Company Registration in Israel - An Overview

Israel is a small country which is located in the southeastern part of the Mediterranean Sea. The main cities in Israel are Tel Aviv and Jerusalem. Jerusalem is the prominent government capital of Israel, whereas Tel Aviv is a prominent business hub. Technological developments have been embraced by all parts of the country. Due to these factors, an individual can go through the process of company registration in Israel.

Israel has been recognised as one of the fastest-developing countries in the world. This is due to innovative methods and modern standards which have been adopted in Israel. There are no restrictions in terms of foreign investment in Israel. Foreign direct investment is encouraged in the country through government support.

The government of Israel actively invests in the early-age home-grown start-ups of Israel, making it an ideal destination for start-ups to register their businesses in Israel. International companies consider Israel to set up technology hubs and R & D centres due to its competent workforce and supporting infrastructure in place. Due to all these factors, an investor would want to set up a company in Israel.

Benefits of Company Registration in Israel

The following are the benefits of company registration in Israel:

• Modern Facilities

Israel offers world-class infrastructure and supporting facilities for entrepreneurs to carry out their businesses smoothly. Because of this reason, many global companies prefer Israel as a destination for registering their businesses.

• Technology Centres

Most companies set up branch offices in Israel due to the presence of major technology centres of the world having state-of-the-art facilities in the domains of agriculture, Information and Communication Technology, defence and food processing. Due to this, companies prefer investing and registering in Israel. Added to this, the government also extends support for the further development of these sectors.

• Ease of Doing Business

Israel has a good ranking in the World Ease of Doing Business Report and ranks among the top countries in the Central Asian region. This is a big encouragement for businesses to set up their offices in Israel.

• A talented and competent workforce

Israel has a talented and competent workforce which provides corporations with a constant supply of educated and skilled labour, which, in the long run, plays a crucial role in the long-term success of these corporations.

Eligible Business Structures for doing business in Israel

An entity wanting to establish a business entity in Israel can select from the following business structures depending on the necessity and type of commercial activities to be undertaken by the entity in Israel:

• Limited Liability Company-

A limited liability company with share capital is the most important form of business entity in Israel. The incorporation is quick, and the official fee charged for registering a company is approximately $ 700, and it only takes a few days. Its shareholders can be both Israeli and non-Israeli individuals or any other entity. After registering a company in Israel, a bank account has to be opened for tax filing purposes. Where there is no Israeli shareholder, a representative has to be nominated and registered with the tax authorities.

• Public Limited Company -

A public limited company in Israel is one whose shares can be publicly traded on a designated public stock exchange. It can have a maximum of 50 members and a minimum of 7 members. A public company in Israel is regulated by the Israel Security Authority and has to comply with its rules.  

• General Partnership -

Business in the form of a general partnership is less common compared to company registration in Israel. The maximum number of general partners in a general partnership can be 20. The legislation governing the relationship among the members of the partnership in Israel is the Partnership Ordinance.

Partnerships have the option to either remain unregistered or get themselves registered with the Registrar of Partnerships. However, registration with the VAT authorities is mandatory and obtaining a special VAT registration number becomes necessary.

• Limited Liability Partnership -

A limited liability partnership, on the other hand, is one where one partner having minimum share in the partnership is the unlimited partner, whereas all the other partners have limited liability. This type of business arrangement has been observed in oil and gas exploration partnerships or venture capital partnerships.

• Local Branch Office of a foreign company -

Foreign companies can commence their operations in Israel through the medium of a Branch office or a local office as long as such a local branch office is registered as a branch office of a foreign company. These offices are required to register themselves with the Companies Registrar within a month of commencing their business operations. If the branch of a foreign company uses the term “Limited” in its name, then it has to display its name along with the name of the country in which it is incorporated in every letter, invoice, announcement, official publication or advertisement.

For the registration of a branch of a foreign company, the company must submit the required Documents to the Companies Registrar. It must be noted that these companies are not required to publish their financial statements.

• Company in own name (sole proprietorship)-

A sole proprietorship is a type of private company where there is unlimited liability for all the activities of the company. This type of structure does not require maintaining accounts and balance sheets by a chartered accountant, registration process etc. These types of companies generally function from residences only. There are 2 types of such small companies:

Osek Patur: the maximum annual turnover of these companies is NIS 99,000. These companies are not required to pay VAT to the government.

Osek Murshe: To be covered within the ambit of osek murshe, the annual turnover of a company should be beyond NIS 100,000. These companies, however, need to furnish VAT returns every month or every two months, depending on the turnover. Law firms in Israel are set up in the form of Osek Murshe.

