There are a number of different reasons to do business in Israel. Listed below are some of the countries’ achievements and main reasons to invest:

  • Israel is a major hub for most of the international hi-tech companies and holds R&D facilities for the industry leaders including Microsoft, Google, HP, Apple (the only one outside the US) and many more.
  • The Israeli divisions of these companies are known as innovative, hard working, determined yet cautious, direct and sometimes brutally honest.
  • Israel is also the homeland for the world's biggest generic pharmaceutical company, Teva, and serves as one of the world's biggest hub for diamonds trading and polishing.
  • It is the only country in the Middle East who is a member of the OECD organization, accepted in 2010 thanks to successful monetary and fiscal policies led by the central bank of Israel and the government who set up a goal to encourage entrepreneurship and innovation.
  • Corporation tax has been reduced over the last 10 years to 24% in 2017 from 36% in 2003 (the rate is expected to drop to 23% in 2018).
  • These indicators helped Israel overcome the last world recession with great success (showing growth in its GDP for the last 5 years).
  • Due to the strong ties between the U.S and Israel, it is the biggest US export market in the Middle East. Despite this fact, Israel's biggest export and import market is the EU (33% of all exports and 34% of all imports) amounting to around € 5 billion and € 9 billion respectively.
  • When analyzing the Asian markets, compared to the EU and the US, it may be noted that there is still room for growth: only 19% of all exports (€3 billion) and 22% of all imports (€6 billion) are originated to/from the Asian markets.
  • It is safe to say that Israel holds many opportunities for any international business looking to expand.

MAIN ISRAELI BUSINESS ENTITIES

Limited CompanyRead more

The most common way of doing business in Israel is through a private limited company.
Private limited companies are owned by shareholders (individuals or other legal entities) and run by directors. To set up a private limited company you need to register with the Registrar of Companies and meet the following requirements:

  • A company name and an address for the company
  • Hold at least 1 director (an individual) and at least 1 shareholder
  • Written rules about how the company is run - known as ‘articles of association’
  • Register for Corporation Tax and VAT (if applicable)

PartnershipsRead more

Partnerships are a very common way to incorporate in Israel. The main difference between a partnership and a corporation lies in the special bond between the establishing partners and the partnership itself, meaning that a bankruptcy or even a death of one of the partners will dissolve the partnership. Also, the establishing partners are liable for the partnership's debts and are personally liable for taxation prepossess on their share of the partnerships’ profits.

Limited Liability PartnershipsRead more

Limited Liability Partnerships are combined from 2 types of partners: a general partner and Limited partner. The general partners are liable for taxations, by the same principals as with a regular partnership; whereas the limited partner cannot lead any operative decisions and their status is similar to shareholders of a limited company. Additionally, the partnership has to be registered at the registrar of partnerships.
Generally, in Israel, most of the limited partnerships are set for gas and oil searches.

Exempt TraderRead more

The simplest structure of incorporating a business. As derives from its title, this type of incorporation is exempted from VAT - limited to 98,707 NIS (around $25,000) per year. The trader must register at the VAT & income tax offices and submit an income statement at the year end. The income statement is the base for the taxation purpose. Some professions, such as lawyers, CPAs, engineers or insurance agents cannot incorporate as an exempted trader.

Sole TradersRead more

An additional structure for an individual to run their business. The sole trader must register at the VAT & income tax offices; but unlike the exempted trader, the sole trader may charge VAT but may also offset the VAT he pays against the VAT charges. The sole trader must report his turnover once or twice a month, depending on the annual turnover.

AUDIT AND REGULATORY ENVIRONMENT

Companies Act 1999Read more

Israeli law requires companies to keep adequate accounting records and to prepare accounts for each financial year. They have to be submitted to the different tax authorities and the registrar of companies and must have their accounts audited.

The companies' Act is under constant supervision by the Israeli parliament and judicial authority, and the law itself is amended frequently. Most of the amendments are related to public companies and are meant to ease the process of managing companies and to increase transparency in those companies.

