Quick Answer: A foreign company that operates in Israel must register a foreign branch (*sviv chutz*) with the Companies Registrar (*Rasham HaChavarot*) within one month of commencing business activity under Sections 346–364 of the Companies Law 5759-1999. Registration requires an apostilled certificate of incorporation, apostilled constitutional documents, a Hebrew translation of both, and the appointment of an Israeli-resident authorized person. The registration fee is approximately NIS 2,600. Branch profits are taxed at the standard 23% Israeli corporate rate, and Israel imposes no branch profits remittance tax. The parent company remains fully liable for all branch debts.

When a foreign company decides to do business in Israel, its first structural question is whether to open a local branch or incorporate a new Israeli subsidiary. Both are legitimate routes, and the right answer depends on the nature of the planned activity, the parent company's home-country tax position, risk appetite, and how long-term the Israeli presence is likely to be.

This guide focuses on the branch route: what Israeli law requires, how registration works in practice, what the tax consequences are, and when a branch is likely the better choice than a subsidiary. Foreign companies that have already decided to incorporate a local company should read the separate guide to company formation in Israel.

1. Branch vs. Subsidiary: The Foundational Choice

The legal distinction between a branch and a subsidiary runs deeper than paperwork.

A subsidiary (*chevra bat*) is a new Israeli company, incorporated under Israeli law and registered with the Companies Registrar. It is a separate legal entity from its foreign parent. The parent's liability is limited to the value of its shares in the subsidiary. The subsidiary files its own Israeli tax returns, has its own directors, and can enter contracts in its own name. Creditors of the subsidiary generally cannot reach the parent company's assets.

A foreign branch (*sviv chutz*, literally "foreign company") is not a new entity. It is the existing foreign company doing business in Israel. The parent company IS the branch. There is no separate Israeli legal person and no limited liability shield between the parent and the branch's debts. Every obligation the branch incurs is a direct obligation of the foreign parent company.

That distinction drives every other choice: how you pay tax, where liability lands, and what unwinding looks like.

2. When Registration Is Required: The Commencement Threshold

Section 346 of the Companies Law 5759-1999 requires a foreign company to register with the Rasham HaChavarot before commencing business in Israel. Section 347 sets the registration deadline at one month from the date business commences.

The Companies Law does not define "commencing business" precisely, and the Rasham HaChavarot applies a broad functional test. Each of the following acts is generally treated as triggering the registration obligation:

  • Signing a commercial contract with an Israeli counterparty under which performance occurs in Israel;
  • Hiring an Israeli employee or engaging a contractor who works from Israel;
  • Opening a bank account in Israel for business purposes;
  • Maintaining a physical office or workspace in Israel;
  • Providing services in Israel on a recurring basis, even without a fixed office.

A foreign company that merely holds Israeli securities, has passive investments in Israel, or sends representatives to Israel for occasional meetings typically does not cross the threshold. But any company generating revenue from Israeli customers through an Israeli presence should treat registration as required.

In Practice — Section 347: The One-Month Deadline and What Happens If You Miss It

A foreign company that operates in Israel without completing branch registration is treated as an unregistered foreign company under Section 350 of the Companies Law. The Rasham HaChavarot may impose a cumulative administrative fine — currently set in the regulations at NIS 1,000 per month of non-compliance. More significantly, Israeli courts have held that contracts signed by a company operating without a required registration can expose the officers who signed them to personal liability on those contracts, because the unregistered entity cannot invoke corporate protection. The Israel Tax Authority also treats the commencement date (not the registration date) as the start of the branch's tax liability, so late registration does not defer what you owe. Register before activities begin, not after.

3. The Step-by-Step Registration Process

Branch registration is handled through the Rasham HaChavarot, which operates under the Israeli Ministry of Justice. Applications are filed online through the government's Rishum service portal or submitted by a licensed Israeli attorney.

Step 1 — Gather and apostille the corporate documents

You need two foundational documents from the parent company's home jurisdiction:

  • Certificate of Incorporation (or equivalent — Certificate of Good Standing in the US, Certificate of Registration in the UK, Kbis extract in France). This must be current, typically issued within three months of the application date.
  • Constitutional documents — the company's Articles of Association, Memorandum of Association, Bylaws, or equivalent. These must be the current version in full.

