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Doing Business in Israel This Document Describes Some of the Key Commercial and Taxation Factors That Are Relevant on Setting up a Business in Israel

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Doing Business in Israel This Document Describes Some of the Key Commercial and Taxation Factors That Are Relevant on Setting up a Business in Israel Doing Business in Israel This document describes some of the key commercial and taxation factors that are relevant on setting up a business in Israel. dfk.com Prepared by Mualem Glezer Inbar Junio & Co. +44 (0)20 7436 6722 2 Doing Business in Israel Background Country overview In the last 10 years large reserves of offshore gas have been discovered but Israel known also as SUN – Start Up Nation Israel still depends on imports of crude oil. is a 20,770 square km middle east country Other imports are raw materials, grains with a population of 8.8 million people. and military equipment. The Shekel is 80% are Jews, 19% Arabs and 1% others. considered to be a stable currency and in The official languages are Hebrew Arabic the last years Israel has a budget surplus. and English and after the big immigration Approximately half of Israel’s foreign debt from Russia in the 90’s Russian is also is owed to the US which is its major source very common. military and economic aid. Israel is highly urbanized and economically SUN – Start UP Nation – Israel is one of developed country. The main sea ports are the most important technologies centers Eilat in the south, Ashdod in the center and in the world. With highly army trained and Haifa in the North. Ben Gurion Airport is highly motivated work force, supportive the main airport in Israel and is located in government programs, active venture Lod – in the center of Israel. capital funds Israel has fertile environment for innovations. Almost every multinational Israel’s parliament – the Knesset is elected company has a development center and every four years at general election where investments in Israel. Export of software, he voters elect a Party. The Prime Minister technology, medical equipment, nano is the head of the party who received most technologies and sale of R&D companies votes or was able to form a coalition. The to multinationals contributes to the budget President has mainly a representative role. surplus and the strong Shekel. The country’s main problem is the conflict with the neighbor Arab countries and Transport infrastructure the Palestinians. Busses are the country’s main form of transportation. In the last few years a big Economic overview investment is made in order to modernize the railway system. As a Jewish country According to the Doing Business report of public transportation does not operate the World Bank Group Israel is ranked in on the Shabbat. There are approximately the 54th place –down 2 places from the 20,000 km of roads that get to everywhere. previous year repot. This is considered a Israel has 47 airports the main – Ben blow to the ease of doing business target Gurion in the center of the country and the considered to be very important by our Ovda in the south Near Eilat and 3 major Prime Minister. Israel is ranked in the sea ports Eilat in the south, Ashdod in the 130th place in the easiness of registering center and Haifa in the north. properties and 89th place in the easiness of enforcing contracts. dfk.com +44 (0)20 7436 6722 Doing Business in Israel 3 Choice of Legal Form Limited liability company If there is no Israeli shareholder a fiscal representative must be nominated and A limited liability company with a share registered with the tax authorities. capital is the most common form of business to do business in Israel. Public limited company Incorporation is fast and easy. The Registrar of company’s fee is about $ 700, A limited liability company can have and once you submit the documents it will maximum 50 members, a public limited take a few days to register a company. company must have a least 7 members. According to the Israeli Company’s Act The shareholders can be individuals or any a public company is a company that its registered entity, Israeli or foreign. shares are traded in the stock exchange or its shares were offered to the public. Once the company is registered you have A public company in Israel is regulated to open a bank account in order to open by the Israel Security Authority and must an income tax and VAT files. comply with its regulations. The companies tax rate is currently 23% and dividends are taxed at 25% (30% for a substantial shareholder who has 10% or more of the shares of the company). dfk.com +44 (0)20 7436 6722 4 Doing Business in Israel General partnership The registration of a branch is more complicated than registering an Israeli Partnerships are less common than company as the subsidiary. For legal companies. Partnership can be protection a subsidiary is preferred. either