Banking Supervision DepartmentRead more

In the Bank of Israel operates a department aimed to act as the regulatory body of the banking industry in Israel. The functions of the Banking Supervision Department are:
•    Supervising the stability of the banking corporations - avoiding excess risks that may jeopardies their stability
•    protecting depositors' money
•    EEnsuring proper management in the banking corporations;
•    Maintaining fairness within the bank/customer relations

Money Laundering ActRead more

The Money Laundering Law came into force in 2000 after 7 years of preparation.
The American government, along with several international organizations, took an important role in bringing this law into force. The main goal of the law is preventing terrorist organizations to finance themselves.
Two types of entities or personnel are subject to this act: The Israeli banking industry and personnel entering or leaving the country. The law states that each person, entering or leaving the country, holding more than 100,000 NIS in cash must disclose it.

Privacy Protection ActRead more

The Privacy Protection Act 1981 regulates the privacy rights in Israel. Banks are subject to this law due to confidential information they hold. The act requires every organization, processing confidential or other sensitive data, to register with the Registrar of information bank.

OECD Anti Bribery ConventionRead more

Although Israel doesn't have a specific act to prevent bribery, once it became a member of the OECD organization, Israeli government has adopted the OECD Anti Bribery Convention
Kindly refer to the following link for further information:  http://www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm

INDUSTRY INCENTIVES

The Israeli government offers several incentives aimed to encourage industrial activities and to increase export of Israeli goods over seas. Several of theses incentives are shaped as laws or regulation, as part of the annual budget bill, or as grants and subsidies from the Israeli Government (based on the nature and size of the business).

Grants, Subsidies & LoansRead more

Grants and subsidies

The main tools offered under The Encouragement of Capital Investments Act are:

1.Grants to an approved industrial facility.
2.The right to an increased depreciation rate (200%-400% of regular depreciation rate).
3.Lower income tax rate (6%-12%!)

An alternative but popular root to apply for a grant is through the Office of the Chief Scientist (OCS). The office, empowered by the Encouragement of Industrial Research & Development Act, oversees the governmental aid to R&D in the local industry.
This broad range of support, stimulates the development of innovative state of the art technologies, enhances the competitive power of the industry in the global high-tech market, creates employment opportunities and also assists in improving Israel’s national trading balance. In addition to its domestic activities, the OCS is involved with many dozens of multinational companies in R&D plans.
Kindly refer to the following link for further information:  http://www.moital.gov.il/NR/exeres/A1541A69-E947-4FAF-8577-76864F59CD1F.html

In addition, the Ministry of Economy operates the Agency for Assistance to small and medium businesses aimed to assist in multiple ways, such as: establishing a business plan, business guidance, giving out grants to specific sectors or loans in preferred rates. The agency assists businesses with revenues less than 100 million NIS and employs less than 100 people.

Israel operates several funds from which you can apply for a grant or a loan in order to operate and compete  in an international market. For example, the BIRD foundation (kindly refer to http://www.birdf.com/for more information) and the foundation for assistance in international tenders and projects.

For additional incentives and benefits please refer to: http://www.investinisrael.gov.il/NR/exeres/2A82DCE7-9B2D-4581-83B7-8C518D8323D1.htm

MAIN TAXES

Corporation TaxRead more

Corporation Tax is levied on the taxable profits of companies that are incorporated in Israel or non-resident companies that trade in Israel via some form of permanent establishment (such as a branch). Corporation Tax in 2017 is 24%, and is expected to drop to 23% in 2018.

Until the summer of 2011 The Israeli government planned to reduce the corporation tax to 18% by 2016, but due to the nationwide protest, in the middle class in the summer of 2011, the government suspended its plan. Similar to the UK, Israel resident companies pay Corporation Tax on their worldwide income (which can be subject to double tax relief) whilst non-resident companies will only pay tax on income arising in Israel.

Corporation Tax rates are set on a fiscal year basis that runs from 1 January to 31 December each year. Taxable profits are accounts profits as adjusted for tax legislation. Most businesses have to pay their corporation tax in advance throughout the year.

The tax authority sets a rate for each business based on the projected or past income or the usual profit margins in the industry where the business operates, and the corporation tax has to be paid in advance along with the monthly or bi monthly turnover report being submitted to the taxes authority.

Any company undergoing a taxable loss can carry the loss back 12 months to recover tax previously paid and any losses that are not carried back can be carried forward to set against future income from the same source.

DividendsRead more

Dividends between companies are exempted from dividend tax, whereas dividend for a major shareholder (over 10%) is subject to 30% tax rate (up to September 2017 25%) and non major shareholder is subject to only 25% tax rate.( Major shareholder that earned over 640,000 NIS will be needed to pay 3% surtax more).

