Forming a Legal Entity in Israel

Choosing a Legal Entity

Foreign companies setting up a presence in Israel can choose from a variety of options, namely three types of legal entities: (a) Subsidiary Company; (b) Branch Office or (c) Representative Office. The choice of entity depends on the company’s business plan and strategic goals.

A. Subsidiary Company
A subsidiary company is a locally incorporated, private limited company owned and controlled by another company. Even if the only shareholder of the subsidiary company is a foreign company, the Israeli subsidiary is considered a separate entity and its liabilities are not extended to the parent company. The Israel Companies  Law of 1999 requires the appointment of one or more directors for the subsidiary company.
For taxation purposes, the subsidiary may be treated as an Israeli-based company and, as such, is eligible for the same tax exemptions and incentives available to local companies.

B. Branch Office

An Israeli branch office is also a registered, private legal entity, however, unlike a subsidiary, it acts as a local extension of the foreign company. As a result, the head office (parent company) of the foreign company bears the ultimate responsibility for any and all liabilities arising from acts of delegation or omission from its local, Israeli branch office. According to the Israel Companies Law of 1999, a branch office must appoint an agent to accept services of processes and notices; this person should normally be an Israeli resident. A branch office is considered a non-resident entity and therefore not eligible for the tax exemptions and incentives available to local companies in Israel. A share of the branch office’s income which is determined to be for operations outside of Israel (or derived therefrom) is not subject to taxes; only earnings derived from operations in Israel are subject to local corporate tax rates.

C. Representative Office
Foreign companies which simply wish to research the Israeli market or manage company afairs without conducting any business in-country may set up a representative office in Israel. A representative office is a temporary arrangement without any legal attributes, meaning the entity may not enter into contracts, engage in direct trade or on behalf of the foreign company, lease industrial space, issue invoices, or seek credit from fnancial institutions.
A representative office in Israel may only conduct market research or create feasibility studies on behalf of its parent company and may not earn any income. The office may be run by a representative from the foreign company’s head office, or the company may  hire a local representative, who will then hire some local support staf for non- revenue generating operations. Unlike a subsidiary company or branch office, a representative office does not need to register with the Registrar of Companies.

Subsidiary vs. Branch

Given the choice between a subsidiary and branch office, foreign companies often prefer to establish a subsidiary office to conduct business in Israel. Registration of a foreign branch in Israel generally takes longer because of the need to certify and translate corporate documents, including charters. These delays could also extend to opening bank accounts and leasing office spaces.

Registration With The Registrar of Companies

After the type of legal entity has been chosen, companies in Israel must register with the Registrar of Companies.

Registration of an Israeli Subsidiary
The following documents must be submitted to incorporate an Israeli subsidiary:
1. Application Form
2. Copy of the Articles of Association
3. Declaration of initial shareholders
4. Declaration of initial directors
5. Registration fee

The signatures on all documents of incorporation submitted to the Registrar of
Companies must be certified as follows:
• If in Israel – documents must be signed in the presence of an Israeli attorney and
confrmed by such an attorney.
• If outside of Israel – documents must be signed in the presence of an Israeli
Consul or the signature must be made in the presence of a notary public and
then be apostilled.

To simplify the certification process, some law offices can incorporate companies
with the law office serving in trust as the initial shareholder and the partner serving
as the director. Following incorporation, shares can be transferred to nominated
entity(ies) and the relevant director(s) appointed to replace the incorporating
director. Following a recent reform at the Corporations Authority, some lawyers have
been authorized to fle applications online, simplifying the incorporation process
even more.

Opening an Israeli Business Bank Account

After registering with the Registrar of Companies and before opening a tax file, companies must open an account with an Israeli commercial bank.
The process of opening a commercial bank account may require some patience on the company’s side, especially when a foreign corporation is involved (in order to prevent money laundering). The procedure may vary, depending on multiple factors, including: company size, sector and the type of business entity registered.

Before opening an account, it is advisable to make sure that the chosen bank ofers
a full-service, English-language internet portal as well as an English-speaking point
of contact.

Generally, you will need the following documents to open an account at a
commercial bank. Note that specifc details and requirements should be verifed with
the individual bank with which the company plans to open an account:
1. Certificate of Registration with the Registrar of Companies
2. Accountant or attorney’s proof of signatory rights for the company
3. Copies of all the directors’ passports, certified by a notary
4. Certified copies of the Corporate Charter and registration documents
5. Resolution(s) of the corporation’s Board of Directors to open a corporate bank account at a specifc bank and outlining authorization of signatory(ies) on the account
6. An Israeli attorney’s confrmation of the Board of Directors resolutions
7. Standard anti-money laundering forms, with certifications by an Israeli attorney

Registration With The Tax Authorities

Once a company has been registered with the Registrar of Companies, it must then register with the Israel Tax Authority (VAT and Income Tax departments) and the National Insurance Institute to become an Israeli employer.
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