How to Open a Branch in Israel: A Guide for German Companies

 

 

Why Israel Is an Attractive Destination for German Businesses

Israel continues to be a strategic market for German companies, particularly in sectors such as industrial technology, renewable energy, cybersecurity, and medical devices. With a highly skilled workforce, strong IP protection, and a culture of innovation, Israel offers a gateway to regional growth and global partnerships.

For German Mittelstand firms and multinational corporations, opening a branch office in Israel can be a practical way to establish a local presence without forming a separate legal entity. However, the process involves specific legal and tax considerations that must be addressed early.

 

Section 346 of the Israeli Companies Law: Registering a Foreign Branch

Under Israeli law, a branch is not a separate legal entity but an extension of the foreign company. It operates under the same legal identity and is subject to Israeli regulations as if it were a local company.

To open a branch, the foreign company must:

  1. Register with the Israeli Registrar of Companies as a “foreign company” under Section 346 of the Companies Law, 1999.
  2. Submit certified copies of its incorporation documents, translated into Hebrew.
  3. Appoint a local representative who is authorized to receive legal documents on behalf of the company.
  4. Provide a legal address in Israel.

Once registered, the branch must comply with Israeli tax laws, including corporate income tax, VAT, and bookkeeping regulations.

 

Tax Implications: Permanent Establishment and Reporting Duties

Opening a branch in Israel typically creates a permanent establishment (PE) under both Israeli law and the Germany-Israel Double Taxation Agreement. This means the branch is subject to Israeli corporate tax on income generated in Israel.

Key tax obligations include:

  • Corporate Tax: Currently 23% on net profits.
  • VAT Registration: Required if the branch engages in taxable activities.
  • Bookkeeping: Must follow Israeli standards, including maintaining records in Hebrew and using approved software.

According to Section 130 of the Israeli Income Tax Ordinance, foreign companies operating in Israel must file annual tax returns and maintain proper documentation. Failure to comply can result in penalties and audits.

 

Strategic Advantages of Opening a Branch vs. Subsidiary

For many German companies, a branch offers several advantages:

  • Simplified structure: No need to incorporate a new legal entity.
  • Direct control: Operations remain under the parent company’s governance.
  • Tax treaty benefits: The Germany-Israel DTA allows for relief from double taxation, provided proper documentation is maintained.

However, branches also carry risks:

  • Legal liability: The parent company is fully liable for the branch’s actions.
  • Limited flexibility: Some Israeli clients and partners may prefer working with a local company.

These trade-offs should be evaluated with legal and tax advisors familiar with both jurisdictions.

 

Why German Companies Choose International Advisory Firms

Navigating the legal and tax landscape in Israel requires local expertise and cross-border coordination. German companies benefit from working with advisory firms that:

  • Understand German accounting and compliance standards
  • Have deep knowledge of Israeli corporate and tax law
  • Offer strategic guidance on market entry, structure, and risk management

With over 20 years of experience through Auren Israel, and as part of a Top 15 global advisory network, we’ve supported dozens of German Mittelstand and multinational firms in establishing branches, subsidiaries, and partnerships in Israel.

Our offices in Germany and Israel ensure seamless communication and compliance across both jurisdictions.

 

Next Steps: Plan Your Entry with Confidence

Opening a branch in Israel is a strategic move—but it must be done right. German companies should:

  • Assess whether a branch or subsidiary is more suitable
  • Prepare legal documents and translations
  • Appoint a local representative and fiscal advisor
  • Register with the relevant authorities and set up compliant bookkeeping

We recommend initiating the process with a legal and tax feasibility assessment, tailored to your business model and sector.

 

To explore your options, contact our team at Auren Israel for a confidential consultation.

 

Yaniv Angel, CPA (Adv.)
International Taxation Expert | Managing Partner, Auren Israel
[email protected]