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Doing business in Israel

Michael Decker
Michael Decker

From the ancient old city of Jerusalem to the beautiful beaches in tech hub Tel Aviv, Israel is a bustling country full of life and opportunities. With quite an impressive track record, world-leading investors and entrepreneurs have put the industry in the limelight calling to international interests and the attention of industry giants.

Through intensive research and high-tech development, Israel has been recognized as a ‘middle-eastern Silicon Valley’, being home to development centers for companies like IBM, Google, HP, Facebook, and other house-name multinationals. With high-technology concentration and a primarily knowledge-based economy, rapid development has been ushered in through quality education and a motivated populace. As a young country with great potential for business and commercial growth, Israel keeps open doors to business investments abroad and domestically.

After officially becoming an OECD country in 2010, Israel has invited numerous free trade agreements with the US, the EU, Turkey, Mexico, Egypt, and numerous others. The economy of Israel is highly advanced and developed despite its small size and population relative to its counterparts. According to the most recent report on the UN’s Human Development Index, Israel ranked as being “very highly developed,” granting a higher standard of living compared to other western countries. Keep reading and learn how Israel can help you take that next big step towards success.

  1. Israel’s government is a multi-party system based on a system of parliamentary democracy.
  2. Israel is a free-market, welfare state providing many essential services to residents.
  3. Israel has the 2nd largest number of startup companies in the world, after the United States.

2.   Business measures

The World Bank Group ranked Israel as one of the easiest countries to start and establish a business, compared across over 190 countries. Higher than the United States, France, Germany along with various other high-earning OECD countries making it an attractive destination for entrepreneurs or expanding businesses. In layman’s terms, this refers to the procedures, time, and costs of establishing a business, where it is considerably more efficient, time resourceful, and affordable than many countries (see reference).

Starting a Business in Israel:

  • Procedures (number): 3
  • Time (days): 11
  • Cost (% of income per capita): 2.7

[With few exceptions]

In the ranking of protection for minority investors, Israel ranks higher than the United States, France, Germany, and the regional OECD average. Amongst the extent of conflict of interest regulation, Israel places great value in shareholders’ rights, director liability, the extent of disclosure, and corporate transparency in order to protect minority investors.

Protecting Minority Investors – Israel:

  • Extent of corporate transparency (0-7): 6
  • Extent of shareholders rights (0-6): 4
  • Extent of director liability (0-10): 9

[With few exceptions]

Paying taxes in Israel is ranked to have a considerably higher measure of quality compared to countries like the United Kingdom, the United States, France, and Germany. Referring specifically to the number of payments, total tax and contribution rate, as well as post-filing (tax audits/VAT refunds).

Paying taxes – Israel:

  • Payments (number): 6
  • Total tax and contribution rate (% of profit): 23.5
  • Post-filing Index (0-100): 92

[With few exceptions]

Israel conducts trade with countries from over six continents. Boosted by free trade agreements with the EU and a similar agreement with the U.S., over half of its imports and exports are accounted for by these strategic agreements. Trading across borders in Israel is comparable to many western countries concerning border and documentary compliance. The time and costs associated with the components of border compliance and trade documents are fair and timely. Israel is constantly working on maximizing the efficiency of its trade and exchange with existing partners and the opportunity to form new relations.Doing business in Israel

Score of starting a Business (0-100): 94.1

Score of protecting minority investors (0-100): 78

Score of paying taxes (0-100): 89.6

Score of trading across borders (0-100): 83.4

The official languages of the country are Hebrew and Arabic, as well English being widely recognized and taught compulsorily in school. This serves to break down a major language barrier in the country, creating greater opportunities for language minorities and foreign investors. Corporate documents in Israel are also generally accepted by a company registrar. With many of the recent normalization agreements, this opens doors to cooperation in many sectors with countries in the region. We are amidst the generation of major change, with one common goal in mind, strengthening cooperation and building trust.

3.   Business Procedures

  • Work Visa

 In order to obtain a work visa, approval must come from the Ministry of Interior in Israel after an invitation from an employer. It follows a process much like many western countries upon the procedures to obtain a work visa. Check whether you need to obtain a visa prior to visiting Israel.

  • Establishing a Limited Liability Company

There are 3 processes in order to register a business as a company:

  1. Form No.1 of the Company Registrar – application form to register a company.
  2. Memorandum of Association – establishes corporate identity and objectives of the company, shareholders’ responsibility, and shares issued.
  3. Articles of Association – rules of conduct for the company. Standard articles listed in the Companies Ordinance will act if their own articles of associated are not submitted.

(The fee for registering a company is currently 2244 ILS or $663 USD.)

Note: An Israeli lawyer must verify company documents along the process of incorporation.

