Israel Subsidiary Entity Set Up

Israel Entity Set Up

Foreign companies planning to hire staff in Israel do not generally need to incorporate a subsidiary or branch. However, they must register with the Israeli Income Tax Ordinance (ITO) and the National Insurance Institute (NII) as an employer to withhold and remit tax and social security contributions to the authorities. They must also comply with all Israeli employment laws.

However, by partnering with us you create the possibility to bypass this process and utilize our expertise. By using our PEO service we take care of the complicated paperwork.

How to set up an Israeli Subsidiary

First, decide on the location. Different regions and cities can apply subsidiary regulations independently. Options for incorporation include limited liability, public or foreign subsidiary companies. Opening a branch or representative office are other possibilities.

The Israeli Companies Ordinance (ICO) defines a company as a corporation formed and registered in Israel according to Israeli law. To incorporate a subsidiary in Israel, the parent company must comply with Israel’s Companies Act (1999) and register with the Registrar of Companies. Further procedures include: 

• Submit application form to set up a subsidiary
• Copy of the Articles of Association
• Declaration of initial shareholder(s)
• Declaration of initial director(s)
• Registration fee of ILS 2,645 (€734, US$834)

All signatures must be certified. In Israel they must be signed in the presence of an Israeli attorney; outside Israel they must be signed in the presence of an Israeli Consul or a public notary.

The Israeli Companies Ordinance have taken steps to simplify the process. Some law offices can incorporate subsidiaries ‘in trust’ as the initial shareholder, with shares transferred to the appointed directors after incorporation.

The subsidiary must also register with the income tax and VAT departments of the Income Tax Ordinance (ITO) and National Insurance Institute (NII) to become a legal Israeli employer.

Benefits of setting up a Subsidiary in Israel

Specific advantages for a foreign company opening a subsidiary in Israel include not being responsible for the subsidiary’s debts or liabilities. The liability of the subsidiary’s shareholders is limited to their investment in shares.

The subsidiary can operate under a different company name while pursuing its own business interests. It operates under Israel’s Companies Law (1999) in the same way as local companies. It is taxed on its worldwide income and liable for the standard rate of 23% Corporate Tax on business profits, although tax incentives may apply.

Through its subsidiary, the parent company has the advantage of exploring further afield among other eastern Mediterranean, southwest Asian and North African countries.

Other benefits for a subsidiary:

• Easier to obtain regulatory approvals, loans and finance and enter contracts with other Israeli companies
• More impact with clients and suppliers, as subsidiaries imply more permanency than branches
• Employees feel there is more stability and job security than from being with a branch

In the wider commercial sense opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets.