Foreign Companies in Israel’s Infrastructure Market

Opportunities, partnerships, and tax considerations before entering Israel

Israel continues to develop projects in transport, energy, water, environmental infrastructure, urban development, and technology.

For European and international companies, these projects may create opportunities in construction, engineering, technology, equipment, financing, operations, and maintenance.

The key point is that entering an Israeli infrastructure project involves more than identifying a tender. Companies should assess their operating structure, tax exposure, local partners, employees, financing, contracts, and compliance obligations at an early stage.

A broad market opportunity

Israel’s infrastructure market includes public and private projects, as well as public-private partnerships, or PPPs. Under a PPP structure, public and private parties may share responsibility for financing, construction, operation, or maintenance.

The Israeli Government’s infrastructure portal and its official guide to PPP opportunities in Israel provide information on the broader infrastructure environment.

Opportunities are not limited to construction companies. Foreign businesses may participate as:

Engineering and design firms;
Main contractors or subcontractors;
Technology, equipment, and systems providers;
Operators and maintenance companies;
Consortium or joint venture partners;
Investors, lenders or concession participants;
Specialist professional and technical service providers.

Highway 5 express lanes as an example

The planned Highway 5 express-lane project illustrates the complexity and range of capabilities required for a major infrastructure project.

According to the official project description, the project includes approximately 25 kilometers of express lanes, a Park & Ride facility with approximately 3,200 parking spaces, shuttle services, and a planned connection to the Rosh HaAyin North railway station.

The importance of the project is not that every foreign company will participate. Rather, it demonstrates the types of opportunities that may exist in complex Israeli infrastructure projects.

A foreign company could potentially participate through technology, equipment, engineering, construction, operations, maintenance, financing, or a commercial partnership.

Further information is available on the official Israeli Government project page.

What should be assessed before entering a project?

1. Operating and contracting structure

Before submitting a tender or signing an agreement, the company should determine how it will operate in Israel. Possible structures may include:

Direct activity by the foreign company;
An Israeli subsidiary;
A registered branch or local activity;
A project-specific company;
A joint venture or partnership;
A consortium with an Israeli or international partner;
An arrangement with a distributor, agent, or subcontractor.

The appropriate structure depends on the tender conditions, the expected duration of activity, the level of local presence, the financing model, and the allocation of responsibilities.

2. Tax, VAT, and local presence

The project may raise questions regarding:

Israeli corporate tax;
VAT registration and reporting;
Withholding tax;
Permanent establishment;
Tax treaties;
Cross-border payments;
Transfer pricing;
Import duties and customs;
Reporting in Israel and the company’s home country.

A taxable presence in Israel may arise depending on the company’s personnel, project duration, local office, dependent agents, installation or construction activities, and the way the contract is managed.

An Israeli partner does not automatically resolve these issues. The actual activities, allocation of responsibilities, and flow of funds should be reviewed carefully.

3. Accounting, finance, and reporting

Infrastructure projects are generally long-term and involve budgets, guarantees, financing, subcontractors, and reporting to several stakeholders.

The company should define in advance:

Which entity will sign the agreement;
Which entity will incur the costs;
How costs and revenues will be allocated;
How cash flow will be managed;
How variations, delays, and claims will be recorded;
Which reports will be provided to headquarters or lenders;
How local accounting and audit requirements will be handled.

Insufficient accounting documentation can affect profitability, cash collection, and the company’s ability to demonstrate the financial impact of delays, changes, or additional costs.

4. Employees, foreign experts, and subcontractors

International infrastructure projects may involve local employees, foreign experts, engineers, technicians, and subcontractors.

The company should review:

Visas and work permits;
Employment and payroll arrangements;
Tax withholding and social security;
Employer responsibilities;
Health and safety requirements;
Responsibility for subcontractors;
Documentation of working time and project costs;
The effect of personnel and activities on tax exposure and reporting.

Early planning helps reduce delays, unexpected costs, and uncertainty regarding the responsibilities of the foreign company, the main contractor, and local partners.

5. Contracts, partners, and local requirements

Commercial agreements should be reviewed together with the proposed operating and tax structure. Relevant documents may include:

Consortium and joint venture agreements;
Construction, supply, and operation agreements;
Performance and advance payment guarantees;
Insurance arrangements;
Payment mechanisms;
Change-order provisions;
Delay and claims procedures;
Liability, indemnity, and termination clauses;
Dispute resolution mechanisms.

Certain government procurement processes may also involve requirements relating to foreign suppliers, industrial cooperation, local procurement, or Israeli subcontractors. These requirements vary from project to project and should be assessed based on the procuring entity, contract type, project value, and tender documents.

Further information is available in the official Israeli Government publication on legislation relating to foreign suppliers.

How AUREN Israel can help

AUREN Israel supports foreign companies assessing opportunities in Israel and building the professional infrastructure required for local operations.

Our support focuses on three areas:

Tax and operating structure

Assessment of the operating structure, Israeli tax, VAT, permanent establishment, withholding tax, tax treaties, transfer pricing, registrations, and reporting.

Accounting, finance, and compliance

Local accounting and reporting, project accounting, budgets and cash flow, payroll, audit and controls, and reporting to management and the foreign headquarters.

Commercial and operational support

Support with local partner assessments, consortia, and joint ventures, professional input during negotiations, registrations, banking, foreign experts, and coordination with Israeli legal counsel and other local advisers where required.

The objective is to connect the commercial decision with the practical realities of operating in Israel.

When should a company seek advice?

A professional review is recommended before:

Joining a consortium;
Entering discussions with an Israeli partner;
Submitting a tender;
Establishing a local company or operation;
Sending employees or experts to Israel;
Signing a supply, construction, or maintenance agreement;
Receiving payments from an Israeli customer or public authority.

Early planning allows the company to identify gaps, price its obligations correctly, and choose a structure that can be managed over the long term.

Frequently asked questions

Can a foreign company participate without establishing an Israeli subsidiary?

Sometimes. The answer depends on the tender conditions, the level of activity, registration requirements, and the resulting tax and reporting exposure in Israel.

Does an Israeli partner solve the tax issues?

Not necessarily. A local partner may provide market access and operational support, but it does not automatically eliminate the foreign company’s Israeli obligations.

When should the review begin?

Before joining a consortium, submitting a tender, or signing a binding agreement. At that stage, the company can still influence the operating structure and allocation of risks.

Conclusion

Israel’s infrastructure market offers opportunities for foreign companies in engineering, construction, technology, equipment, financing, operations, and maintenance.

Success depends not only on technical capability, but also on early decisions regarding the operating structure, tax, accounting, financing, employees, partners, contracts, and compliance requirements.

If your company is assessing an infrastructure project in Israel, considering participation in a consortium, supplying technology or equipment, or establishing a local operation, contact AUREN Israel.

We can help you assess the opportunity, select an appropriate operating structure, and prepare an integrated action plan to enter and operate in Israel.