Eligibility Criteria for Company registration in Israel  

The following eligibility criteria have to be fulfilled for the registration of a company in Israel:

• Minimum capital requirement-

The law does not prescribe minimum capital requirements to register a company in Israel. However, in general practice, shareholders register a company with 100 NIS with 100 shares.

• Name of the company-

The name of a company must be unique and distinctive and should not have a close resemblance to an already existing company. The name of the company should be mentioned in Hebrew. However, its English translation can also be registered.

• Residency Requirements-

It is not mandatory for the shareholders of an Israeli company to have resident shareholders only. This means that it is not necessary to have an Israeli citizen to form a company. However, in the case of a foreign company, a representative has to be appointed.

• Key Management Executives-

In order to register a company in Israel, there should be at least one director and one shareholder. It is not a necessity that the shareholders of the company should be Israeli residents. Further, it is not necessary to have Israeli residents to form a company. However, a foreign company opening an office in Israel need to appoint a representative.

Procedure for Company Registration in Israel  

The online procedure for company registration in Israel is as follows. In order to apply:

• You have to log in using your smartcard or on the mygov website
• Select the option of ‘Register a new company’
• Complete the following steps

• Apply for a Company’s name-

Before selecting a name for your company, certain considerations must be kept in mind’ which are as follows:

• The name complies with the provisions of the law;
• The name does not hurt the public feelings and does not violate public morality;
• The Registrar of the companies examines the translations, characters and form;
• The name is in Hebrew but it has English letters;
• A trademark name already exists in the same field of business; or
• The name should not be misleading.

You are required to give 3 name options to the Registrar in case a name already exists or is found incorrect by law. The names should be listed in the order of preference. Accordingly, they will be checked in the order.

The discretion to select the name out of the 3 options provided in the application lies with the Registrar.

Whether a name has already been selected can be checked by typing the desired name of the company in the ‘corporation name’ field on the Corporations website. You have the option to add the name in English. Such translation must be either a phonetic or a literal translation, for example, Boy (literal translation) and YELED (phonetic translation). The use of lowercase letters and invalid letters is invalid. 

The official address of the company must be provided. It must be noted that a mailbox cannot be used as an ‘official company address’. You are required to provide details of the company, which include the responsibilities of the shareholders, the goals of the company and the description of the company’s operation.

Information about the capital composition of the company, including the specifications of the shares with or without the face value, currency type, share types and the amount of registered capital.

The identification type, such as the director or shareholder, has to be mentioned. If you are a foreign corporation or a foreign citizen, then additional Documents have to be attached along with the verification forms and signatures.

You are also required to allot the shares in whole numbers to the shareholders up to the total registered capital. Along with the shareholders, you are also required to choose the role and type of identification.

The articles of incorporation shall be prepared according to the registration application and details specified here:

• You need to specify the provisions in the articles of association according to section 175 of the Companies Law. This option is availed instead of attaching a balance sheet. If the option ‘yes’ is selected for all the options, then there is no need to attach a balance sheet.
• The process of transferring shares can be specified here, such as without the approval of the board of directors. You have the option to insert your own restrictions. Further, select the option ‘Yes’ to add the relevant section to the articles.
• Provisions regarding restrictions on legal actions and authorised signatories can also be specified.
• You have the option of adding additional instructions in this section in addition to the mandatory clauses.

• Furnish the contact information-  

The contact information of the smartcard holders, along with the required details, has to be entered. All updates with respect to the status of the application and the consequent decisions shall be sent via mail.

• Approval of the application-

For the approval of the application, you are required to pay the registration fee or attach an online company registration fee Document. The payment for the form can be made either by the applicant itself, by the lawyer or the by a company shareholder.

After completing all the above-mentioned steps, the Document of articles of association/ incorporation Document and application Documents is generated and shown. You are required to check the particulars of the Documents and confirm the information on both Documents.

If you are a director or shareholder or both, then a declaration relevant to your position will be generated, which you are supposed to approve. In case you are registering a sole proprietorship company as a director and a shareholder, then accordingly, shareholders' and directors' declarations will be generated, and you are required to approve them both as a director and as a shareholder. 

