Step-by-Step Guide to Setting Up a Subsidiary Company in Israel

Israel is a well-established country situated in Western Asia. The nation is touched bywashed by the Mediterranean Sea at one end and surrounded by Arab countries at the other. It has historical importance and is now becoming an important commercial hub for Asia. 

The country has a free-market economy and hugely supports international trade and commerce. Also, the country’s GDP is growing at a rate of 6.1%, which is far more than the GDP growth of some major economies. Hence, several businesses are now trying to open their subsidiaries in Israel.

Israel is an ideal location for business expansion due to its proximity to some of the most prominent countries in the world, like Lebanon, Egypt, Jordan, etc. Also, setting up a subsidiary in Israel is a cakewalk, as the country is ranked 35th out of 190 economies in terms of Ease of Doing Business as per the World Bank Report 2020. 

You can set up a subsidiary in Israel and be a part of the growing economy. Israel has a vast market where citizens can try new products and technologies. You can get an understanding of the business market and then create a launchpad for your subsidiary in Israel. 

Also, there are several benefits of establishing a subsidiary in Israel. The country is home to a massive population of employable youth. Hence, you can onboard employees from the nation to run the company. Continue reading to learn how to start a subsidiary business in Israel.

What are the Types of Subsidiaries in Israel?

Some of Israel’s most important types of subsidiaries are as follows.

Limited Liability Company

A limited liability company or an LLC is one of the most common subsidiaries. In these companies, the liabilities of the shareholders are limited to their share of capital. 

• A limited liability company can have 1 to 50 partners. However, there is no legal requirement for bringing in a minimum capital contribution for the company’s incorporation.
• The founders must pay a registration fee of NIS 2,554. The company must pay an additional fee for every year of service.
• Hiring a chartered accountant for an LLC is mandatory to look after the tax and statutory requirements.
• The company must be duly registered with the Companies Registrar. 

Public Company

You can also establish a public company as a subsidiary in Israel. A private company can be incorporated by one or more individuals or legal entities. 

• A public company must release all its audited financial statements and annual reports so its shareholders can access them easily. 
• It has at least seven shareholders who can offer the company’s stocks to the public.
• The company must have a minimum share capital of NIS 25 million if it wants to get listed on the Tel Aviv Stock Exchange, the national stock exchange of Israel.
• The company must also appoint two independent directors who might not contribute to the company’s minimum share capital.

Private Company

You can open a small private company as a subsidiary business in Israel while fulfilling the following criteria. 

• There are no minimum capital requirements for a private company in Israel. Hence, if you have low availability of funds, you can still start a public company in Israel. 
• It must be registered with the Israeli Registrar of Companies before commencing business operations in the country.
• A private company can have one or more shareholders.
• The firm must have at least one general manager. Without a general manager, the board of directors will manage the company.

Partnership

While unlimited partnerships have no written agreements, the partnership firm must have a written contract if the partnership is limited.

• No minimum capital is required for a partnership subsidiary in Israel.
• There are unlimited or limited partners in a partnership subsidiary. Unlimited partners have to bear unlimited liabilities of debt. Limited entities are free of any such liability. 

Before the incorporation of subsidiary in Israel, you must weigh all the options and choose the one that suits your requirements. Before selecting a subsidiary type, you must consider your budget and business span.

How to Set Up Subsidiaries in Israel?

Setting up a subsidiary in Israel involves the following steps:

Step 1: Deciding on a name for the company

• The company’s founders must decide on a name before registering the business.
• Creating a distinctive name not taken up by any other company existing in Israel and representing your subsidiary’s operations is mandatory.
• The name must be in Hebrew, the country’s local language, and you should also submit an English translation.
• The company’s name should not include royal, cooperative, government, chartered, etc.

Step 2: Submit the basic details

• To become eligible for registration, the company must submit basic details like the company’s address, etc.
• The company must also provide the shareholders’ details, like their passports, permanent addresses, etc. 

Step 3: Fill up the application

• After providing the basic details, you must fill out the incorporation form to establish the subsidiary in Israel. 
• Submit the essential documents while submitting the incorporation form.
• Additionally, you must submit a document containing the names of all the directors and shareholders, along with their signatures. 
• Companies must submit these documents online for verification. In case of any errors, the authorities will notify you about the same, so that you can make the necessary changes. 

Step 5: Certificate of Incorporation

• Once the application and the documents are approved, you will receive a certificate of incorporation for the company.
• The authorities also provide a verification stamp while issuing the certificate.

Companies must collect the certificate of incorporation before starting operations. It is a legal signal for the company to start operations in the country. You must also register the company with the relevant tax and social security authorities so that you can make payments on behalf of the employees monthly. 

