Sole Proprietorship In Israel

Israel has a long history of innovation and growth. Owing to the Jewish cultural consideration that immigration is an ascent, many immigrants have also been to the country. The country is known as the nation of startups and is considered a vital investment hub, thanks to its top-of-line technology innovations across-

• Mobility
• Energy
• Cybersecurity 
• Digital health
• Agritech
• Fintech

Israel has no unified general policy for foreign direct investment-related legislation or an approval regime. Therefore, there are few cross-sector controls consolidated for foreign investments here. Widely speaking, foreign entities may purchase and sell assets plus securities in Israel at their will, and the FDI is not prohibited in a particular sector. There are a  series of sector-specific requisites and regulations on FDI too.

Israel also implements a growth-orientated economic policy and is willing to challenge the vested interest group that might be blocking change. Finance in the country is moving away from the monopolized, banking-dominated past towards greater competition and more reliance on the capital markets.

According to the UNCTAD-backed World Investment Report 2021, Israel saw an investment flow increase by around 30% between 2019 to 2020. The figure touched USD 25 billion for 2020, despite the raging pandemic. 

Israel comes with several assets that appeal well to foreign investors. These include-

• Strong R&D domain
• Highly-skilled workforce
• Multilingual workforce

Setting up a sole proprietorship in Israel can benefit companies looking to expand their business globally. Read here how to register a sole proprietorship in Israel and other considerations. 

Who can be a Sole Proprietor in Israel? 

A sole proprietorship is a single-person trading entity that the individual owns and controls. The entrepreneur has no liability on anyone else and enjoys complete freedom and total profits.

There are no specific eligibility criteria for becoming a sole proprietor in Israel. However, some restrictions apply.

There are mainly two types of small businesses in Israel. These are

• Osek Patur- This refers to companies having a maximum turnover of 99,000 shekels annually that do not need any VAT declarations. It cannot also recover any VAT on its expenses or investments.
• Osek Murshe- This refers to companies having an annual turnover of 100,000 shekels or higher. It must file VAT returns each month or two months per the turnover. Such a company may recover VAT on its purchases and collect revenue. 

While becoming an individual entrepreneur or osek patur is the choice of many professionals, some professions are not allowed to register as this legal form-

1. Professional occupations, namely architects, engineers, private detectives, lawyers, chartered accountants, doctors, management consultants, interpreters, insurance agents, psychologists, dentists, and medical clinics.
2. Literary professions
3. Directors of driving schools, real estate agents, principals, and car dealer

You must register as an osek murshe at Israel’s VAT office for all the above categories.

Benefits of Sole Proprietorship in Israel

If you wish to register a business in Israel as a self-employed individual, Israel offers a couple of legal entities, as mentioned above. The top benefits of a sole proprietorship are-

• These are easy to set up as well as inexpensive to maintain. The documentation is affordable, too, unlike in the case of a partnership or corporation.
• Additionally, proprietors don’t need to wait very long to get needed permissions for a business.  
• In Israels, startups are charged low fees keeping relevant government policies in mind. 
• Record maintenance and taxation obligations do not need any complicated mechanism or management.
• Proprietors get to ensure control over every aspect of the business.
• In light of zero legal separation of proprietor and business, the former gets total hands-on profits. Of course, individual tax norms apply.

Documents Required for Registering Your Business in Israel

The documents needed to register a sole proprietorship in Israel are as follows: 

• ID that proves your residence in Israel
• Completion of incorporation form and filing the same with the Companies Registrar
• Documents evidencing the identity of the entrepreneur
• Articles of association in Hebrew or English plus Hebrew
• Declaration of the company with name and details of trade

Special note (Additional aspects to be taken care of)

1. Signing documents needs to be done in the presence of an Israeli lawyer. You must authenticate all documents.
2. Payment of the EUR600 fee for company formation. The registration process takes a maximum of five days. 
3. Once you receive the nine-digit company number, use the same to register further with the relevant authorities.

Other Criteria for Registering a Sole Proprietorship in Israel

To set up a sole proprietorship in Israel, you also need to consider the following aspects:

• You need to have a bank account for all business activities
• Open a separate bank account 
• Israeli ID 
• Compulsory registration with the VAT department, even if you do not need to file a VAT.
• Compulsory registration with the IT office in the country
• National Insurance Institute (Bituah Leumi) registration
• You must declare your assets within four months of receiving the application from the tax authority
• Annual statement of turnover

Post-registration compliances

Once the proprietorship is completed, a few things must be in place to continue the business activity.

• Tax registration- Once a company is incorporated, it must be registered at the Tax Office for VAT and IT filings.

• Obtain permits or licenses- You will require special licenses to operate in specific niches. 

Taxation

The list of the major taxes for an entity in Israel are-

• Corporate tax at 23% 
• Dividend tax at 25 to 30% 
• VAT at 17% 
• Income tax at 10 to 50% at a progressive rate 
• Social Insurance at 3.5 to 17.5%

How to Register a Sole Proprietorship Firm in Israel?

To register a company in Israel, you can follow these steps:

Step 1: Name approval- 

Before a company can initiate business, it must obtain a name clearance from the Registry. A proposed name must not be in consonant with some existing name.

Step 2: Application and document submission- 

Application for the proprietorship registration with all documents must be completed with fee payment for additional tax-related registration.

Step 3: Financial report- 

When the proprietorship is enlisted, and all registrations are duly done, you must make it a point to file an annual report to the registrar every year. 

Step 4: Register with officials

In Israel, all forms of business stand registered by starting up a folder in three parts: 

• Office of Value Added Tax- The entity receives the certificate and  registration number here. This allows the firm an opportunity to procure as well as issue receipts. 
• Income tax administration- The sole proprietorship must establish the amount for tax rate, frequency, scope of reporting, and accounting method. 
• National insurance service- Here, the amount for insurance contributions gets determined to allow the entrepreneur to access pensions, benefits, and social guarantees. 

Step 5: Separate banking account-

You must own a bank account in the proprietorship’s name. 

Conclusion

As mentioned, a sole proprietorship in Israel does not have too many specific capital requirements. To ease the work, you can research new business opportunities when you set up a sole proprietorship in Israel. 

As you operate and hire in Israel, payroll management poses a challenge. This is where you can contact Multiplier. It is a global employment solution for sole proprietors. It offers reliable EOR solutions to ease your recruitment and management process of international employees.