The energetic start-up atmosphere and innovative spirit in Israel have earned it the moniker “Start-up Nation” and is home to multitude of start-ups including many leading multi-national businesses, which have also chosen Israel as a location to open research and development facilities. Thus, by creating such an attractive working environment, entrepreneurs from all over the world are drawn to Israel’s start-up scene.

For non-Israelis who have an entrepreneurial idea, you are probably asking the question, “Can I start a start-up in Israel?” The answer is “yes.”

Israel provides many avenues for non-residents, and successful start-ups have been created by non-residents. However, because you are a non-resident business owner, starting a start-up in Israel does require you to consider a variety of factors including the legal and practical aspects of start-ups. Below, you will find a summary of how a non-resident can create a start-up business in Israel with links to additional information about foreigners starting businesses in Israel including company registration, visas, labour laws, and compliance issues.

How to Start a Business in Israel

Ownership:

One of the major benefits for non-Israelis looking to establish a business in Israel is that there are no restrictions on foreign ownership. In fact, you can establish your own company, 100% owned by you as a foreigner, without any restrictions on the percentage of ownership. In fact, many international entrepreneurs have successfully set up Israeli start-up businesses, 100% owned by them as foreign owners.

Company Structure:

 Typically, you will establish a limited liability company (“Ltd.”) in Israel as the structure for your business because the limited liability company provides limited legal protection for the owner, an easy structure to set up, and includes the potential for significant tax benefits. Even though all the owners and directors of the Israeli company may be foreign, the Israeli company will be considered a separate legal entity and treated like any other local company in Israel.

Incorporating your startup: Important information:

• Selecting a Company Name: It is important to select a unique name for your startup, which is not being used by another company, when searching on the Israeli Company Registrar’s website.
• Incorporation Documents: Once you have received approval for the name, you will then prepare and submit the necessary incorporation documents to the Companies Registrar (in Hebrew). You will need to include all the following:
• Articles of Association (the document that serves as your company’s governing document).
• Information on who will serve as directors and shareholders of the company.
• Provide an Israeli address as your local business address (this can be a PO Box).
• Open Bank Account: Following the completion of incorporation, you will then want to open an Israeli business bank account (this will be used for all company finances and to conduct official business with).
• Register For Taxes: After your company has been registered for tax purposes, you will need to register the company with the tax authorities to obtain a tax ID number (TIN) and a VAT registration number. You will also need to register for National Insurance (NI) if you intend to hire any employees.

Legal and Tax Matters

Although starting and running a business in Israel is relatively simple, you will be required to meet all your local obligations. About tax obligations, as of today, an Israeli company will pay approximately 23% tax on corporate profits. The Israeli VAT rate is currently 17% for sales of goods and services in Israel, if you sell any goods or services in Israel; therefore, you must charge VAT on all transactions with customers, and forward the VAT collected to the Israeli tax authorities. Additionally, companies are required to file periodic VAT reports (monthly or bi-monthly) and annual corporate tax returns for compliance.

Ongoing Legal Obligations

Each year, the Companies Registrar requires Israeli companies to file an Annual Return, along with payment of a small annual fee. Therefore, for companies to avoid penalties, it is critical that companies maintain accurate accounting records and meet all required deadlines. Most official filings require submission in Hebrew, which means that foreign founders often enlist a local accountant or lawyer to assist with their paperwork and any other communication with governmental authorities.

Visa and Work Permit Requirements

The mere fact that someone owns an Israeli company does not provide them with automatic authority to live or work in Israel. Therefore, if a person plans to work in Israel on their startup, they must obtain a work permit. The primary method is to apply for a B/1 work visa allowing one to work in one’s own company as a foreign specialist. Additionally, American citizens may apply for the B/5 investor visa by making a substantial financial investment in their Israeli company. Furthermore, if you are not planning to relocate, you can still operate your Israeli startup from a location outside of Israel, making periodic visits to Israel for business purposes; just bear in mind that to work on a day-to-day basis in Israel, you must have the proper authorization.

Hiring Employees and Compliance with Local Laws

When building a team in Israel, one benefits from access to a highly skilled workforce, but compliance with local employment regulations must be followed. Employers are required to deduct income tax from employees’ salaries, and to contribute on behalf of the employee to social security (also known as National Insurance) and pension funds. Workers’ rights under Labor law include the minimum wage and time off paid.

Keeping up with payroll taxes can prove difficult. Employers are required to provide periodic reports regarding payroll taxes withheld, social security contributions, as well as any sales tax (VAT) owed to the government. Due to the amount of time and communication necessary, many foreign-run technology companies partner with local payroll/accounting firms for payroll, accounting, and filing purposes. By outsourcing payroll and tax functions to a local company, foreign technology companies will assure that payroll and tax functions are processed accurately, on time, and will remain compliant with Israeli laws while working on business growth.

Why Partner with ERB

Partnering with a local company like ERB makes entering the Israeli market less difficult. ERB provides a full range of services to foreign entrepreneurs who wish to succeed. ERB facilitates the incorporation of the business (all paperwork necessary to form the business in Israel) and provides continued assistance with human resources and payroll (managing and paying employees in accordance with local laws). ERB’s team handles all aspects of accounting/tax filing, thoroughly reviewing our clients’ financials to ensure they are accurate and compliant with all applicable Israeli laws. ERB also manages all compliance filing for your company, filing every report, remittance payment, and statutory form by the deadlines. Working with ERB gives you, the foreign entrepreneur, the assistance of a knowledgeable local business partner, enabling you to launch a business in the Startup Nation and have the tools necessary to grow your company into a success.

Final Thoughts

The Israeli startup ecosystem welcomes and supports any entrepreneur, regardless of their country of origin. With adequate preparation/understanding of the local operating environment and procedures, launching an enterprise in the Startup Nation will not only be feasible; however, but it may also have a significant impact on many other international entrepreneurs. Not only can an entrepreneur attain this opportunity through ERB’s support, but with many continued local sources of assistance in navigating/establishing an enterprise in the Startup Nation, the time required to complete all necessary actions will be drastically reduced, providing international entrepreneurs with an outstanding opportunity to realize their entrepreneurial vision in one of the most dynamic and rewarding environments available today.