registration Options in Israel*

Foreign companies wishing to set up a presence in Israel can choose to register a Branch Office, Subsidiary Company or a Representative Office, contingent upon which best conforms to the specific needs, business plans, and strategic goals of the specific company. The registration must be executed by a professional law firm in Israel.

Please note that the Investment Promotion Center can provide general information ONLY and cannot replace certified legal counsel. We advise foreign entities to consult with Israeli attorneys and accountants to establish the precise terms and conditions of taxation, benefits, incentives, and other issues extending from their business activity.

  1. Option 1: Subsidiary Company

    A subsidiary company is a locally incorporated private limited company whose majority shareholder is another local or foreign company. Israel allows 100% foreign ownership in companies. Therefore, a foreign company may incorporate a local limited liability company in Israel (i.e. subsidiary company) and own 100% of the shareholding.

    An Israel subsidiary is the preferred registration option for small to mid-size foreign businesses interested in establishing their presence in Israel. A properly structured local subsidiary company is an excellent tax efficient corporate body. An Israel subsidiary company is considered a separate entity from the foreign company even if the foreign company is the only shareholder. The liabilities of the subsidiary company are not extended to the parent company.

    The name for the subsidiary can be different from that of the parent company and is subject to approval by the Registrar of Companies. The Israel Companies Law of 1999 requires the appointment of one or more directors. The Companies Law does not require an Israeli Director, however, in order to open a file for the Company at the VAT authorities, at least one Representative must be an Israeli resident (citizen, permanent resident, or employment pass holder). An Israeli subsidiary must maintain a registered office in Israel and keep its statutory documents in that office. For taxation purposes, the subsidiary may be treated as a Israel resident company and, as such eligible, for tax exemptions and incentives available to local companies.

    A subsidiary company brings several benefits, the foremost being the limitation of liability of the foreign company in Israel. The foreign company and its assets cannot be held for the debts and liabilities of the subsidiary. In addition, a local subsidiary may more easily raise funds locally and take advantage of government incentives. A subsidiary company will generally enjoy a resident status and can enjoy the benefits of several favorable tax treaties that Israel has concluded.

  2. Option 2: Branch Office

    As per Article 346(a) of the Israeli Companies Law 1999:

    A foreign company shall not keep a place of business in Israel, and in particular shall not maintain an office for the transfer of shares or for the registration of shares, unless registered as a foreign company under the provisions of this section and unless it pays the registration and publication fees prescribed by the Minister under this section.

    An Israel branch office, like a subsidiary, is a registered legal entity. However, unlike a subsidiary, a branch office is treated as an extension of the foreign company. This means that the foreign companys head office bears the ultimate responsibility for any liabilities arising due to the acts of commission or omission of the Israel Branch Office. From a taxation point of view, a branch office is generally considered a non-resident entity and therefore not eligible for the tax exemptions and incentives available to local companies in Israel. Consequently, setting up a branch office tends to be a less attractive option for small to mid-size businesses.

    The name of the Israel branch office must be the same as that of the head office and must be approved first, prior to official branch office registration. The Company Registrar generally approves the proposed name unless it is identical to an existing company name.

    Israel Companies Law 1999 requires that a branch office appoint one agent who is an Israeli resident to accept services of process and notices. A branch office must have a registered office address in Israel.

    An Israeli branch office is allowed to conduct any type of business activity that falls within the scope of its parent company and can repatriate its earnings and capital. The portion of the income of the branch office that is derived from or attributable to the operations carried out outside Israel, will not be subject to taxes. Only the earnings derived from its operations in Israel will be subject to the prevailing local corporate tax rates.

    The branch office is required to submit its own audited accounts as well as that of its head office, a step with which many foreign companies may not feel comfortable. A branch office, though registered with Company Registrar, is still treated as a foreign entity because the control and management is exercised outside Israel. Therefore, a foreign companys Israel branch will be deemed a non-resident company for tax purposes. As a non-resident entity, some of the tax exemptions available to resident companies will not be available to a branch office.

