Israel is a parliamentary republic that uses a mixed legal system that combines elements of codified law and customs. The judiciary also plays an important role in the legal system of the country.
The president is the head of state, is elected by the Knesset for the period of 7 years and has largely ceremonial duties. The prime minister is the head of government (the cabinet) and is given the real authority. The government is also formed by the Knesset.
The judiciary consists of a three-tier general jurisdiction court system (magistrate courts, district courts and the Supreme Court) and special courts (military tribunals, etc.). There are also religious courts in Israel.
Several kinds of legal entities may be incorporated in Israel, each of which has its own features and advantages. The main of them are listed below:
Small business in Israel is represented by two forms of individual entrepreneurship: Osek Patur, which must pay VAT (Maam), and Osek Murshe, which pays value added tax to the treasury on every transaction. The key difference between these two types of individual entrepreneurship does not only consist in VAT. Osek Patur is limited in terms of its annual turnover, which may not exceed 100,000 ILS. In the case it exceeds the set maximum amount, the business shall be reregistered as Osek Murshe.
It is important that an entrepreneur who regularly pays Maam has the right to tax refund on amounts spent to conduct business. It means that part of the money invested in the business for the purpose of making profit or spent in order to maintain the enterprise’s operation can be returned to the budget.
Only a non-resident who is in the process of obtaining Israeli citizenship through the stepwise procedure of spouse legalization can register Osek Patur/Murshe. In this case they will need a guarantor with Israeli citizenship. It does not necessarily have to be an Israeli spouse or close relative. But it needs to be understood that the guarantor will be liable to the extent of their property for compliance with tax legislation by the foreigner’s business. The non-resident and Israeli citizen register Osek Murshe as their joint property, which the foreign entrepreneur will reregister to themselves after becoming a citizen and will themselves be accountable to the tax authorities of Israel. If a non-resident does not propose to obtain Israeli citizenship, they will not get Osek Patur/Murshe registered even if they have a guarantor.
The most common kind of legal entity in Israel. A private company may have one to 50 owners (shareholders), who are only liable to the extent of their contribution to the authorized capital of the company. The authorized capital of a private company must be at least 10,000 ILS.
This form of conducting business in Israel is perfect for both large-scale enterprises with several founders and large authorized capital and small and medium-sized business.
Chevra Baam is managed by its director or collective management body depending on what is provided for by the articles of association of the company. The articles of association may also set other management rules, including procedures of making of decisions, distribution of profits, etc. Chevra Baam may engage in any legal business, except for some industries that require a special permit, for example, banking, insurance, etc.
Chevra Baam’s advantage is variability of the taxation structure. In the case of Chevra Baam, each enterprise can optimize the tax rate according to its individual case and thus significantly decrease the fiscal burden.
Another essential point is that founders and directors do not bear personal liability. Unlike individual entrepreneurs (Osek Murshe, Osek Patur), founders of Chevra Baam do not bear personal financial liability for credit or other obligations (unless provided for by contracts). In the case of unforeseen situations, one can follow the bankruptcy procedure and avoid debts.
As a matter of fact, this is the only kind of company that may be incorporated in Israel by a foreign citizen. When doing so, they will always need a so-called local “guarantor” (an individual or a company).
A company that can sell its shares on an exchange and have an unlimited number of shareholders. It must have at least 7 shareholders, and its authorized capital must be at least 5,000,000 ILS.
Chevra Ziburit is one of the forms of legal entities that makes it possible to divide property into shares and have a big number of members. Founders must draw up the articles of association, which must be approved by the general meeting of shareholders.
The articles of association of Chevra Ziburit must contain the main provisions, such as the name, location, purpose, authorized capital, number of shares, voting rules and other information.
A company may have both ordinary and preference shares. Shareholders of Chevra Ziburit do not bear personal liability for the company’s debts but only to the extent of the amount equivalent to the par value of their shares. However, if the amount of the authorized capital does not correspond to the real state of the company’s affairs, shareholders may bear liability for the company’s obligations to the extent of their property.
Chevra Ziburit is managed by the general meeting of shareholders, board of directors and executive body. The general meeting of shareholders is the supreme management body of the company and makes decisions on the main issues.
The board of directors is normally elected among shareholders and appoints the executive body, which is responsible for day-to-day management of the company.
