Investing in Israel
Why Invest in Israel? Top scores on global indexes of economic competitiveness, a striking concentration of innovative people, a culture that promotes experimentation and daring, and governmental eagerness to create supportive conditions for investors, combine to make Israel a leading site of investment far beyond what its small size and short history might suggest. An entrepreneurial powerhouse, Israel is a hotbed of pioneering technologies, profitable business opportunities, and high investment returns. At the same time Israel maintains a strong and stable economy, outperforming many of the world's markets, in the recent global financial crisis. That's why the world's leading multinational companies have all chose to set up R&D centers, Manufacturing facilities, and local business: IBM, Microsoft, Motorola, Google, Apple, Facebook, Berkshire-Hathaway, Intel, HP, Siemens, GE, Philips, Lucent, AOL, Cisco, Applied Materials, IBM, J&J, EMC, Toshiba and most recently Lockheed martin, as well as most major venture Capital and private equity funds, and over 200 MNCs other multinational companies have realized that Israel is essential portion of their investment portfolio, and their business activities. Foreign Company Registration Options in Israel Foreign companies wishing to set up a presence in Israel can choose to register a Branch Office, Subsidiary Company or a Representative Office, contingent upon which best conforms to the specific needs, business plans, and strategic goals of the specific company. The registration must be executed by a professional law firm in Israel. Option 1: Subsidiary Company A subsidiary company is a locally incorporated private limited company whose majority shareholder is another local or foreign company. Israel allows 100% foreign ownership in companies. Therefore, a foreign company may incorporate a local limited liability company in Israel (i.e. subsidiary company) and own 100% of the shareholding.
An Israel subsidiary is the preferred structure for foreign businesses interested in establishing their presence in Israel. A properly structured local subsidiary company is at tax efficient corporate body. An Israel subsidiary company is considered a separate entity from the foreign company even if the foreign company is the only shareholder. The liabilities of the subsidiary company are not extended to the parent company and a tax presence of the parent company can be avoided. The name for the subsidiary can be different from that of the parent company and is subject to approval by the Registrar of Companies. The Israel Companies Law of 1999 requires the appointment of one or more directors. The Companies Law does not require an Israeli Director; however, in order to open a file for the Company at the VAT authorities, a local Representative must be provided (citizen, permanent resident, or employment pass holder). An Israeli subsidiary must maintain a registered office in Israel and keep its statutory documents in that office. An application to register a foreign company is generally processed within 14 business days of its submission. After the registration is complete, the Registrar will issue to the company a certificate of incorporation and a 9-digit company number. The fee for registering a company is currently 2,640 NIS (approx. 536 EUR). For taxation purposes, the subsidiary may be treated as an Israel resident company and, as such, may be eligible for tax exemptions and incentives. Option 2: Branch Office As per Article 346(a) of the Israeli Companies Law 1999: A foreign company shall not keep a place of business in Israel, and in particular shall not maintain an office for the transfer of shares or for the registration of shares, unless registered as a foreign company under the provisions of this section and unless it pays the registration and publication fees prescribed by the Minister under this section. An Israel branch office, like a subsidiary, is a registered legal entity. However, unlike a subsidiary, a branch office is treated as an extension of the foreign company. This means that the foreign company’s head office bears the ultimate responsibility for any liabilities arising due to the acts of commission or omission of the Israel Branch Office. From a taxation point of view, a branch office is generally considered a nonresident entity and therefore not eligible for the tax exemptions and incentives available to local companies in Israel. Consequently, setting up a branch office tends to be a less attractive option for small to mid-size businesses.
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The name of the Israel branch office must be the same as that of the head office and must be approved first, prior to official branch office registration. The Company Registrar generally approves the proposed name unless it is identical to an existing company name. An application to register a foreign company as a branch office is also usually processed within 14 business days of its submission, and the fee for registering a company is also 2,640 NIS (approx. 536 EUR). Israel Companies Law 1999 requires that a branch office appoint one agent who is an Israeli resident to accept services of process and notices. A branch office must have a registered office address in Israel. An Israeli branch office is allowed to conduct any type of business activity that falls within the scope of its parent company and can repatriate its earnings and capital. The portion of the income of the branch office that is derived from or attributable to the operations carried out outside Israel, will not be subject to taxes. Only the earnings derived from its operations in Israel will be subject to the prevailing local corporate tax rates. The branch office is required to submit its own audited accounts as well as that of its head office, a step with which many foreign companies may not feel comfortable. A branch office, though registered with Company Registrar, is still treated as a foreign entity because the control and management is exercised outside Israel. Therefore, a foreign company’s Israel branch will be deemed a non-resident company for tax purposes. As a non-resident entity, some of the tax exemptions available to resident companies will not be available to a branch office. Option 3: Representative Office Foreign companies that are only interested in exploring the market or managing the company affairs without conducting any actual profit-yielding business activity, can establish a representative office in Israel. A representative office is not a legal entity and there is no need for registration. Therefore, it cannot enter into any contract, engage in trading directly or on behalf of the foreign company, lease warehouse space, raise invoices, open letter of credit, etc. A representative office in Israel can only undertake market research or feasibility studies on behalf of its parent company. The foreign company bears implicit liability for the activities of the representative office in Israel. The representative office may be staffed by a representative from the
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foreign company’s head office or may hire a local representative who can employ a small number of local support staff. Foreign companies that are interested in examining the Israel business environment before committing investments or those who have non-core activities to be managed are most likely to set up a representative office. In general, a representative office can operate for a limited time only, after which it must upgrade to a branch office or subsidiary. Incentives and benefits Laws designed to encourage economic growth represent a long standing and successful policy deployed by the State of Israel. They seek to offer supportive conditions for companies seeking to invest in Israel. The State encourages international and local investment by offering conditional grants, reduced tax rates, tax exemptions and tax holidays, and other tax-related benefits through the Law for the Encouragement of Capital Investments and Industrial R&D. Benefits are offered via two primary government agencies within the Ministry of Economy. The Israel Investments Center The Israel Investments Center at the Israel Ministry of Economy seeks to accelerate the establishment and expansion of industrial activity by offering support to eligible companies. Seeking to maximize Israel's industrial and productive capacity, its support stimulates business and job growth, while developing Israel's priority regions and promoting special populations. The Center offers support to entities granted approved status, which make them eligible for support through one of its aid tracks. The Office of the Chief Scientist The Office of the Chief Scientist (OCS) in the Ministry of Economy is charged with execution of government policy for support of industrial R&D. The goal of the OCS is to assist in the development of technology in Israel as a means of fostering economic growth, encouraging technological innovation and entrepreneurship, leveraging Israel's scientific potential, enhancing the knowledge base of industry in Israel, stimulating high value-added R&D and encouraging R&D collaboration both Â
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nationally and internationally. A variety of ongoing support programs developed and offered by the OCS play a major role in enabling Israel to be a key center for hightech entrepreneurship. Important legal acts regulating Israeli-Italian economic cooperation: 1. Agreement between the Government of the State Israel and the Government of the Italian Republic concerning cooperation in energy research. 2. Dual Tax Treaty between the Republic of Italy and the State of Israel with respect to taxes on income and capital gain and for the prevention of fiscal evasion. 3. Agreement on industrial, scientific and technological research and development cooperation between the State of Israel and the Italian Republic. 4.
Exchange of notes constituting an agreement between the Italian Republic and the State of Israel concerning the application of social security legislation to workers from one country temporarily stationed in the other country.
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