A company incorporated overseas must register as a foreign company with the Registrar of companies and tax authorities in order to establish a branch or local office.

Once a company is registered with the Registrar, it must register with the appropriate tax authorities.

  • Partnerships

An entity that consists of people who contracted a partnership agreement holds personal liability unless they are limited partners of limited partnerships. Foreign partnerships are also permitted to do business in Israel.

Purchasing property

Purchasing or leasing a property is an essential starting point for growing business entities, but it is not quite a simple process. Successfully executing a real estate investment requires industry knowledge from an experienced legal team with technical capabilities that understand market forces, delivering innovative solutions to issues it anticipates. There are various online databases with a wealth of information available to the public, allowing one to view every real estate transaction done going back multiple decades. There are many services one must consider aiding in the process such as soliciting an appraiser, and in some cases, getting the advice of an engineer and/or architect. (Be aware that the customary commission rate charged by real estate agents in Israel is usually between 1-2%, about half (1%) paid by the buyer and about half by the seller.)Doing business in Israel

In Israel, State Property cannot be purchased, rather only leased. Therefore, title to property is not registered in the name of the “purchaser”. The “purchaser”, who must be an Israeli citizen or legal entity with a majority of Israeli ownership, or else a foreign citizen who would have the right to become Israeli, according to the Law of Return, is rather granted the right to enter into a long-term lease with the Israel Lands Administration (ILA).

Private ownerships are common in urban areas, but almost 90% of the land area today is owned by the state, the development authority, or the JNF (Jewish National Fund). Private persons still enjoy rights of their property even with eminent domain being used, as government must compensate fair value for the land. The land is often leased to private persons for a period of 99 years. Leases today are “capitalized”, i.e. the developer/contractor pays the rent for the entire lease term in advance and the lessee is exempted from any annual payments. In practice, once the lease agreement is signed, the lessee has no further business with the Administration until the expiration of the lease, unless he wishes to make additions or modifications to the existing structures or to its usage. In such an event, the Administration’s approval, as the owner of the land, is required, and it may demand an additional rent in respect to the new usage.

Unlike in the U.S., where it is customary that the contractor provides the purchaser of a new condominium apartment with a title insurance policy, in Israel the Sale (Apartments) (Assurance of Investments of Persons Acquiring Apartments) Law – 1974, states 5 types of guarantees, at least one of which a contractor is required by law to provide the purchaser of an apartment, prior to receiving a sum exceeding 15% of the purchase price:

  1. Bank Guarantee – money-back guarantee in the event that the contractor cannot transfer the property under the purchaser’s name.
  2. Insurance Policy – the contractor obtains insurance for repayment of amounts received from purchasers and names purchasers as payees in the policy.
  3. Lien – the contract registers a lien on the apartment (or on a relative portion of the land) as a first ranking pledge in favor of the purchaser. (Although this sort of guarantee is rarely provided by contractors.)
  4. Caution Note – registered at the local land registry and grants the purchaser preference over any later conflicting transactions or creditors of the contractor.
  5. Transfer of Title to the Property in the Purchaser’s Name at the Land Registry – contractors will rarely agree to the transfer title before receiving payment in full from the purchaser.

Mortgages

On the topic of mortgages, one seeking a loan must go to a mortgage bank to find out the conditions of pre-approval. Oftentimes, a lender will examine aspects of your financial picture, informing you of a maximum loan amount between 8-15 days. If you plan to fund an apartment purchase with a mortgage, the mortgage lender must have a representative branch in Israel. With many banks in Israel, the pre-approval stage can be done online. There are many types of mortgages on the market, and the pre-approval stage is generally when you will indicate which kind you prefer, and under what terms (can usually be changed later). Therefore, it is usually acceptable to complete this step immediately.

A foreign buyer may receive up to 50% in financing from a bank but borrowing money from a foreign bank against an asset in Israel is virtually impossible.

Opening a bank account

Foreign citizens have the right to open an account in any Israeli bank; however, banks will require foreign nationals to show their connection to Israel or a valid visa to reside in Israel.  Transferring funds to a local account from abroad may be challenging. An account holder must explain their relation to the account abroad to which a transfer was made. Sometimes, the owner of an account is a company, whereas the account holder in Israel is an individual. An alternative for a foreign resident that wishes to purchase property in Israel is to open a trust account. While being similar to opening a personal bank account (see section – Opening a Bank Account), a trustee will manage the account on behalf of the beneficiary, pay the seller directly, and explain to the bank the nature of the relationship to the source of transferred funds.

Many Israeli banks offer “non-resident accounts” to people living abroad. Based on your eligibility upon bank criteria, you may be able to open an account. The number of days spent in Israel per year is an example of consideration, meaning the process may be more challenging when conducting business from abroad. If you’re debating making your move to Israel permanent, it may be better to hold off and get a resident’s account once you have resided.

To open an Israeli resident’s bank account, you do need to provide information about your residency in the country. Usually, it’s obligatory to visit the bank in person– so it may be better to complete this once you’ve arrived. The best call is to sit tight until you make the move.

As aforementioned, a bank account may be owned by a company, and an account holder is an individual. The transfer of money from a company account to an individual’s personal account may be explained as such:

  • If the physical person in Israel is one of the founders of the company abroad, then the person will need to provide the bank the certified constituent documents of the company.
    • In the case the physical person in Israel is an employee or adviser of the foreign company and the amounts that are transferred are their salary or consultation fees, the bank may require a contract or other appropriate documents proving the authenticity of this relationship.
    • If the physical person has received credit from the foreign company, the bank will require a loan agreement.

Challenges of today

Beyond the growth and success of Israel’s economy, it is important to consider some of the challenges Israel faces today. Corruption is a legitimate problem in Israeli politics and has surfaced through the investigation of bribery and influence peddling. According to the 2019 Corruption Perceptions index, Israel is the 35th least corrupt nation out of 180 as reported by Transparency International.

The Corruption Perceptions Index ranks countries based on how corrupt their public sector is perceived to be. Meanwhile, in the Middle East, Israel ranks 3rd in the least corrupt behind the United Arab Emirates, 21st globally, and Qatar, 30th globally. While the public services sector is reported to have a moderate risk of corruption and low risk in the judiciary, corruption does not appear to be institutionalized meaning businesses can operate and invest in Israel without interference from corrupt officials. While justice continues to battle ongoing corruption to protect honesty and integrity, the ineffective bureaucratic government is considered to be a source of the problem that threatens to undermine the rule of law and economic development.Doing business in Israel

UAE/ISRAEL

Growing ties of the Arab-Israeli relationship bring hopes of mutual prosperity that bear just over the horizon. In recent weeks, open progress has been made working to normalize relations with the United Arab Emirates and Bahrain through strategic bilateral agreements. This deal drives in a range of possibilities for trade and good business from these ambitious nations. The UAE has just signed a mutual visa exemption agreement with Israel, allowing tourists to freely travel waiving visa requirements. We anticipate UAE expert workers will soon be able to apply for a B/1 visa with a similar process as with other countries.

Our law office, a dynamic business law firm with high initiative, has jumped at the first chance of this initiative to partner up and create a more productive and inclusive function in the economy, therefore our firm teamed up with Emirati law firms and colleagues. This deal aims at increasing the exchange of legal expertise and the facilitation of business attorney consultancy between the countries in order to provide clients with informative and relevant information.

The world has seen the normalizing relationship between Israel and the UAE in the last few months, joined shortly after by Bahrain and Sudan, paving the way for the business formation to come from these efforts. This has sparked enthusiasm for various types of businesses from both markets, now looking to partner up and grow to take advantage of these market opportunities.

In recent weeks, Israeli venture capital firm, Maniv Mobility, has made a seed investment of $3.8 million into a young Abu Dhabi start-up, Fenix, specializing in electric scooters and micro-mobility.  This warming friendship between countries showcases the major opportunity for potential in the market, and more specifically growing niche markets like micro-mobility. Cofounded by former executives of Careem, Fenix plans to push its focus in regions of the Middle East, North Africa, and Turkey. Careem is a vehicle for hire company that was recently acquired by Uber for $3.1 billion in 2020.  Fenix looks to propel in the mobility sector across the UAE and then to the rest of the GCC, to become the first pan-GCC operator by 2022. This is just one example of the ways business and innovation have already intertwined between the markets.

The doors are opening to a tremendous foundation of innovation and prosperity and we can’t wait for you to become a part of it. Here at our office, we are so very excited about this collaboration and what the future holds, ultimately working together will facilitate growth and the quality exchange of communication, information, and technology.

We are the business law firm you need

Here at our office, you can find the business law lawyers with the expertise you need. Although our main specialization deals in Global Immigration Law, we focus on providing our clients with expert advice in all areas of business in Israel. We help solve a wide range of legal issues pertaining to commerce, real estate, tax, labor, intellectual property, contracts, and serval other fields of civil law and commercial law. We are committed to delivering quality service with over 30 years of experience, assuring our clients are given the information they need at a great value.

Our main branches are held in Tel Aviv and Jerusalem, but you can contact us directly from the comfort of your home for the legal advice you need. As we welcome new partners in recent diplomatic normalization, we hope this cooperation will open the doors for client relationships from all stretches of the globe. We are here for you when you need us most Contact us to find out more and see how our legal counsel can help you in your next step.

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