Foreign companies aiming to establish business activities in Israel should take into account reporting and taxation requirements, as well as legal options for a Permanent Establishment in Israel. Companies with extensive and ongoing business activities in Israel are defined as Permanent Establishments and thus may be obligated to make full reports to all Israeli tax authorities. Companies in this situation have two options:
- Open a fiscal representative office (referred to as a branch)
- Register as an Israeli company
There are a few legal business entities in Israel:
- Private or public company
- Foreign company
- Non-Profit Organization (NPO)
Registration as a local company in Israel presents a number of advantages. Once the registration process is completed with the Israeli Company Registrar, the enterprise becomes an Israeli company in all aspects and for all purposes, including legal, business and taxation. Because some Israeli companies prefer to enter into business relationships with other Israeli companies, obtaining Israeli company status can facilitate a number of business activities, such as obtaining a credit line at a bank, etc. Legally, it can be advantageous to register as two legal entities, one the parent company and the other the subsidiary company for the purpose of separating legal liability.
Closing down the business activity of an Israeli company is a longer and more expensive process. In most cases, following payment of income tax on profits made in Israel, the parent company is taxed on distributed profits from Israeli activities. The amount of tax the company may be obligated to pay must be examined in accordance with double taxation treaties between the applicable countries and may be reduced. In order to avoid double taxation payments to both countries, we strongly recommend that you consult with our experts. Do not hesitate; consulting saves money!