Best Options to Register a Foreign Company in Israel – International Business in Israel
If you are asking yourselves how to best carry out a foreign company registration in Israel, this article will help you acquire some knowledge on the subject. Our law firm offers legal services for international clients who wish to register a foreign company in Israel for the sake of engaging in business operations here. Foreign companies who wish to engage in business activities in Israel can choose from a few options in order to register a foreign company in Israel.
3 Options for Registering a Foreign Company in Israel
There are three options for registering a foreign company in Israel. A foreign company that wishes to engage in business activities in Israel can set up a branch office, register a subsidiary company (a daughter company), or establish a representative office in Israel. The most suitable option depends on the company’s business plans and its specific financial objectives.
1. Opening a Foreign Company Branch Office in Israel
Concerning the first option, setting up a branch office in Israel, it must be noted that after registering a company in Israel in the form of opening a branch office for the foreign company, it will be considered a registered legal entity in every respect. That said, as distinguished from a subsidiary company, the branch office is only considered an extension of the foreign company. That is a very important point as it means that the foreign company (that is, the parent company) will bear the responsibility for any commitment made on behalf of the branch office. That means the foreign company will be liable for every action or failure of the branch office in Israel. Usually, from the viewpoint of the tax authorities, a foreign company branch office is not recognized as “resident” in Israel and is therefore not eligible for tax benefits that Israeli companies are entitled to.
In light of the above, starting a branch office in Israel is a less attractive option for small and medium-sized businesses. It must be noted that the name of the branch office must be identical to the main company name. Registering the branch office name is subject to the Israeli Company Registrar’s approval. Usually the registrar approves the proposed name, unless the name is identical to an existing company name in Israel.
According to the law, it is usually required to appoint an Israeli resident for the foreign company in Israel for the sake of performing certain actions and receiving messages. The branch office is required to have a registered address in Israel. In principle, the branch office can perform any type of business operation that comes under the main company objectives. Only profits that result from the branch office’s operations in Israel will be taxed by the Israeli tax authorities.
2. Registering a Subsidiary of the Main Company in Israel
The second option is to register a subsidiary in Israel that will be a daughter company of the foreign company so that the subsidiary is a limited private company. Israeli law enables all shareholders in such a company to be foreign citizens. Therefore, a foreign company can register a local company in Israel and hold 100% of its shares. Registering a subsidiary in Israel is the preferred option for small and medium-sized foreign companies that are interested in engaging in business operations in Israel.
The subsidiary is considered a separate legal entity from the parent company, even if the parent company is the only shareholder of the subsidiary. As a principle, the subsidiary’s commitments will not cast any responsibility upon the parent company.
Accordingly, unlike with the first option, the name of the subsidiary can be different from the foreign company’s name, subject to the Israeli Company Registrar.
According to the law, you must appoint at least one company director; however, you may wish to register a few. While you are not required to have an Israeli director in order to open a file with the tax authorities (VAT), you do need at least one representative who is an Israeli resident for the process of registering a foreign company in Israel. The subsidiary is also required to have a local address. From the viewpoint of the tax authorities, the subsidiary is considered a local company in every respect and is entitled to tax benefits that are available to local companies.
3. Starting a Foreign Company Representative Office in Israel
There is another option available for registering a foreign company in Israel for companies only interested in investigating the local market or for the purpose of managing company affairs without engaging in any profit-yielding business activities. This regards setting up the foreign company’s representative office in Israel. Such a representative is not considered a legal entity and therefore cannot make contractual commitments or engage in any trade. Such a representative of the foreign company is only permitted to engage in market research on behalf of the parent company. The company, of course, bears responsibility for all the representative office’s activities in Israel. Such a representative office does not require registration with the Israeli Company Registrar.
This option will be recommended only in instances where the foreign company wishes to gather information about the local market before entering it. After arriving at a decision to enter as an active player in the local market, the foreign company will need to consider one of the first two options: registration of either a branch office or a subsidiary.
To complete the process of registering a foreign company in Israel in an easy and fast way, it is recommended to use the services of lawyers with expertise in this field.
If you have any questions regarding registering a foreign company Israel or other issues of corporate or business law in Israel, please contact us.