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Company in Israel, definition of the legal structure :
A company in Israel - (Hevra Baam) is a limited liability company registered with the Israeli Chamber of Commerce.
Before moving on to the strictly technical aspects of opening the structure, it is important to understand that the primary legal interest in creating a company is the creation of a "legal separation" between the personal assets of the shareholders and the assets/liabilities of the company itself.
So, in addition to the various tax and commercial advantages we'll discuss below, the main aim of a limited liability company is to protect its shareholders in terms of liability.
Except in exceptional cases, a company can only be held liable up to the amount of its total assets. This means that the "screen" separating shareholders from the company itself can never be removed.
Legal opening of a company in Israel :
There are several steps to opening a company in Israel - Hevra Baam:
Step 1: Registration & company creation.
The body responsible for regulating the registration and establishment of a Hevra Baam is the Chamber of Commerce. רשם החברות.
It's good to know that the company cannot act as a legal entity until the Chamber of Commerce has approved the actual opening.
Here are a few important legal points to bear in mind when setting up a business:
- One person is enough to create a company.
- The company founder can also act as a shareholder and director of the company.
- The company name can be whatever the shareholders want it to be, as long as it's not the name of another existing company, a brand name, or a name likely to mislead and confuse the public.
- Registering your company with the Chamber of Commerce requires a number of documents and steps that must be scrupulously carried out down to the last detail.
- When setting up a new company, it's vital to have the right support, whether you're drawing up the company's articles of association, dividing up the shares of each shareholder, or setting up the company's various governing bodies. (Board of Directors, Chairman and CEO, Legal Administrator).
Step 2: Opening the company's bank account.
Once the company has been registered with the Chamber of Commerce, a bank account must be opened in the company's name.
Step 3: Register with the tax authorities.
Once the company has been registered with the Chamber of Commerce, and the bank account opening certificate has been received, the company must be registered with the various Israeli tax authorities.
Several documents are required to register the company with the Israeli tax authorities.
It's essential to be accompanied by a firm of chartered accountants to ensure that the opening of your business is carried out correctly and in compliance with Israeli law.
Tax and social security obligations :
As mentioned above, the company benefits from lower tax charges than the self-employed.
Here is a brief overview of the various tax obligations of an Israeli company:
- She must declare her sales to VAT (maam) and mas ahnassa (Israeli tax office).
- The company is subject to corporate taxation in Israel, Mas Havarot - מס חברות. It's important to point out that corporate income tax is currently 23% (as of January 1, 2018).
- It can reclaim the VAT paid.
- It can have employees, to whom it will pay a salary and declare them in accordance with Israeli law.
Balance sheet and annual declaration :
The company must submit an annual balance sheet, audited by a chartered accountant. This balance sheet presents the company's economic situation on the day of the annual declaration.
See also: Why appoint a statutory auditor?
See also: Understanding the tax system for an LLC in Israel.
A summary of the main benefits.
- From a tax point of view, the company will have to pay corporation tax. This tax is low (23% for 2018) and represents a huge advantage. By way of comparison, a self-employed person can see his tax rate climb to over 50%.
- The company pays no social security contributions - Bitouah Léoumi. The company's profits are only taxed via corporate income tax. They can then be paid out as dividends.
- From a credibility point of view, being registered as a company enables you to obtain better financial conditions. Banking institutions and other sources of investment will be reassured.
- Finally, from a commercial negotiation point of view, you can often obtain advantageous conditions from your suppliers by registering under a Hevra Baam structure.