Starting a Business in Israel as a Foreigner
Starting a Business in Israel as a Foreign Citizen.
Israeli economy is one of the healthiest and safest in the world. Therefore, it attracts more and more investors each year. Even though the process of establishing the business in Israel is very easy, we would still recommend you plan your actions with the assistance of a competent law firm in Israel that can help you reach your goal of starting a business in Israel as a foreigner.
In this summary, Advocate Michael Decker, a partner at our law office will introduce you to the principal types of business organization and the main requirements that should be met to launch a business in Israel as a foreign citizen.
Types of business formations in Israel
There are various ways to register business organizations in Israel, such as individual entrepreneurship (“Osek Patur” and “Osek Murshe”), a private company, public company, cooperation, partnership, a foreign company and two types of non- profit organizations.
Individual Entrepreneurship – also called sole proprietorship in the USA
An individual in Israel can open and run a business under two classifications, depending on the annual business income.
First, Osek Patur (small business) is one of the simplest forms of business classifications in Israel. This form of business is used in cases when the financial turnover of the business is small, no more than 100,491 NIS, a year, as of 2020 (around 30,000 USD annually). The annual turnover of the business is limited and recalculated each year.
Furthermore, this type of business is not required to pay Value Added Tax (VAT) for trading transactions. However, it should be noted, that some specialists, like lawyers, architects, doctors, real estate brokers, auditors, and others must register as osek murshe even if their turnover is below the upper limit.
Second, Osek Murshe is the type of business that is obliged to pay VAT from all trading operations. On the other hand, it is possible to reimburse VAT on incoming trading operations such as rent of accommodation, purchase of raw materials, and other necessary expending of the business. Moreover, this type of legal entity is not limited to the upper turnover, which enables the business to expand. Also, the registration of a business as Osek Murshe allows the employment of workers in the business.
Types of Israeli Companies
Companies in Israel are regulated by the Companies Law (1999).Certain matters related to companies in Israel, such as; pledges, liquidation, security bonds and more, are under the jurisdiction of the Companies Ordinance (1983). The majority of the companies in Israel are limited by shares (Ltd). A company can be registered as a ”Private Company” or as a ”Public Company”. Both types of companies are obliged to prepare and present an annual report regarding their audited financial statements to their shareholders.
A Private company is required to have at least one director. Also, the number of shareholders is limited. It can start with one sole shareholder and up until a maximum of 50 shareholders. This company can’t offer or sell shares or debentures to the public. Additionally, the restriction of the transferability of its shares must be stated in articles of incorporation.
A Public company must have at least two directors and a minimum of 7 shareholders. It may offer its shares and debentures to the public following the requirements of the ICO and the Securities Law. Additionally, the public company has to publish an annual report containing the audited financial statements and directors’ report.
There are two types of partnership: general partnership and limited partnership. A limited partnership requires at least one general (unlimited) partner. The limited partner is not allowed to participate in the management of the business. Otherwise, he will be liable for the debts of the partnership as a general partner. This type of legal entity is uncommon in Israel, except for Israeli law firms, which are often are a partnership.
This type of legal entity is mainly established in Israel for the agriculture and transportation sectors. There are two ways to set up a cooperative: by one or more individuals and legal entities that are not cooperatives, or by one or more cooperatives.
- Branch – Foreign company that intends to trade in the Israeli market, may establish a branch company. Foreign company (parent company) will be liable for the whole actions of the branch.
- Subsidiary – This type of company is considered a new legal entity in Israel. Therefore, the parent company is not responsible for its actions.
- Representative Office. Foreign company may set up this type of office if it wishes to learn more about the local market before really entering it. This office is not a separate legal entity, and the parent company is responsible for its actions.
You can read more about the difference between registration of a local Israeli company, or operating in Israel as a foreign company, in this article on our website.
Non- Profit Organizations
These types of legal organizations usually operate as hospitals, charitable organizations, and academic institutions. Israel has two types of non-profit organization; the first is an Amutah, which can be established also by foreign nationals. For more information on the procedure of registration of an Amutah in Israel, read here. The second type of Israeli NGO is a company for the benefit of the public. You can read more about the difference between these two types of Israeli NGO’s in this article, on our website.
Is it possible to set up a business in Israel by foreign citizen?
Yes, foreign citizens can launch a business in Israel, but there are some requirements to be met.
Firstly, to establish a legal entity in Israel, foreign citizen needs to appoint a guarantor for tax purposes. This guarantor must be a citizen of Israel and is usually a business partner or friend, relative, Israeli spouse or lawyer of accountant of the company. The guarantor will be legally bound to accept the liabilities of the foreign citizen.
Secondly, the most common and easiest form of business organization that the foreigner can establish is Limited Liability Company (Ltd).
Thirdly, the foreigner may also register as a private entrepreneur only they are married to an Israeli citizen and are going through the process of obtaining Teudat Zehut.
Registration of the Company by a Foreign National
Usually we would recommend a foreign national who wants to do business in Israel to register a limited liability company. It’s a relatively easy and fast procedure and we have assisted many international clients in this process. You can read more about the procedure of registration of a company in Israel in this article on our website.
The following are the main steps that the foreign citizen should undertake to start a business in Israel:
- To appoint a guarantor;
- To register the company with the Registrar of Companies;
- To open a separate business bank account;
- To register with the Israel Tax Authority.
If you have any questions regarding establishing a company in Israel or any other issues, please contact our law firm. We have assisted many foreign individuals and companies in setting up a successful businesses in Israel.