Both documents must carry an apostille stamp under the Hague Apostille Convention (1961). Countries that are not Hague Convention parties require legalization through the chain of Israeli consular authentication. For US documents, the apostille is issued by the Secretary of State of the relevant state. For UK documents, the Foreign Commonwealth and Development Office issues apostilles. Allow one to three weeks for apostille processing, depending on jurisdiction.

Step 2 — Prepare certified Hebrew translations

Both apostilled documents must be accompanied by a full Hebrew translation certified by an Israeli notary or a certified translator. The Rasham HaChavarot will not accept translations that are not officially certified. Israeli law firms routinely coordinate this step — budget NIS 1,500 to NIS 4,000 depending on document length and turnaround time required.

Step 3 — Prepare the Form 10 application and supporting documents

The registration form (Form 10, *Bakashah lerashum chevra zarit*) requires the following information:

  • Full legal name of the foreign company and its jurisdiction of incorporation;
  • Registered address in the country of incorporation;
  • List of all current directors with their names, nationalities, passport numbers, and home addresses;
  • Identity and Israeli address of the appointed authorized person (*man mukdash*);
  • Address of the Israeli office or place of business;
  • A brief description of the business activities to be conducted in Israel.

Step 4 — Pay the registration fee and file

The current Rasham HaChavarot registration fee for a foreign company is approximately NIS 2,600. Payment is made online through the government payment portal. Once the application and all supporting documents are submitted, the Rasham HaChavarot processes the application and issues a Registration Certificate (*Teudat Rissui*). Processing typically takes two to four weeks for a complete application with no missing documents.

In Practice — Common Reasons for Application Rejection

The Rasham HaChavarot rejects or suspends a material number of foreign branch applications due to avoidable errors. The four most frequent problems: (1) apostilles that have expired because the certificate of incorporation was issued more than three months before the application date; (2) Hebrew translations that are certified by a translator in the parent company's home country rather than an Israeli-recognized certifier; (3) the authorized person's address listed as a P.O. box rather than a physical Israeli street address; and (4) a mismatch between the company name in the English constitutional documents and the name on the apostille. An Israeli attorney reviewing the package before filing catches all four in under an hour. The Rasham HaChavarot's letter rejecting an application and requesting corrected documents typically arrives two to three weeks after filing, adding a month or more to the overall timeline.

4. The Authorized Person (*Man Mukdash*): What the Role Requires

Section 349 of the Companies Law requires every registered foreign company to appoint at least one authorized person (*man mukdash*) who is resident in Israel. The authorized person serves two functions: accepting service of court process on behalf of the foreign company, and acting as the company's representative in dealings with Israeli government bodies.

Critically, service on the authorized person is treated by Israeli courts as valid service on the foreign parent company itself. A company that receives a court claim through its authorized person cannot later argue in proceedings abroad that it was not properly served in Israel.

Who can serve as authorized person

There is no statutory restriction on who can serve. Most foreign companies appoint one of three categories of person:

  • Israeli attorney: The most common choice. The attorney's office address is used for service, and the attorney handles court correspondence as part of the engagement. This is the cleanest arrangement because the attorney already has the professional obligation to notify the client promptly of any claim received.
  • Israeli accountant or CPA firm: Practical when the accountant is already handling the branch's tax and financial compliance. Less ideal if the branch ever becomes a defendant in litigation, because accountants are not equipped to respond to court proceedings.
  • Senior Israeli employee of the branch: Acceptable, but creates personal responsibility for the individual and does not work if that employee later leaves.

What happens if the authorized person resigns or is replaced

Any change of authorized person must be reported to the Rasham HaChavarot within 30 days on Form 54. A branch that allows a period of no valid authorized person is technically non-compliant and can receive an administrative fine. More seriously, it creates a gap in the service of process chain. A court claim served during that window on the old address may be treated as validly served even if the company no longer receives mail there.