Dividend to a foreign entity will be taxed at source at a rate of only 5%. A dividend accepted in Israel from a foreign entity will be taxed at rate of 25%-30%, depending on the holding rate, but will deduct the payment made at the origin country.

Indirect Tax (Sales Tax)Read more

Value Added Tax (VAT) is a tax that is ultimately levied on consumer expenditure as businesses registered for VAT must charge VAT on their sales but can recover VAT that they have suffered themselves (meaning the end consumer suffers the net cost). All Israel established businesses are required to register for VAT, but if one decides to be registered as an exempted trader (a business with a turnover lower less than 100,000 NIS), he will not have to charge VAT nor recover VAT suffered.

Non Israeli businesses trading in Israel may also need to register but must do so immediately and cannot wait until they exceed the threshold.

The current standard rate of VAT in Israel is 17%, which applies to most goods and services. There are a several categories that are either zero rated or exempt from VAT - in either case no VAT is charged. A seller making entirely zero rated sales may recover the VAT on their purchases whilst someone making exempt sales will not necessarily be entitled to recover all VAT suffered.

Sales outside Israel are not charged with VAT but almost every import into Israel has to charge VAT.

Income TaxRead more

The marginal Income tax  rates charged are as followed:

Taxable income (NIS) 2017
0-74,640 10%
74,641-107,040 14%
107,041-171,840 21%
171,841-238,800 31%
238,801-496,920 34%
496,921- 640,000 48%
Over 640,001 50%

This table refers to Israelis and residents of Israel working abroad (subjected to tax treaties among Israel and the foreign country). Sole traders are also subjected to the income tax table above.
In addition, each resident of Israel is eligible to at least 2.25 credit points against his taxable income. One can earn more credit points if one meets certain criteria’s such as: number of children under 18, holds an academic degree, new immigrants, age, place of residence in Israel, etc.

Individuals pay Income Tax on their earnings from all sources of income. Taxable sources of income are primarily from employment, self employed income, income from partnerships, dividend income, bank interest and other investment income. Individuals that are resident of Israel pay tax on their worldwide earnings, although their domicile status may affect the taxation of non-Israel earnings.

Generally individuals that are non Israel residents pay tax only on their Israel source income.
Note that for higher-income individuals, personal allowances are reduced or eliminated.
Income tax is dealt with on a fiscal year basis that runs from 1January to 31December each year.

Tax is collected at source from employment income and bank interest whilst other forms of income need to be reported annually on a tax return. Tax returns need to be filed by 31 December following the end of tax year, which is also the payment date.

Capital Gains Tax

The CGT rate charged is 25% and is corresponding with the corporation tax, except for majority shareholders that are charged at a rate of 30%.Read more

For individuals’ gains and losses, made from the sale of capital assets (for example property and shares), are not dealt as Income Tax but are dealt separately under the Capital Gains Tax (CGT) rules. CGT is taxed at source when any investment is made at the stock market and any capital losses are offset against any gains, when submitting the tax returns.

Other forms of investments, such as savings plans and certain types of long term deposits, are subject to a reduced rate of 15%-20% and are deducted at source.

NATIONAL INSURANCE

National Insurance is a mandatory payment for both employed (paid by the employer) or unemployed individuals (paid by the individual).
The payment is gradual and is linked to the average wages in Israel.
Employers will pay rates of 3.45%-6.5% of the employee's salary and the employee has to pay rates of 3.5%-12%.
Sole traders will pay rates of 9.82%-16.23% of their income.

SummaryRead more

In the last 20 years the Israeli authorities set a goal to create a system of rules, regulations and practices that will help doing business in Israel in a easy, smooth, comfortable manner; that is also competitive in the global market. Nowadays we can see that this goal was reached. The obvious indicators are: the number of businesses growing continuously, endless international corporations who view the Israeli market as a good investment opportunity, the constant growth in Israel's GDP and the acceptance of Israel as a member in the OECD organization.

Although this goal was reached, the authorities are still promoting the Israeli industry together with increasing competitiveness, with an international network of commercial attaches spread around the globe with one sole purpose: to welcome anyone who wants to do business with an Israeli company, and make so as smooth and easy as it can be.