Entrepreneurship runs deep within the essence of the Hebrew State. In 2020, this state, with a population of 9 million people, saw the emergence of 6,400 startups. Moreover, it secured the 35th spot in the Ease of Doing Business ranking, which assesses how business-friendly countries are. Regarding the specific aspects of establishing a business, the country held the 28th position, the 18th position for safeguarding the interests of minority investors, and the 13th position concerning its taxation framework.
There are different types of companies in Israel: sole proprietorships known as “osek patur” or “osek mourche”, private limited liability companies, and associations with personal names. Companies with “osek patur” status enjoy VAT exemption and only need to file their tax returns annually. On the other hand, those classified as “osek mourche” must provide monthly balance sheets and adhere to VAT requirements.
On the flip side, own-name associations allow multiple entrepreneurs to come together under a non-profit own-name business framework. Forming an association in Israel requires a minimum of seven individuals. The association is obligated to submit an annual balance sheet to the Israeli tax authorities, which includes both an overall balance sheet and individual balance sheets for each partner. Taxation is applied based on each partner's respective stake in the association.
The formalities for opening a business in Israel
The initial and foremost step when initiating a company in Israel involves designating an Israeli tax guarantor. This individual should be an Israeli resident with tax residency in Israel and will hold legal responsibility for the company's actions.
Following this, whether you're launching a new enterprise or forming a branch or subsidiary of a foreign company within Israel, the next steps include registering your company with the Trade and Companies Registry. You'll need to establish records with the relevant authorities for corporate taxes (Mas Hachnasa), the commercial register (Maam), and social security (Bituah Leumi). Furthermore, it's necessary to create an Israeli bank account dedicated to the company's operations.
For foreigners aiming to establish a business in Israel, the most advisable choice is to opt for a limited liability company. The process involves registering with the Companies Registry located in Jerusalem.
To register your company, you will need :
- the company's articles of association, including its name, description and share capital;
- the first shareholders' declaration of their right to be shareholders, i.e., not to be subject to any legal prohibition;
- the name of the first director;
- proof of payment of the 2,500 shekel fee.
Various types of companies are better suited for different kinds of projects. As we've observed, Israel offers two forms of sole proprietorships: “osek patur” and “osek murshe”. The former is apt for businesses with modest sales (up to 107,000 shekels per year), while the latter is geared towards enterprises with aspirations to expand and potentially hire staff. Additionally, one can establish a private company, a cooperative, a partnership, or even a foreign company.
What kind of visa is required for a foreign entrepreneur in Israel?
American investors now have the opportunity to establish businesses in Israel through the B5 visa, which has been accessible since 2019. To secure this visa, investors need to showcase a minimum investment of $100,000, constituting at least half of the company's capital, and this company should contribute to Israel's economy by generating employment opportunities. However, such agreements are not yet available for individuals of other nationalities.
Registering as a self-employed worker in Israel
Self-employed people can also set up and run their businesses in Israel. They will need to register with the tax authorities – for corporate taxes (Mas Hachnasa) – the commercial register (Maam), and social security (Bituach Leumi).
Which visa is right for self-employed workers in Israel?
The self-employed person must have a temporary or permanent resident visa or be an Ole Hadash, i.e., have the status of a new Israeli, according to the Law of Return.
Company aid in Israel
The nation of Israel has gained a reputation for its remarkable achievements and often pioneering role in the domains of high-tech and innovation. This prominence has led to it being affectionately referred to as the “Start-up nation”. Additionally, Israel is also at the forefront of advancements in green energy technologies.
Several non-profit organizations are committed to assisting new immigrants in establishing their businesses. Given the various administrative procedures involved, this support shouldn't be underestimated. Noteworthy organizations in this regard are Mati (located in several major cities), Keren Shemesh, and the IDC Legal Clinic for Startups. These entities aid newcomers with their administrative processes and offer valuable guidance. Depending on the specific location and community, you'll encounter individuals fluent in a range of languages. Russian, English, and French are among the most common.
What are the growth niches in Israel?
Israel was among the pioneers in making solar energy accessible to the masses, with this endeavor commencing in the 1950s. Presently, a significant 90% of the hot water used in Israeli households is generated through solar energy, and leading Israeli companies in this sector have expanded their influence globally. Looking ahead, the government has set an ambitious goal for 2030: to have renewable energies account for 30% of the nation's energy demands. In pursuit of this objective, prominent Israeli research institutions like the Technion in Haifa, the Jacob Blaustein Institute at Ben-Gurion University in the Negev, and the Weizmann Institute stand as global frontrunners in this domain. Notwithstanding this, the number of companies operating within this specific sector remains relatively limited, potentially presenting an opening for fresh investors and entrepreneurs.
Moreover, Israel has gained global acclaim for its achievements across various high-tech domains, notably in cybersecurity, medical equipment, and communications technology. Given Israel's exceptional standing in these realms, abundant opportunities abound. Numerous foreign investors are eager to channel investments into Israeli-born startups, attesting to the nation's strong reputation in this sphere.
That said, the economy and development fields are constantly evolving, allowing entrepreneurs to be creative and daring.
To find out more:
Qualita's guide to setting up a business:
https://www.hub-emploi.org.il/copy-of-entrepreunariat
https://lawoffice.org.il/en/starting-a-business-in-israel-as-a-foreigner/
https://escalon.services/blog/how-to-start-a-business-in-israel/
http://www.israelbusiness.org.il/startingyourbusiness/assistingcenters/MATI
http://www.israelbusiness.org.il/startingyourbusiness/assistingceters/incubators
Business start-up assistance:
Mati
Raanana:
https://www.matiran.org.il/business-plan?lang=en
Others:
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