A business opportunity for international companies in the infrastructure industry – in the next decade Israel will be investing billions of Shekels in infrastructures projects


Israel is a relatively small and young country, and the population density is constantly increasing. This impels Israel to spend large sums of money in the course of the next decade on electricity and solar power infrastructure projects, as well as road infrastructures, dedicated tunnels, and trains.

As in all cases of such projects, there is generally collaboration between an Israeli company and a foreign company, where the foreign company contributes existing knowledge in the infrastructure field, sends engineers and professional workers along with designated machines and equipment contributing to the expedition of the project and alignment with Israel’s requirements.

A foreign company conducting business activities in Israel faces several legal options that impact the tax laws.

Is it worthwhile to Establish a subsidiary or a branch, and what is the difference between the two?

As a rule, there are two options to incorporate in Israel, and whether deciding to do so with a subsidiary or a branch, each one has its advantages.

In most cases, if a secondary company is established in Israel, it is a subsidiary of the Parent company subsisting outside of Israel. The Parent company outside of Israel directly controls the subsidiary in Israel by way of shares, and the company in Israel is a separate legal entity than the one outside of Israel.

Another option is to establish a branch in Israel, which remains part of the foreign company’s business activity, without the issuance of shares between the companies.

Is there a tax benefit for establishing a branch vs. a company?

Yes. Generally, in the case of a traded company, when the company in Israel generates profits, those may be transferred to the Parent company abroad by way of dividends. In order to distribute dividends, the Israeli legal requirements must be met in accordance with the Companies Law, which mandates the distribution of profits is made only from the company’s proper surpluses.

In addition, according to local law and the treaty for the prevention of double taxation between Israel and the country in which the Parent Company resides, there may be tax withholding in Israel due to distribution of dividends.

However, in a branch, the profit distribution is not via dividends therefore the Companies Law does not apply. This means that sometimes it is legally easier to transfer profits from within Israel abroad, and in addition, there is also no tax withholding between the countries.

What are the legal differences between a company and a branch?

Since a company is a separate legal entity from a branch, the legal responsibility is different and any legal exposure in Israel may not relate back to the company abroad. Whereas with a branch, the legal exposure is shared.

Are there differences in the steps of incorporation between a company and a branch?

Generally, there is no difference. Both entities require legal registration with the Israel Registrar of Companies. While a branch will receive a number beginning with – 56, a company will receive a number beginning with – 51. Once legal registration is complete a bank account needs to be opened in Israel under the legal entity’s name. The third step is to appoint a local fiscal representative who is an Israeli citizen; afterwards a file can be opened with the VAT and Income Tax offices.

What is the legal responsibility of the fiscal representative?

As mentioned, in order to engage in business activity in Israel, the foreign company must appoint a local fiscal representative. The fiscal representative bears personal responsibility for all taxation liabilities in Israel whether in the case of a subsidiary or a branch. Meaning, in the event of unpaid debts to the tax authorities, the fiscal representative may be contacted directly to settle any tax payments.

Yaniv Angel,

Managing partner of the Taxation Department at Auren Israel.

Expert in both international and Israeli taxation.