Benefits of Setting Up an Israel Subsidiary

There are multiple benefits of a subsidiary company in Israel which are as follows: 

• Israel is known for having one of the largest youth populations. The median age of the people in Israel is 30.5 years. Hence, you can access a young and talented workforce looking for work opportunities.
• The subsidiary business in Israel is considered equal to other companies in the eyes of the law. Also, the employees working in a subsidiary enjoy all the rights given to the regular employees of the country. 
• The country is connected to several prominent countries like Egypt, Jordan, etc., by sea. It also shares its land boundaries with Arab nations. Hence, the strategic location might aid you during the expansion.
• The company enjoys the rights provided by Israeli laws and the benefits provided by the parent company.
• Most subsidiary companies in Israel do not have a minimum capital requirement. 
• Foreign companies starting a subsidiary in Israel are not responsible for the subsidiary’s debts or liabilities. Its liability is limited to its investment in shares. 

Documents to Prepare When Forming a Subsidiary in Israel

It is important to collate all the documents you need to incorporate the company. You must also have a set of copies of all the original documents. Some of the necessary documents include the following:

• A list containing the subsidiary’s directors’ names and their passport numbers
• A power of attorney stating the name of the company’s representative, who must be an Israeli.
• The name, address, and identification documents of the representative who will manage all the legal formalities of the business.
• The Articles of Association duly translated into Hebrew by a registered translator and certified by a notary public.
• Basic information of all the shareholders, along with their identity proofs
• The document stating the company’s name and physical address
• The minutes of the meeting where the parent company decided to incorporate an Israeli subsidiary 
• Proof of payment of the registration fees
• A copy of all the subsidiary’s bylaws 

You must submit all these documents to the Registrar to ensure the process is completed in the next two weeks.

What Business Forms can Israel Subsidiaries Take?

An Israeli subsidiary may adopt a variety of corporate structures. It can establish both fully and partially owned subsidiaries in Israel. There must be more than one foreign founder in the case of an owned overseas subsidiary.

Limited liability companies are highly flexible and easy to incorporate, making them one of Israel’s most widely used company structures. However, depending on your budget and other needs, you can consider different options too.

Israel Subsidiary Laws

It is vital to adhere to the subsidiary laws decided by the Israeli Government when you establish a business in Israel. The laws are in place to ensure that the businesses are compliant and they don’t get into any fraudulent activities. Also, these laws help the country safeguard the interests of the citizens employed in the company. The laws also ensure that workplace hygiene remains in check.

Companies must obtain the Incorporation Certificate before registering with the nation’s tax authorities. Once the incorporation process is complete, gather all the additional crucial certificates. The Israeli Government has control over subsidiaries that are based in the country. Therefore, the parent company’s country’s laws are not relevant.

You must also open a bank account to conduct all business and payroll-related transactions. By the legislation, you must also pay your employees in local currency. You must also adhere to the minimum capital and founder/manager requirements for the subsidiaries mentioned above.

Post Incorporation Compliance

Once the subsidiary is incorporated, you must adhere to the compliance for foreign subsidiary in Israel and meet all the post-incorporation requirements. These requirements include:

• You must conduct an Annual General Meeting every year. You must ensure that the gap between two such meetings is at most 15 months.
• You must file your taxes annually.
• The board of directors must conduct one annual meeting.
• The company must submit the annual reports to the Registrar of Companies of Israel.
• The subsidiary must fill in a ROC to notify the Registrar about any changes that happen in the company. 

Taxes on Subsidiaries in Israel

All companies operating in Israel must pay a tax on the revenue they generate from their regular business activities. Currently, the corporate tax applicable to all subsidiaries operating in the country is 23%. 

Tax Incentives for Businesses Opening a Subsidiary in Israel

• Non-resident subsidiaries must pay taxes only on the income they earn from their operations in Israel. 
• The Law of Encouragement of Capital Investments offers tax rebates to certain companies that meet the criteria the company sets and are called ‘preferred’ companies. The requirements mainly include companies that improve the country’s productive capacity and absorb immigrants. Companies that generate mass employment are also considered ‘preferred’ companies. 

Other Important Considerations

It takes time to set up a subsidiary business in Israel. Take a few weeks off work to focus on the company’s expansion. For all legal obligations, you must also travel to and from Israel. If your parent company keeps you busy, you can delegate the work to another business executive or cooperate with them if you want to.

You must decide on a budget to spend on establishing a subsidiary. You must calculate the amount you will need to set up a subsidiary in Israel. 

How Can Multiplier’s Employer of Record Help You Hire and Expand in Israel? 

It takes time and money to plan a business, whether it is domestic or international. When setting up a subsidiary abroad, adhering to local business customs and labor laws might be challenging.

Why not use a third-party service company like Multiplier to overcome this growth barrier for your business?

Multiplier EOR takes care of all the formalities in entering a new market, so you don’t need to worry. We encourage you to use local and international experts while ensuring that all Israeli labor laws and customs are strictly complied with. You can establish teams in other nations and test new marketplaces for your company with the help of a PEO like Multiplier.