The main advantages of Chevra Ziburit are the possibility to mobilize capital by selling shares, management flexibility and ability to draw investments. However, formation of Chevra Ziburit requires more time and expenses than that of other forms of legal entities, such as Chevra Baam.
It is mainly formed in order to manage its members’ property (residential and non-residential premises, agricultural lands, etc.). A cooperative may have any number of members; there is no authorized capital.
In the early 2000s, Israel had 932 agricultural settlements, where 10% of the country’s citizens lived and worked. Kibbutzim and moshavim are dominating types of Israeli cooperatives. Aguda Shitufit produce 80% of agricultural products of Israel. Kibbutzim and moshavim rent land and obtain a permit for settlement from the landlord, which is the state.
Members of a cooperative have equal rights to manage the cooperative and receive profits. Each member makes a certain contribution to the cooperative in the form of money, resources or labor.
In order to establish a cooperative in Israel, it is necessary to register with the Registrar of Companies and provide necessary documents, including the articles of association, list of members and other documents. One of the advantages of a cooperative is that it makes it possible to unite resources and experience of different members, which facilitates increase of efficiency and competitiveness of the business. In addition, members of a cooperative can receive benefits and subsidies from the state and other organizations.
A cooperative, however, has some limitations and risks connected with the necessity to comply with the articles of association, limitation of the right of members of the cooperative to sell their shares as well as the risk of bad management. Another disadvantage of a cooperative is the archaic nature of the Law of Cooperatives.
Branches of foreign companies and subsidiaries of foreign companies can also be opened in Israel in one of the above forms.
In Israel, companies shall be registered with the Registrar of Companies of the Ministry of Justice of Israel. This state authority is responsible for registration of new companies as well as making changes in the information of companies that are already registered in Israel, storage of corporate information, issuance of extracts from the Register, etc.
A new company may be registered in Israel online (which requires prior registration and identification), or by personally visiting the Ministry of Justice, or by employing services of local lawyers. Detailed information on the procedures of company registration in Israel can be found at the website of the Ministry of Justice of Israel.
As a matter of fact, limited liability company is the only kind of company that may be incorporated in Israel by a foreign citizen. When doing so, they will always need a so-called local “guarantor” (an individual or a company).
The guarantor’s purpose is to ensure that the company fulfills its accounting, tax and other obligations. From the point of view of tax and controlling authorities of Israel, it is the Israeli resident who is formally liable for the company’s obligations to the extent of all their property. Due to high risks trust companies normally act as guarantors.
The following main conditions must be met to incorporate a company:
When registering a company, the applicant shall state 3 company name options (in order of priority) to be checked by the Registrar of Companies. They will be checked by the Registrar of Companies in the stated order. A name can be preliminarily checked at the website of the Registrar to find out whether it is occupied or not, in which case stating three proposed names will not be necessary. A company name must be in Hebrew; an English version may also be registered.
A company name may not be registered if:
A company name must not contain the words royal, government, cooperative, municipal, chartered, chamber of commerce, imperial, society of association, etc.
After a unique company name has been chosen, founders should be determined: Chevra Baam must have at least 1 founder, which may be an individual or a legal entity. Founders must sign the memorandum of association.
After that, a set of documents must be prepared, some of which shall be signed by a lawyer:
Passports of all participating persons, i.e. directors, shareholders, and attorneys, will also be required. If the founder is a legal entity, relevant documents of the company and all its owners must be provided.
In the case of remote registration, a power of attorney shall be issued.
After the above documents have been filled out and signed, a registration fee of 2,600 ILS shall be paid and the company registration application shall be filed.
The processing of an application takes up to 3 workdays, however most applications are processed on the same day. Based on the result of the processing, the applicant will be sent one of the following: an electronically signed certificate of incorporation and file of the company, including incorporation documents, or a rejection letter.
The following authorities must be informed after the company’s registration:
The abovementioned organizations will create tax files for all employees of the company and determine the amount of tax and insurance payments.
If partners or investors are involved in the company’s business, a business plan must be drawn up.
The following steps should be taken to open a bank account for a company in Israel:
Selection of a bank: choose a bank that meets your company’s needs, considering account opening conditions, charges, services, etc.
