Appointing an Israeli representative for a foreign or international company – what does it entail?
We are often asked by foreign and international companies seeking to operate in Israel – why does appointing an Israeli representative for a foreign company involve such substantial expenses? There are a number of reasons, but the main one is the high level of commitment on the part of the Israeli representative in their work for the company. To understand the issue in depth, it is important to know the laws regarding Israeli representatives for international companies. You will find an explanation of the issue in this article by attorney Michael Decker, a partner in our firm and an expert in corporate and commercial law.
Our offices, in Jerusalem and in Tel Aviv, specialize in corporate and commercial law. We provide comprehensive legal assistance to corporations and companies in Israel and abroad on a wide range of subjects. Services provided by our offices include assistance in registering a foreign company in Israel, registering a representative for tax purposes, ongoing advice on a company’s legal issues, etc.
Appointing an Israeli representative for a foreign company – why is it so expensive?
Foreign and international companies that wish to operate in Israel are required to appoint a representative in Israel to handle their business locally. Both the Value-added Tax Law and the Income Tax Order require appointing an Israeli representative for local management in dealing with the tax authorities and other bodies. This represents an immense responsibility that is placed on the shoulders of the Israeli representative. The law views the representative as a part of the company in the context of their work, even though they are not in fact part of it and have little or no control over the way the company operates. This risk is the main reason for the substantial fees that are usually collected for serving as a representative in Israel.
When does the law require a foreign company to appoint an Israeli representative?
In order for foreign and international companies to conduct business in the Israeli market, they must choose between two different modes of operation: establishing a subsidiary or registering a branch in Israel. The first option may grant advantages in aspects such as legal protection and efficiency. The second option, meanwhile, may offer tax advantages. The foreign company may also choose to register its Israeli office as a representation of the company, but then it will not have the option to practice commerce in Israel.
However, regarding the requirement to appoint an Israeli representative, it does not matter whether a foreign company chooses to establish an Israeli subsidiary or register as a branch. In both cases it is necessary to appoint an Israeli representative to manage the company’s business locally. We explain this in detail in another extensive article published on our website.
What is the role of the Israeli representative of a foreign company and what risks do they take on?
The Israeli representative performs various actions for the foreign company, such as contact with and reporting to the tax authorities – VAT and income tax. Usually this representative is an Israeli resident. The representative is in fact a proxy of the company, whose job it is to report the economic activity of the foreign company, receive funds for it and handle any issue required by Israeli law.
Serving as an Israeli representative entails various risks. It is important to understand that the representative takes upon themselves all of the risks of the foreign company and its exposure before the Israeli tax authorities. There is not necessarily complete correlation between the company’s activity and what is known to the tax authorities. Therefore, these are risks that the representative takes on personally.
Among the subjects that the Israeli representative handles regularly: tax transactions such as withholding tax, VAT deduction and filing tax returns. Beyond that, the representative also handles coordination between the company’s international activity and Israeli activity in terms of taxation and double taxation agreements. Of course, fulfilling these tasks requires extensive experience in the field of corporate law and company taxation. The unique knowledge required for the job, coupled with the large responsibility it entails, lead to the high cost of appointing a representative.
Contact an attorney who specializes in commercial law
As we have explained above in detail, an Israeli representative for a foreign or international company fulfills a key role and takes on many risks in the name of the company. For more questions on this subject and corporate law in general, you can contact an expert in commercial law from our offices. Our offices specialize in commercial law, company taxation and corporate law, and advise international companies who are interested in operating in Israel.
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