Israel Entity Set Up

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Israel Subsidiary Entity Set Up  

Foreign companies planning to hire staff in Israel do not generally need to incorporate a subsidiary or branch. However, they must register with the Israeli Income Tax Ordinance (ITO) and the National Insurance Institute (NII) as an employer in order to withhold and remit tax and social security contributions to the authorities. They must also comply with all Israeli employment laws.

However, by partnering with us you create the possibility to bypass this process and utilize our expertise. By using our PEO-service we take care of the complicated paperwork.

Expanding into a new country is always an adventure, but we believe this adventure should be exciting instead of frustrating and time-consuming. Therefore, we have been supporting companies in over a hundred countries with their expansion plans.

In this guide, we will share which documents you need to establish an entity in Israel, but also where you will need to register your business address and company’s name. We will also break down the advantages and disadvantages of setting up an entity in Israel.

How to set up an Israel Subsidiary

First, decide on the location. Different regions and cities can apply subsidiary regulations independently. Options for incorporation include limited liability, public or foreign subsidiary companies. Opening a branch or representative office are other possibilities.

The Israeli Companies Ordinance (ICO) defines a company as a corporation formed and registered in Israel according to Israeli law. To incorporate a subsidiary in Israel, the parent company must comply with Israel’s Companies Act (1999) and register with the Registrar of Companies. Further procedures include:

  • Submit application form to set up a subsidiary
  • Copy of the Articles of Association
  • Declaration of initial shareholder(s)
  • Declaration of initial director(s)
  • Registration fee of ILS 2,645 (€734, US$834)

All signatures must be certified. In Israel they must be signed in the presence of an Israeli attorney; outside Israel they must be signed in the presence of an Israeli Consul or a public notary.

The Israeli Companies Ordinance have taken steps to simplify the process. Some law offices can incorporate subsidiaries ‘in trust’ as the initial shareholder, with shares transferred to the appointed directors after incorporation.

The subsidiary must also register with the income tax and VAT departments of the Income Tax Ordinance (ITO) and National Insurance Institute (NII) to become a legal Israeli employer.

What you need to set up an Israel Subsidiary

International companies planning to expand into Israel with a subsidiary must comply with the Companies Act (1999) and register with the Registrar of Companies to be recognized as a company formed and incorporated under the Israel Companies Ordinance (ICO).

The main steps in setting up an Israeli company include:

  • Proof of registration as a foreign company with the Registrar of Companies
  • List of company directors with passport numbers or Israeli ID
  • Power of attorney giving an Israeli citizen responsibility for representing the company and receiving legal documents, with their full address and ID
  • Certificate of Incorporation from home country and that it is registered with that country’s Registrar of Companies
  • Certificate of Incorporation with notarized Hebrew translation
  • Proof of payment of registration fee of ILS 2,645 (€734, US$834)

Benefits of setting up an Israel Subsidiary

Specific advantages for a foreign company opening a subsidiary in Israel include not being responsible for the subsidiary’s debts or liabilities. The liability of the subsidiary’s shareholders is limited to their investment in shares.

The subsidiary can operate under a different company name while pursuing its own business interests. It operates under Israel’s Companies Law (1999) in the same way as local companies. It is taxed on its worldwide income and liable for the standard rate of 23% Corporate Tax on business profits, although tax incentives may apply.

Through its subsidiary, the parent company has the advantage of exploring further afield among other eastern Mediterranean, southwest Asian and North African countries.

Other benefits for a subsidiary:

  • Easier to obtain regulatory approvals, loans and finance and enter into contracts with other Israeli companies
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches
  • Employees feel there is more stability and job security than from being with a branch

In the wider commercial sense opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets.

However, there is a more straightforward option to the risks and costs of setting up a subsidiary in Israel.

Working with Bradford Jacobs in Israel. Using a global Professional Employer Organization (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles and be up-and-running within days, rather than months, and with all the difficulties of payroll, taxation and compliance under control thanks to our Employer of Record (EOR) services. You have day-to-day operational control of your employees, while we take the hassle off your hands.

Israel Subsidiary Laws

Subsidiaries are governed by Israel’s Companies Law (1999), which stipulates that a foreign company can undertake business if it is registered as a foreign company with the Registrar of Companies. This allows the subsidiary to act as an independent legal entity and follow its own business practices without the parent company bearing any responsibility for debts or liabilities beyond its investment in setting up the subsidiary.

Foreign companies planning to hire staff in Israel do not generally need to incorporate a subsidiary or branch. However, they must register with the Israeli Income Tax Ordinance (ITO) and the National Insurance Institute (NII) as an employer in order to withhold and remit tax and social security contributions to the authorities.

The Companies Act requires compliance with other regulations, such as:

Registration and Documentation

  • Proof of registration as a foreign company with the Registrar of Companies
  • List of company directors with passport numbers or Israeli ID
  • Power of attorney giving an Israeli citizen responsibility for representing the company and receiving legal documents, with their full address and ID
  • Certificate of Incorporation from home country and that it is registered with that country’s Registrar of Companies or equivalent
  • Certificate of Incorporation with notarized Hebrew translation
  • Proof of payment of registration fee of ILS 2,645 (€734, US$834)
  • Copy of the Articles of Association
  • Declaration of initial shareholder(s)
  • Declaration of initial director(s)
  • Notarized Hebrew translations of the Incorporation Certificate, Articles of Association and Status Certificate proving the parent company operates in its home country

Accounts and Taxation

  • No minimum share capital required
  • Comply with the provisions of the Income Tax Ordinance, for both nationals and non-residents covering wages, dividends, assets
  • The company is taxed at two levels; on its corporate income, which shareholders are taxed on any dividends paid to them by the company
  • Register with the National Insurance Institute for remitting social security contributions
  • Filing annual tax returns on a calendar year basis
  • Remitting withheld taxes by the 15th of the following month’s deadline
  • Creating employment contracts
  • Creating pay slips, which under Israeli accountancy rules must be divided into various sections
  • Salaries must be paid by the ninth of the following month
  • Calculating monthly salary and tax contributions and completing the monthly Form 102, verifying calculations before then submitting the year-end Form 126 to the authorities

Management

  • Appoint company director, not necessarily a local, with no upper limit on number
  • Minimum of one shareholder, which can be an individual or a company, with no upper limit
  • If more than 50 shareholders, balance sheet and annual report must be submitted to the Registrar of Companies
  • Register of shareholders must be publicly available
  • Company must hold an annual meeting, prepare, and submit financial reports. There must be no more than 15 months between annual meetings

Take a faster route into the Israeli economy

The cost-effective and time-saving alternative to the expensive and lengthy process of establishing your subsidiary in Israel is to work alongside a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs. 

We have over 20 years’ global experience and our in-country specialists will steer you through the complexities of setting up operations by locating and onboarding new employees, then ensuring compliance with all employment and tax regulations.

You retain day-to-day control of your staff – who are in place and operational within days rather than the months it could take to incorporate a legal entity. There is no reason for international borders to stand in the way of your international expansion. Contact us today to learn more!