     

  3. Option 3: Representative Office

    Foreign companies that are only interested in exploring the market or managing the company affairs without conducting any actual profit-yielding business activity, can establish a representative office in Israel. A representative office is a temporary arrangement without any legal persona and there is no need for registration. Therefore, it cannot enter into any contract, engage in trading directly or on behalf of the foreign company, lease warehouse space, raise invoices, open letter of credit, etc. A representative office in Israel can only undertake market research or feasibility studies on behalf of its parent company.

    The foreign company bears implicit liability for the activities of the representative office in Israel. The representative office may be staffed by a representative from the foreign companys head office or may hire a local representative who can employ a small number of local support staff.

    Foreign companies that are interested in examining the Israel business environment before committing investments or those who have non-core activities to be managed are most likely to set up a representative office. In general, a representative office can operate for a limited time only, after which it must upgrade to a branch office or subsidiary.

     

  4. Comparison of Registration Options

The following table illustrates the major differences between the different options:

 

ISRAEL BRANCH

ISRAEL SUBSIDIARY

ISRAEL REP. OFFICE

Legal Type

Not a separate legal entity but an extension of the parent company

Separate legal entity  distinct from its parent company

Has no legal status but just a temporary administrative arrangement

Liabilities

Liabilities extend to parent company

Liabilities limited to subsidiary

Liabilities extend to parent company

Entity Name

Must be the same as the parent company

Can be the same or different from parent company

Must be the same as parent company plus must include Representative Office

Allowed Activities

Must be the same as the parent company

Can be the same or different from parent company

Can only conduct market research or feasibility studies

Validity Period

Registered forever until closed

Registered forever until closed

No need to register

Registration time

One week

One week

No need to register

Taxation

 

Taxed as non-resident entity, local tax benefits not available.

Taxed as Israel resident entity

N/A as Rep Office cannot generate income.

Annual Filing

Must file branch office as well as parent companys accounts.

Must file accounts of the Israeli subsidiary.

No need to file.

Bank Account

Can open bank account in Israel

Can open bank account in Israel

Can open bank account in Israel to run the cost center operations. Must be funded by the parent company.

Staff Hiring

No restrictions on hiring local or foreign staff

No restrictions on hiring local or foreign staff

No restrictions on hiring local or foreign staff

Appointment of Officers

In order to open VAT file must appoint at least one locally resident person or local entity directed by a local resident person

In order to open VAT file, must appoint at least one locally resident person or local entity directed by a local resident person

No special rules

 

* The contents of this section were adapted from information published by the Hanner & Ofer Law Firm. It is intended to offer a general overview and should not be regarded as legal counsel.

 

2. Registering a Business

 

All companies in Israel must register with The Registrar of Companies and the Tax Authorities.

 

Documentation required to register a Foreign Company with the Registrar of Companies based on information from the Israeli Minsitry of Justice.

A. Form No.1 of the Company Registrar an application form to register a company

B. Copy & Hebrew translation of the companys Memorandum of Association, which establishes the corporate identity and principal objectives of the company, shareholders' responsibility and shares issued. The translation must be certified by a notary.

C. List of directors, including passport numbers

D. Name, address and national identification number of the Israeli representative appointed to receive legal notices on behalf of the company

E. Copy of the letter appointing the Israeli representative and bestowing upon him responsibility for officially representing the company in Israel

F. Company certificate of incorporation from its country of origin signed by an apostille and a document proving that the company is actively registered in that country as of the day of the submission for company registration in Israel

G.The fee for registering a company which is currently 2,640 NIS

An application to register a foreign company is generally processed within 14 business days of its submission. After the registration is complete, the Registrar will issue to the company a certificate of incorporation and a 9-digit company number

Important: an Israeli lawyer is required to verify the company documents. Usually a lawyer will handle the process for most requests and represent the company at the Company Registrar office as well.

Report Submission to Registrar of Companies Required for Companies

Monthly: Registered companies must submit income reports, employee withholding tax reports, National Insurance Institute Reports, Value Added Tax Report.

Annually: An annual corporate audit must be submitted by companies.

 


Last modified: 9/17/2014 pic