What is important to a foreigner to know before opening a business in Israel
The main thing when starting with this topic is that a business in Israel does not give foreigners any additional preferences regarding the procedure for visiting Israel or the length of stay in the country. A non-resident who owns a business in Israel visits the country either on a visa or under the provisions of a visa-free regime, depending on the country of his citizenship.
Business in Israel, like any type of investments, does not give a foreigner the prospect of obtaining Israeli citizenship. Four groups of people have the right to Israeli citizenship: Jews, as well as spouses, children and grandchildren of Jews.
A foreigner needs a resident representative to register a business in Israel. It can be both physical and legal person. An Israeli citizen acts as a guarantor to the tax authorities for filing tax reports and paying taxes by a foreigner’s business.
The most transparent and safe option for foreigners to open a business in Israel is to use a trust company.
Why can’t a non-resident open a business in Israel by himself?
The Israeli tax authorities do not have the infrastructure to control foreigners who own a business directly. There is always a chance that the owner may simply stop supporting and developing a business, drop everything leaving behind wage arrears, debts to suppliers, unpaid taxes, bank loans and a lot of other problems. Then the state will need to somehow deal with this all in Israel and search the violator in other countries. For this purpose you need to create special structures, laws, budgets to allocate. Is this all appropriate for a small country like Israel? But with the citizens of Israel, all the processes have already been effectively built and developed. It does not matter, a citizen of which country wants to invest in Israel: open a business in Israel for the Russians, open a business in Israel for the Ukrainians or representatives of other countries – all foreigners need a resident representative
Can a foreigner register as a private entrepreneur in Israel?
How can a foreigner open a business in Israel in the capacity of a private entrepreneur? This question depends on whether there are prospects for obtaining Israeli citizenship by the foreigner or not.
As we know, the registration number of an individual entrepreneur in Israel is the same as the number of the ID card (te’udat zehut). A non-resident has no te’udat zehut. Consequently, a non-resident cannot register either Osek Patur or Osek Murshe.
The exception is a situation when a business in Israel is opened by a private person who is the spouse of an Israeli citizen and is currently undergoing a step-by-step procedure for obtaining the citizenship. Temporary documents and a temporary number are issued to the foreign spouse, it begins with a 6. The same 9 digits as in the Teudat Zehut, which must be exchanged when the step procedure is completed.
This situation also needs a guarantor – a citizen of Israel. This may be an Israeli spouse or someone among relatives or friends – there are no restrictions or requirements in this matter. The guarantor signs a special document necessary for the registration of a business by a person who is in the process of obtaining Israeli citizenship. In fact, this guarantor becomes a co-owner of the business, in terms of legal liability for paying taxes.
Having obtained citizenship, a businessman will no longer need the participation of a guarantor. He will be able to change the registration of the individual entrepreneur to his Teudat Zehut and independently answer to the tax authorities.
A foreigner who does not expect an Israeli passport can only register a Khevrah Baam in Israel, i.e. a company in the Limited Liability Company format (Ltd). Next, let us consider the question of how to open a company in Israel. To open a limited liability company (Ltd), a foreigner also needs a resident guarantor.
Choosing a guarantor for starting a business in Israel
An individual can act as a guarantor. By the way, an Israeli need not necessarily hold any position in the company or join the board of directors. His responsibility to the tax authorities implies a separate status. Israeli-guarantor is not involved in decision-making and business management, is not involved in the distribution of profits and other processes of the company. But he is responsible for the timely, correct and full payment of taxes by the firm. For the Israeli tax authorities, it is the Israeli citizen who 100% is the owner of this business and is liable with all his property. This fact greatly complicates the search for a resident guarantor unless it is a very close relative.
How can a business in Israel be opened by a foreigner not having anyone in the country who may and wants to become his guarantor? In such a situation, you should contact a specialized trust company.
Trust companies are established by lawyers and auditors. They usually have a well-researched and seriously documented legal basis for cooperation between the Israeli party and the non-resident. The cost of opening and running a business through a trust company may start from 1,000 shekels per month and reach several thousand dollars, depending on the set of functions assigned to the trust company, the turnover of the business and a host of other factors.
What is important for a non-resident who opens a business in Israel through a trust company?
First, choose the right partner and make sure that he previously had no problems with the tax authorities.
Second, clearly define the responsibilities of the parties.
Third, make sure that your business will “shoulder" the fees of the Israeli guarantor.
Ideally, the trust company takes over all the processes of opening a company: from registering with the Registrar of Companies (Rasham KHevrot), opening a separate corporate bank account (by the way, a very long and complicated process for a non-resident, if you do it yourself) and also opens a new file with the tax authorities.
Further, the trust company provides Israeli business with a legal address, maintains correspondence with tax and other government agencies, also in the Hebrew language, including preparation and submission of tax reports. If necessary, professional representation in tax authorities. Compliance with other business requirements in Israel.
Three reasons why you should enquire with Shmuel Brodetsky Roe Heshbon to open a business in Israel as a foreigner:
A complex approach. Among our partners there are experienced lawyers who will undertake the preparation of a legal framework for cooperation between the Israeli and the non-resident parties, and if necessary, select or create a trust company. We, in turn, will provide plans for opening your business and competent accounting.
Professionalism. We do not just register a company, draw up documents and keep books, in each situation we help to find the optimal solution in order to have the maximum effect with minimal risks and labour input.
We speak your language. Differences of cultures, differences in the rules of doing business, superimposed on language barriers, can seriously complicate the development of foreign business in Israel. It is quite another thing if your Israeli partner understands your realities and the rules of the country in which the business is created.