• Furnish the details of the signatories -

If you are registering a company that is not an individual company, then:

• The shareholders and directors must be informed about their details provided as shareholders and directors of the company
• All these shareholders and directors are required to enter mygov accounts and approve their relevant declarations
• You have to ensure that the emails of shareholders and directors are registered, as the notification from the Companies Registry will be sent to these emails regarding the registration process
• It is your responsibility or the responsibility of the person who has initiated the application process to update the directors and shareholders whose details have been entered in the application
• If you are not a shareholder and editing the application, then only the details of the entered directors and shareholders will appear.
• On the other hand, if you are a director or a shareholder, your details will not be reflected because your approval will be complete during this process.

• Payment of the applicable fee-

You are required to pay the appropriate registration fee or attach an ‘Online Company Registration Fee. The payment of the registration fee can be made by the applicant, director or a shareholder of the company.

The payment can be made online or attached to an online-generated payment receipt. Refrain from attaching the receipt of payment by mail or a receipt of payment with corrections made by hand.

While creating the form, the application will be locked for further changes. You are required to submit only original Documents in the official language unless otherwise stated. Thereafter, the application, articles and declaration will be forwarded to the relevant parties for their signatures.

The directors and shareholders are required to open their “Corporations Online” account, and the details of the application appear under the tab “waiting for your attention” under the status of ‘Company Registration’ as ‘Pending Signatures’.

You are supposed to select the option of ‘Signature pen’ to go to the online signature declaration screen. It contains the text of the articles of incorporation, the text of the application for registration of a company, a declaration of shareholders and a declaration of directors. All the signatories, both the directors and shareholders, are supposed to read and approve the company’s articles of association Document and the company’s registration application Document.

It must be noted that you are required to complete the application filing process, including the signing of the declaration, within a period of 10 days, failing which the application will be cancelled, and you will have to open a new application again.

• Handling of the application-

After the form has been signed by all the signatories, the application is forwarded to the Registrar of Companies for examination purposes. The applicant and the signatories are notified via email.

The processing time taken by the Registrar is 3 working days. Generally, almost half of the applications are processed on the same day. Once the examination is completed, you will be sent at least one of the following:

• A letter of rejection; or
• A certificate of registration that is electronically signed along with a company file that includes the registration Documents.

Either of these two Documents will be sent to all the signatories, the applicant and to the email of the company, if there exists one. If the request is rejected, you have the option to get it corrected online on your personal account by selecting the option ‘Refused to continue’.

The legal status of the company changes to ‘active’, once approval is granted to the application. Thereafter, you can proceed towards opening a file for the company at the Tax authority to open a VAT file and an income tax file.

Corporate Tax rate in Israel

All the companies that have been incorporated in Israel and foreign registered companies having branches in Israel are both subject to the Israeli corporate income tax. On the one hand, an Israeli-registered entity is subject to Israeli corporate tax on its worldwide income. On the other hand, a non-resident entity having only a branch office in Israel is subject to corporate income tax only on the income accrued or derived in Israel. The income sourcing rules determine the source of income in Israel.

The corporate income tax rate in Israel is 23% in 2022.

Documents for Company Registration in Israel

The following Documents are required for company registration in Israel:

• Shareholder declaration

• The shareholders' declaration is found in Form 1 – Application to register a company. You are supposed to select appropriate wording according to the type of entity (corporation or individual).
• The shareholders' declaration must be verified by a lawyer licensed to practice in Israel.
• Ensure that all the details in the shareholders' statement are the same as mentioned in the articles of association and the details mentioned in the system.
• If you are a foreign citizen, Israeli corporation or a foreign corporation, you need to attach additional Documents for the verification of forms and signatures.

• Preliminary statement of directors

• This statement is found in Form 2 – Statement of Directors. Again, you are required to select the types of entity (corporation or individual)
• The preliminary statement has to be verified by a lawyer licensed to practice in Israel.
• If you are a foreign citizen, Israeli corporation or a foreign corporation, you need to attach additional Documents for the verification of forms and signatures

• Company’s articles of association or articles of incorporation

• The company's articles of incorporation should contain the Company’s name
• Mention the goals of the company
• Details about the company’s registered capital. No limit has been prescribed about the value of the share. [the capital must be mentioned either in Shekels, Dollars or Euros]
• Details regarding the limitation of the shareholder’s liability
• The shareholders are required to sign the bylaws, and their signatures have to be co-signed by a lawyer licensed to practice in Israel.
• It must be remembered that all the details mentioned in the form must be compatible with the other registration forms.

• Certificates of authorities
• Permission to register a name that is similar to an existing company

Articles of incorporation that are written in English are not required to be translated. However, the articles of association that are in other languages are supposed to be translated into Hebrew and notarised.