Preparation of documents: prepare documents necessary to open an account, which may vary depending on the bank, but normally include founding documents, certificate of incorporation of the company, passport of the company’s director and/or authorized person, etc. Filling out the application: fill out the application for opening an account with the chosen bank. Applications are normally filled out online, but may also be sent by mail or personally delivered to the bank.
Check and approval of the application: after the application has been filled out, the bank checks the application and all provided documents. In the case of approval of the application, the bank may request additional documents or information.
Opening of an account: after the application has been checked and all the documents have been approved, the bank opens an account for the company and issues necessary banking documents. It is worth noting that a company must have an identification number to open a bank account in Israel.
There may be charges for the opening and maintenance of an account as well as for the use of banking services, this is why it is necessary to thoroughly familiarize yourself with the conditions and charges before choosing a bank.
Generally speaking, it is worth noting that the Israeli banking system has its own features and may seem archaic to clients who are used to the European level of banking. In addition, there is no single approach to serving customers, which may significantly differ depending on the bank. So some time will be needed to adapt to local reality.
Israel has no law that would oblige a company to have a seal. Any document signed by an authorized representative of the company is considered legally binding and valid, even if it bears no seal.
Companies may be redomiciled both to and from Israel.
The structure and management bodies of a company in Israel may vary depending on its form of incorporation. Companies in Israel, however, are generally managed according to the classic model: general meeting of shareholders (members), board of directors, sole executive body (director).
A company must have at least 1 director, who may simultaneously be a shareholder of the company. A director is vested with all managerial powers and acts on behalf of the company without a power of attorney.
If director is a foreign citizen, they will have to provide additional documents (it is normally a passport and documents that confirm the grounds for stay and address in Israel).
Secretary
Israeli limited liability companies are not obliged to appoint a secretary.
An Israeli limited liability company must have at least 1 shareholder. A shareholder may be an individual or a legal entity, without limitations in terms of nationality or residency, however a foreign shareholder needs services of a local guarantor.
A shareholder’s data is entered in a public register.
General meetings must be held annually within 6 months of the end of the financial year. They may take place in the registered office or in any other place, if it is stated in the articles of association. Meetings may also be held through a teleconference and by signing minutes of the meeting.
Tax accounts of an Israeli company must be signed by a certified auditor, but accounts may be kept and filed during the financial year without an auditor’s participation.
Israel has a register of beneficiaries, which was introduced in accordance with the Prohibition of Money Laundering Law of 2000. Every company must file in the register information on its beneficiaries. Serious liability shall be incurred for the breach of this obligation.
Data on the register of beneficiaries is not public; it may only be accessed by a limited number of state authorities (the Securities and Exchange Commission of Israel, the Israel Tax Authority, the Gambling and Lotteries Commission, etc.).
The company itself has the right to receive official information from the Register of Beneficiaries, which may be required, for example, in order to provide banks or counterparties with data.
The minimum amount of the authorized capital of a limited liability company is 10,000 ILS. There is no requirement to actually pay it; in fact, this amount just defines the extent of shareholders’ liability for the company’s obligations.
When establishing a company, the kind, par value and number of allotted shares are determined. The most common option is, all shares are ordinary, each costs 1 ILS, and the number of allotted shares is 100; the rest of the shares are not allotted if it is not needed.
All allotted shares are registered shares; issue of bearer shares is not allowed.
Price7 900 USD
(including incorporation tax and state registry fee)
PriceIncluded
(Stamp Duty) and Companies House incorporation fee
Price5 500 USD
(including registered address and registered agent)
Price250 USD
DHL or TNT, at cost of a Courier Service
Pricefrom 500 USD
Paid-up “nominee director” set includes the following documents
Paid-up “nominee shareholder” set includes the following documents
Compliance fee is payable in the cases of: incorporation of a company, renewal of a company, liquidation of a company, transfer out of a company, issue of a power of attorney to a new attorney, change of director / shareholder / BO (except the change to a nominee director / shareholder), signing of documents
Price350 USD
simple company structure with only 1 physical person
Price150 USD
additional compliance fee for legal entity in structure under GSL administration (per 1 entity)
Price200 USD
additional compliance fee for legal entity in structure NOT under GSL administration (per 1 entity)
Price450 USD
Price100 USD