Skip to content
Contact Us: 03-3724722 | 055-9781688 | [email protected]

Incorporating a business in Israel

Michael Decker
Michael Decker

Whether you are a local entrepreneur or a multinational firm looking to expand into an untapped market, Israel is a great place for business. Known mainly for its cutting-edge high-tech start-ups and advanced industrial manufacturing, the Israeli economy consistently ranks as a global leader in innovation. The dynamism and continued success of the Israeli economy rests on a solid foundation that has ease and speed of incorporating a business in Israel as one of its main pillars.

Our law office specializes in company and corporate law. We have a great deal of experience in helping Israelis and foreign citizens companies incorporate businesses in Israel. This article will explain the benefits of incorporation, provide a guide on how to incorporate for first time aspiring business owners, and respond to some frequently asked questions and misconceptions about the process of incorporation.

The Benefits of Incorporation:

What is a corporation, and why should I go through the troubles of registering one?

Incorporating a business in Israel

Corporations, or as they are more commonly known in Israel, companies, are a business vehicle. They have several characteristics that make them especially valuable and facilitate the raising of capital in all its forms. The main benefit of incorporating a company is the concept of a separate existence/legal personality. A corporation is recognized as a separate legal entity that can itself own property or other assets, enter into contracts in its own name, sue other parties, and be sued. This is the foundation for a key concept called limited liability. Shareholders, investors, and in many cases management itself of the corporation, will have their liability limited to the amount of their investment. What does this mean for you?

Liability and Legal Personality:

Limited liability means that the creditors of a firm have no claim at all upon the personal assets of the firm’s shareholders.  To illustrate, let’s compare and contrast with a partnership or a sole proprietorship. If you start a business under the legal framework of a partnership or sole proprietorship, the law makes no distinction between the assets you hold for carrying on the business, and those held for personal use.

The partner or sole proprietor is personally liable; execution against all of their assets (including personal ones) may be obtained to satisfy legal and financial claims against them. Conversely, the only assets that creditors are entitled to from shareholders or investors when dealing with a corporation/company, are those that have been invested.

Thus, registering your company has the benefit of asset partitioning. In other words, investors in your company have the peace of mind of knowing that their potential losses are “limited” to the amount of their investment as opposed to their entire wealth/all of their assets. As such, incorporation makes diversification and passivity a rational strategy for investors, thereby facilitating the raising of capital.

Tax Considerations:

Taxes on corprorate profits and capital gains are one of the largest sources of revenue for the Israeli government. In 2018, the Israeli government collected over 12% of its total tax revenue just from corporate profits (not including other taxes levied on corporations and individuals within them). To maintain and grow this source of revenue, the government has given great latitude to corporations when it comes to taxation.

The tax code allows for a variety of deductions, carry-ons, and write-offs that conceptually are meant to encourage business owners to invest their earnings back into their business. This means that companies in Israel are afforded a variety of tax benefits that they can take advantage of. This is further incentive to take into account when deciding whether to register a business.

Ease of Incorporation in Israel

The regulatory regime in Israel is relatively permissive when it comes the ease of registration of a new company. In the chart below you will find the time required to register a company in Israel in comparison to other leading economies and regional competitors.

However, this estimate does not take into account the preparations required before and after registering the company.

The Process of Incorporation:

The process of registering a company in Israel starts with the Registrar of Companies. In order to register a business as a company with the Registrar, the following documents must be submitted:

  1. Form No.1 of the Company Registrar: an application form to register a company.
  • The details in this form will be identical to those in the Company’s Articles of Association. The applicant’s signature on the form will be validated by an affidavit signed in the presence of a lawyer.
  1. Memorandum of Association, which establishes the corporate identity and principal objectives of the company, shareholders’ responsibility and shares issued.
  2. The company’s Articles of Association, which set forth rules of conduct for the company. These articles will include, among other things, the following details:
  3. The Company name
  4. The Company’s objectives
  • Details regarding registered capital and capital allotted to the shareholders.
  1. Details regarding the limitations of liabilities
  2. Particulars of the shareholders, full name, ID number and address
  3. The shareholders will sign the Articles of Association and their signature will be validated by a lawyer.

It is important to note that should you decide not to submit your own articles of association, then the standard articles which are listed in the Companies Ordinance will be substituted and in force for the company, often times with unintended consequences. This is why it is important to speak with a lawyer and ensure that your articles of association are representative and allow for the execution of your business and strategic goals.

The fee for registering a company is 2,244 NIS ($666) as of Jan 2021. After the registration is complete, the Registrar will issue a certificate of incorporation and a company number of 9 digits. Important: an Israeli lawyer is required to verify the company documents. This lawyer will typically handle most of the process and represent the company with the Registrar’s office.

Registering with Tax Authorities

Once you’ve been issued the certificate of incorporation and a company number, it is time to register the company with the appropriate tax authorities. This can be done by filling out form number 4436 of the Income Tax Department of the Israel Tax Authority. We emphasize that this should be done with the help of an experienced lawyer. A lawyer can help you navigate the bureaucratic procedures to ensure that the way you handle taxes is compliant with the law and advantageous to your business.

Incorporating a business in Israel – Conclusion

The manifold benefits of incorporation, both from a legal and fiscal perspective, can help your business take advantage of Israel’s vibrant economy. To do so, it is crucial that you take the time to understand and comply with the various requirements of incorporation. The more effort you exert at the beginning in drafting your memorandum and articles of association to match your particular objective, the more dividends you will reap in the future. Do not hesitate to contact one of our expert lawyers for guidance as you begin your business venture. We would be happy to assist you in any capacity.

Contact Us

  • ✓ Valid number ✕ Invalid number
  • This field is for validation purposes and should be left unchanged.

Scroll To Top