Israel is a relatively young nation, having been created in 1948, but has quickly made its mark in the global economy. Israel is ranked as the 26th freest economy in the world, making it an attractive target for Foreign Direct Investment, and No. 2 among 14 nations grouped in the Middle East and North Africa region, with United Arab Emirates holding first place. The GDP of US$408 billion placed Israel 31st in the world in 2021.
Israel’s strategic location on the eastern coast of the Mediterranean and south west corner of Asia with close proximity to African markets, places it in an ideal position for trading opportunities.
Israel’s economic growth in 2020 ranked seventh-best out of 37 members of the Organization for Economic Cooperation and Development with projected growth of 4.7% for 2021. The World Bank ranked Israel 35th out of 190 nations in its ‘ease of doing business’ report for 2020.
These impressive figures add to the attraction of a highly-motivated and well educated workforce. Hi-tech, blue chip, medical and healthcare companies feature prominently in the economy.
Companies establishing a presence in Israel face challenges complying with employment, tax and company registration laws as they can vary between municipalities and regions. Plus, hiring staff from abroad poses more complications – and risks.
Starting a Business in Israel
Israel’s authorities have established a strict and structured framework for establishing a legal entity in the country under the Companies Law (1999). Registration procedures and documents include:
• Application form
• Copy of the Articles of Association
• Declaration of initial shareholders and directors
• Paying registration fee
Documents must be certified, as follows:
• In Israel, signed and confirmed in the presence of an Israeli attorney
• Outside Israel, signed in the presence of an Israeli consul or a notary public
Subsidiaries must register with the Income Tax Authority and National Insurance Institute to become a legal Israeli employer.
Other requirements include:
• Registration with the Registrar of Companies
• Company directors listed with passport numbers or Israeli ID
• Power of attorney for an Israeli citizen responsible for the company and to receive legal documents, with their full address and ID
• Certificate of Incorporation proving registration with the home country’s Registrar of Companies
• Certificate of Incorporation with notarized Hebrew translation
• Proof of payment of registration fee of ILS2,614 (US$800)
Expanding Business into Israel
Foreign expansion demands detailed research into the new territory including its employment market, economic structure and potential, before drawing up an action plan.
Will staff be migrated across the world or recruited in-country? Who will handle payroll? How will your company deal with issues surrounding tax law, social security contributions, termination and severance, entitlements and benefits?
Israeli Business Facts
• Capital City – Jerusalem is recognized by Israel but Tel Aviv is more internationally acknowledged
• Population – 9.3 million
• Four geographical regions – Coastal plain of the Mediterranean; north and central hill regions; Great Rift Valley (Jordan Valley) and the Negev
• Official languages – Hebrew and Arabic
• Economy and world ranking – Ranked 26th for economic freedom, GDP US$408 billion - world ranking 2021, 31st.
• Leading sectors by revenue – High-end technology; manufacturing; diamonds, agriculture; tourism and transportation
• Main exports – Diamonds, pearls and precious metals (33%) electrical and mechanical machinery and appliances, sound and TV equipment and computers (22%) chemicals (11%)
• Main imports – Machinery and equipment (28%) diamonds (11%) mineral fuels (9%) transport equipment (7%)
• Main trading partners – USA, UK, China, Honk Kong, EU and India
• Government – Republic based on multi-party parliamentary democracy
• Currency – Israeli Shekel (ILS)
Advantages and Challenges of the Israeli Economy
• Israel is recognized as a highly-innovative nation, especially in manufacturing and hi-tech sectors
• Research and development has driven economic growth
• Excellent geographic location at eastern end of Mediterranean, in the south west corner of Asia with close proximity to North African markets
• The Israeli Investment Promotion Agency, part of the Ministry of Economy and Industry provides an entry point for investors
• The Foreign Direct Investment (FDI) system offers tax breaks and incentives
• Israel has a free trade agreement with the European Union
• Highly-educated workforce
• Israelis enjoy a comparatively high standard of living, but cost of living is high
• A small population creating a relatively small internal market
• The mixed Jewish, Muslim and Christian population can make integration difficult for incoming staff
• The tendency to promote ‘in house’ can make it hard for foreigners to make progress
• In an historically volatile region, security is a potential issue for some companies planning expansion
A Limited Company/Subsidiary or Branch in Israel?
Foreign companies expanding into Israel must decide on which legal entity best suits their plans. The typical choice is between a limited company subsidiary and a branch.
A subsidiary has a number of attractions, including:
• Under Israel’s Companies Law of 1999, the subsidiary is owned by the foreign controlling company
• Any liabilities of the subsidiary are not the responsibility of the parent company
• The subsidiary need have only one director, an individual or company
• As a legal Israeli company the subsidiary is entitled to identical tax concessions and incentives as local companies
An Israeli branch office is also a legal entity, but treated differently under the Companies Law.
• The parent company is responsible for any debts or liabilities of the branch
• An agent, usually an Israeli citizen, must be appointed to receive legal documents
• As a non-resident company the branch is not eligible for tax advantages, although only locally-generated income is liable for corporation tax
• Registering a branch takes longer than a subsidiary as corporate documents must be certified, translated and notarized
Expert guidance is vital when weighing the options setting out on the subsidiary or branch journey into Israel’s economy. But there is an alternative route – one that is quicker, stress free, cost effective and will have you up-and-running in days rather than weeks or even months.
Legal Structures for Israeli Market entry
The main business structures in Israel are:
• A limited liability company with share capital
• Partnerships; either general, which have unlimited liability, or limited liability
• Co-operatives, typically found in agriculture and transport
• Non-profit organizations
• Joint ventures, although these are not recognised as separate legal entities under Israel’s Companies Law
Open a Business Bank Account in Israel
After registering a company, open a business account with a commercial bank in Israel, checking suitability for a full range of business services and that English is spoken.
