Doing Business in Israel
What are the recent developments affecting doing business in Israel?
After Israeli high-tech companies on public markets, there was increased activity on the IPO scene in 2019, with 4 Israeli tech companies choosing to go public on NASDAQ. In 2019, eventual funding for Israeli start-ups also increased, Israel's largest private-to-private merger to date, and a record for total deal exits.
This data may attract or indicate a greater interest from entrepreneurs in scaling and growing businesses rather than the previously known tendency to seek a quick or early exit.
To combat money laundering, the Cash Reduction Law was passed in 2018, which came into effect in 2019. The law, as its name suggests, limits the number of cash transactions that companies can accept as payment. This new legislation, along with the general interest in fintech and the Bank of Israel's active steps to promote open banking, has resulted in increased opportunities for alternative electronic payment solutions and market competition.
What about the legal system in Israel?
The Israeli legal system is based on common law, but it also incorporates civil law elements.
There is no formal constitution in Israel. Those fundamental laws, on the other hand, are considered to be the bedrock of the country's legal system and jurisprudence. Since Israel is a small country, it lacks a federal system and a jury system.
Are there any limitations on foreign investment (such as central or local government authorizations)? Is doing business with those countries or jurisdictions subject to any restrictions?
Israel welcomes and actively seeks international investment. As a result, international ownership of Israeli companies and properties is typically unrestricted. The only exceptions to this general rule apply to:
- Foreign companies with links to certain adversarial countries
- Corporations that have such state-issued control licenses should be targeted.
- The Organization for Economic Cooperation and Development (OECD) has Israel as a member (OECD). As a result, Israel is subject to extensive anti-money laundering and anti-terror funding regulations, as well as laws prohibiting trade with “terrorist organizations.”
According to Israel's 1939 Trade with the Enemy Ordinance, it is illegal for an Israeli natural or legal individual to engage in any economic, financial, or other dealings with any of the following:
- A country or ruler that is at war with Israel (currently Syria, Lebanon, Iran, and Iraq) (an enemy state).
- An individual who lives in an enemy country.
- A legal entity that operates under the supervision of a hostile power.
- A company that was formed under the laws of a hostile country.
- A natural or lawful person doing business in an enemy country.
What are the most popular types of business vehicles in Israel?
Private limited liability companies are the most popular business vehicles.
Accountants, accounting firms, and pension funds, mutual funds, and hedge funds are the most common types of partnerships.
When a foreign company decides to do business in Israel, it has the option of forming a private limited liability company (typically a subsidiary) or establishing a foreign branch. Tax considerations are normally the driving force behind this decision. If a foreign company chooses to register a branch in Israel, the foreign company will be subject to Israeli control and will be directly liable for the branch's debts and liabilities.
In Israel, public companies are popular, and Israeli companies can choose to list on the Tel Aviv Stock Exchange (TASE) or on other international stock exchanges.
What are the key registration and reporting provisions for the most common type of corporate business vehicle used by foreign companies in Israel?
Registration and formation
The parent company must send the following details to the Companies Registrar in order to form a limited liability subsidiary company:
- Three options for the subsidiary's proposed name (in English and Hebrew). The name must contain the word "Ltd." and must not be deceptive or misleading in nature.
- Information about the parent company, such as its incorporation documents and approved signatory.
- Information about the subsidiary, such as its registered address, authorized share capital, initial directors, and articles of incorporation (articles).
- An application form, an Incorporating Shareholder Compatibility Statement form, and a director statement form. Each of these forms must be in the format provided by the Israeli Companies Registrar and must be in the Hebrew language.
Within a week of submitting these documents and paying the registration fee (roughly NIS2,600), the subsidiary should be incorporated and given a company registration number.
Private corporations must file annual reports with the Companies Registrar, detailing the company's organizational structure, auditor, and confirmation that the company's financial reports were presented to its shareholders. A private corporation must also pay a tax of approximately NIS1,500 per year A business must also notify the Companies Registrar of such changes, such as changes to its name, articles of incorporation, issued or registered share capital, or board composition
- There is no such thing as a minimum or maximum share capital.
- Consideration other than money Non-cash value may be used to issue shares.
Rights attaching to shares
Restrictions on Restrictions on the privileges that come with shares. Both shareholders must behave in good faith and in accordance with established procedures, and they must not abuse their power or take advantage of other shareholders. Furthermore, the following shareholders are obligated to treat the company fairly:
A shareholder with the power to name a director or general manager, or who owns at least 50% of the company's voting rights (a controlling shareholder).
- A shareholder who understands that his or her vote will be decisive in a general meeting decision.
- A shareholder with the authority to appoint or prohibit the appointment of a company officer, as well as some other authority over the company Additional restrictions may be included in the company's articles of association, or shareholders may agree between themselves. Rights of first refusal, co-sale, right of first bid, tag along, and various voting structures are all examples of this.
Automatically attached rights to shares. Every shareholder has the following rights under the Companies Law of 1999:
- Take part in shareholder meetings and vote.
- Get paid dividends.
- Access to some records.
- The ability to act before others do (if the company has one class of shares).
- Some drag-along rights
- In the case of prejudice, rights.
- Liquidation rights.
- In certain cases, these privileges can be limited by the articles of incorporation.
What are the most important laws that govern employee-employer relationships?
Employees in Israel have some contractual privileges that cannot be waived under Israeli labour law, including those under the:
- Minimum Wage Act of 1987
- The Wage Protection Act of 1958.
- Work Hours and Rest Periods Act of 1951.
- The Annual Leave Law was enacted in 1977.
- Sick Pay Act of 1976.
- The Severance Pay Act of 1963.
Dismissal and Resignation Advance Notice Law of 2001.
Staff are often entitled to travel expenses to and from work, national holidays, convalescence pay, and a pension plan under widely used extension orders. International employees are subject to all mandatory labour rules, benefits, and rights. Under the Foreign Workers Law of 1991, foreign workers are now entitled to special benefits (such as a written contract of employment, medical insurance and accommodation).
In Israel, the international “choice of law” laws applies, and a foreign law may apply to an employment contract if the parties have expressly agreed to it. Where the choice of law is unclear, the labour courts can rule based on the facts, with the location of the agreement's performance being a significant factor. Furthermore, an explicit choice of law provision would not be upheld by Israeli labour courts if the employee's rights under that law are materially less than those provided under Israeli labour laws. Employees from Israel who work abroad may be subject to international laws.
Is it essential for foreign workers to have work and/or residency permits?
Employing foreign workers necessitates job and residency permits from the Ministry of Interior's Population and Immigration Authority.
Work permits are requested in accordance with a specific job and employer.
The process with the appropriate authorities will take anywhere from 60 to 90 days. It is important to submit the application as soon as possible, preferably before the employee arrives in Israel. These permits cost anywhere between a few hundred and a few thousand shekels.
What are the conditions under which an employee is taxed in Israel, and what requirements are used?
If the If the employee is an Israeli tax resident, he or she will be taxed on all of his or her wages, regardless of where it was earned, derived, or received.
Non-resident workers are only taxed on wages earned in Israel.
Individuals' tax residence is determined by the "centre of life" measure, which takes into account the individual's permanent residence, family, economic and social relations, place of permanent or usual work, and position of active and substantive economic interests.
If a person is present in Israel for one of the following reasons, he or she is assumed to be an Israeli tax resident.
- You worked for at least 183 days during the tax year.
- At least 30 days in the relevant tax year, for a total of 425 days in the relevant tax year and the two preceding tax years.
This assumption, however, can be debunked. Any taxes will be subject to any applicable tax treaty's limits.