registered with the Registrar In any case if there is no Israeli as an of Partnerships or not. In any case a owner an Israeli fiscal representative partnership must register with the VAT must be nominated. authorities and gets a special registration number for a partnership. Sole trader The maximum number of general partners is 20 and there is a partnership ordinance To register as a sole trader is fast and that governs the relationship between the easy. Once you have a bank account you partners unless otherwise agreed. register with the Inland Revenue and with VAT authorities and you can start your business. Limited liability partnership There are bookkeeping regulations A partnership can be either a general that are accustomed to the nature of partnership or a limited liability the business, turnover and number of partnership. employees. A sole trader will have to prepare a profit and loss account and In a limited liability partnership usually submit a tax report once a year. one partner with a minimal share in the partnership is the unlimited partner and all other partners are limited. This kind of Nonprofit organization partnership in Israel is common in venture capital partnerships and oil and gas There are several kind of nonprofit exploration partnership. organization in Israel. The most common one are an association or a public benefit company. A nonprofit entity is exempt Subsidiary and branch from paying tax, donation can receive a tax credit and regarding VAT a nonprofit Many foreign entities have subsidiaries in organization cannot claim the VAT on Israel. Many are R&D centers that were expenses and pays VAT at a reduced rate established by the foreign entity, agencies on salary expenses. of foreign entities or became a subsidiary after the foreign entity bought the Israeli company. Branches are less common. The main advantage of a branch is that a branch avoids the tax on dividend when profits are paid to the parent company. dfk.com +44 (0)20 7436 6722 Doing Business in Israel 5 Setting up and organization liabilities to the tax authorities. A company must have audited financials by an A company must register with the auditor who is registered with the Board Registrar of Companies. Companies of Certified Public Accountants in Israel. must have at least one shareholder and Tax reports must also be certified by the there is no minimum of the share capital. auditors and are submitted to the Inland Registration is fast (will take a few days). Revenue once a year. The Tax Year ends at A company must have at least one Israeli December 31 but in some circumstances director and if not must nominate a fiscal the tax year can be change to March 31st. representative, that can be an Israeli entity, in order to represent it and take its Audit Requirements Limited companies and registered entities like foundations, nonprofit organizations and public institutions must be audited by registered auditors in Israel. dfk.com +44 (0)20 7436 6722 6 Doing Business in Israel Taxation For Israeli tax purposes, an Israeli resident The center of living test is based on the is defined as an individual whose center following criteria: of living is in Israel taking into account the person’s family, economic and social links. • Location of permanent home An important presumption will apply in • Place of residence of the individual and either the following circumstances: his/her family • The individual is present in Israel at • Place where the individual regularly least 183 days in a tax year ending 31 works or is employed December, • Location of active and material • The individual is present in Israel at economic interests least 30 days in the current tax year, and 425 days cumulative in the current • Place where the individual is active in and two preceding tax years. various organizations, associations or institutions • An Israeli resident pays tax on his worldwide income. dfk.com +44 (0)20 7436 6722 Doing Business in Israel 7 The current tax rates are: Annual income level (NIS) 2018 tax rate Other Income Sources 2018 tax rate 0 – 74,880 10% Capital gains 25-30% 74,881 – 107,400 14% Interest 10-35% 107,401 – 172,320 20% Dividends 15-30% 172,321 – 239,520 31% Inheritance None 239,521 – 498,360 35% over 498,361 47% Income above ILS 641,880 is subject 3% surtax. National insurance up to 5,944 monthly salary 5,944 - 43,370 monthly salary Employee’s share 3.45% 12.00% Employer’s share 3.45% 7.50% Additionally, self-employed individuals pay VAT between 5.97%-17.83%. VAT current rate is 17%. There is National insurance payments include the transaction at zero rate VAT or that Health Tax payments that cover HMO are exempt from VAT. Among such payments and hospital costs. transactions are selling intangible assets and services to foreign residents, services and hotel costs for tourists, fruits and vegetables and residential rentals for a period less than 25 years.
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