For a foreign company the process can be time consuming, depending on company size, the type of business and which sector the company operates in. Procedures must be strict to guard against money laundering.
Paperwork for the account may differ between main banks and branches. Requirements include:
• Registration Certificate
• Proof of company’s signatories from accountant or attorney
• Notarized copies of directors’ passports
• Authorized registration documents and Company Charter
• Reason for company’s directors choice of bank regarding corporate account and signatories to sign on account
• Anti-money laundering documentation certified by an Israeli attorney
Company Formation in Israel
Registration procedures for forming a company, typically a limited liability subsidiary for foreign owners, include:
• Registering the name with the Registrar of Companies, in Hebrew and English. If an Israeli company has the same name, add the home country of the foreign owner as a suffix
• Appointing a minimum of one shareholder and a company director, not necessarily Israelis and making their details publicly available
Required documentation includes:
• Parent company’s validated Certificate of Incorporation
• The new company’s Status Certificate, Articles of Association and Incorporation Certificate proving they operate in their home country, in notarized Hebrew translations
• Power of Attorney for an Israeli citizen to receive legal documents on the company’s behalf
• Directors’ list with passport numbers (foreigners) and ID numbers for locals
• Proof of payment for all registration fees
Now established as a legal entity in Israel, the company registers new foreign and Israeli employees with the Income Tax Authority and Social Security Authority to be able to remit contributions to the National Insurance Institute.
Finding an Office in Israel
Israel has very desirable qualities for companies planning international expansion; it’s driveable from one end to the other, has widespread use of English with a highly-educated population and a booming ‘Start-up’ environment … In fact more per capita than Silicon Valley – 1 for every 1400 people. So when it comes to choosing an office, look for creativity, a positive attitude among the young and a culture for innovation in the opportunities available.
Location should be the most important aspect and points to be considered are:
• Demographics of potential employees, ease of travel and good transport links.
• Work, communication and storage – so is it fit for purpose?
• Is it attractive and functional to keep the work force happy?
• Is it affordable and does it have room for expansion?
• Are the areas around the office desirable, clean and good for mental health to attract the best workers and provide services and accommodation?
• What local support or government grants or tax breaks are available?
In other words, is your office ‘good for doing business?’ https://www.wework.com/search
Areas considered to be centers of commerce for sharing knowledge and local support; known for its business clusters, nicknamed ‘Silicon Wadi’, which include:
• Tel Aviv – financial district and hi-tech industrial hub with many business centers within a 30-minute drive
• Herzliya – important center north of Tel Aviv for hi-tech companies and venture capitalists e.g. Benchmark Capital, IBM, Microsoft
• Ramat HaSharaon, Kfar Saba, Raanana – areas for new Start-ups and companies attracted by affordable rents such as M-Systems and Capriza
• Jerusalem – seat of government, densely populated capital has a large high-tech industry
For a new area of opportunity https://www.meda.org/jordan-valley-sme-matching-grant
Finding an Israeli Manufacturer
Partnering manufacturers in Israel is an important issue. Once a product has been developed, it is futile if you can't adequately produce it. Checking the options before making the move is critical to success. Internationally go-getting businesses and entrepreneurs must do their research and network when investigating manufacturing partnerships. Such as:
• Do they hold relevant quality certificates?
• References from current clients
• Can they keep up with demand? Or do they outsource?
• Can they source materials?
• Their financial stability
• How will local customs impact production?
• How will language impact on communication?
• What is their minimum order quantity?
• Discuss possible penalties for poor quality or late deliveries
• Payment options
Companies may also want to consider
• Market Research to avoid manufacturing a product in a saturated market
• Licensing to a company that can handle manufacturing, marketing and distribution
• Can the manufacturer build and test a prototype
• Protecting your intellectual property
Reach out to local businesses and check out local directories.
Product sourcing made easy: https://madein-israel.com/
Search manufacturers on: https://www.zoominfo.com/companies-search/location-israel-industry-manufacturing
Israel manufacturing companies: https://www.crunchbase.com/hub/israel-manufacturing-companies
Textiles and Garments: https://www.textileinfomedia.com/business/israel/apparel-and-garments
World of Manufacturers @ http://worldofmanufacturers.com/category/default/country/97
Finding a supplier: https://www.veem.com/library/the-secret-to-finding-a-supplier-in-israel/
Finding an Israeli Distributor
Setting up a business, locating and manufacturing brings you to the next step – to find a front-line distributor to move goods around the country. One great benefit in Israel is that you can drive from one end to the other in about 4-5 hours, and internationally it has established trading partners with USA, UK, Europe and India as well as China and Hong Kong, so finding the perfect match is crucial to successfully utilizing these advantages. As long-term partners they can help with local knowledge, cultural and business customs and will have a vested interest in helping achieve long-term goals.
Global Trade – Trade Services Directory: https://www.globaltrade.net/m/c/agent-distributor
Distribution and Sales Channels: https://www.trade.gov/knowledge-product/israel-distribution-and-sales-channels
Distributing in Israel: https://santandertrade.com/en/portal/analyse-markets/israel/distributing-a-product
Diplomat Distribution: https://www.diplomat-global.com/israel/
Make the move with Bradford Jacobs
Partnering with Bradford Jacobs, from the consultation stage onwards, will access our know-how on the Israeli economy and how it works; its manufacturers, distributors, where to find business support, production facilities and offices and where to locate the best qualified staff for your sector. We will also know who your competitors are.
Before you make the move – speak to Bradford Jacobs.