In Practice — Service of Process Consequences for Foreign Parents

Israeli courts have held in multiple cases that a foreign parent company whose Israeli branch received a court summons through the authorized person cannot later challenge an Israeli judgment on the grounds of lack of notice in enforcement proceedings abroad. This matters because Israeli judgments are enforceable in the UK under common law principles, in Germany and France under EU successor mechanisms, and in the United States through state-level enforcement actions. A foreign company that ignores a claim filed against its Israeli branch because "we are not an Israeli company" and does not instruct an Israeli attorney to respond faces a default judgment that then travels abroad. The practical rule: check with your authorized person quarterly, not only when something arrives.

5. Tax Treatment of a Foreign Branch in Israel

The Israel Tax Authority (*Reshut HaMisim*) taxes a registered foreign branch on its Israeli-source profits at the standard corporate income tax rate of 23%, identical to the rate applied to a locally incorporated Israeli company. There is no special branch tax rate.

What constitutes Israeli-source income for a branch

Under Section 4A of the Income Tax Ordinance [New Version] (*Pekudat Mas Hachnasa*), income is Israeli-source when it is generated from business conducted in Israel, from services rendered in Israel, or from assets situated in Israel. For a foreign branch operating in Israel, all income generated through the Israeli office is typically treated as Israeli-source. Income generated entirely from activities outside Israel — for example, a sale negotiated and executed by the parent company's head office with a foreign customer — is not Israeli-source even if the branch is involved peripherally.

Branch registration with the Tax Authority

Within 90 days of commencing business, the branch must register as a taxpayer with the Israel Tax Authority and obtain a file number (*tik mas*). Registration is handled through the Tax Authority's regional office covering the branch's Israeli address. The branch must separately register for VAT (*mas erech musaf*) with the VAT unit if it makes taxable supplies in Israel. Most commercial operations trigger VAT registration from day one, and the standard rate is 17% under Section 2 of the VAT Law 5736-1976.

The branch profits remittance comparison

Here is where the branch vs. subsidiary comparison often tips in favor of the branch for certain parent companies. An Israeli subsidiary that pays a dividend to its foreign parent must withhold Israeli dividend withholding tax under Section 170 of the Income Tax Ordinance. The standard withholding rate is 25% on dividends to individuals and on dividends to corporate shareholders that hold less than 10% of the Israeli company. For corporate shareholders holding 10% or more, the rate is 25% on profits not qualifying as "preferred enterprise" income. Tax treaties often reduce these rates significantly — to 5%–15% depending on the treaty — but even treaty rates add a real cost layer.

When a foreign branch remits its after-tax profits to the parent company's head office, Israel does not impose a branch profits remittance tax. The parent simply records the receipt. This means the effective Israeli tax cost on profits from a branch can be lower than from a subsidiary where dividend withholding applies. Whether this advantage materializes depends heavily on the parent's home-country tax treatment of the Israeli-taxed profits and on whether a tax treaty applies.

In Practice — Transfer Pricing on Intra-Group Transactions

A foreign branch that provides services to its parent company or receives services from it (back-office support, IP licensing, shared management fees) is subject to Israel's transfer pricing rules under Section 85A of the Income Tax Ordinance. The arm's-length standard applies: the branch must transact with the parent at the same price a third party would pay. The Israel Tax Authority has audit units focused on transfer pricing in multinationals with Israeli operations. A branch that pays excessive management fees to its parent (reducing Israeli taxable profits) or receives below-market compensation for services performed in Israel risks having the ITA adjust the pricing, disallow the deduction, and impose penalties of 15%–30% of the underpaid tax. For branches receiving IP from a foreign parent at a royalty below market value, the adjustments can be substantial. Document the pricing basis before you start transacting, not after an audit notice arrives.

6. Ongoing Compliance and Annual Reporting

A registered foreign branch in Israel faces two parallel compliance tracks: corporate filings with the Rasham HaChavarot and tax filings with the Tax Authority.

Companies Registrar annual filings

Section 359 of the Companies Law requires the branch to file with the Rasham HaChavarot each year, within 7 months of the end of the parent company's financial year, a package that includes:

  • The parent company's audited annual financial statements for that year, translated into Hebrew and certified;
  • A confirmation that the authorized person appointment is current and unchanged, or a Form 54 reporting any change;
  • Notice of any material changes to the parent company's directors, registered address, or constitutional documents since the last filing;
  • Confirmation that the details filed at registration remain accurate.

The Rasham HaChavarot charges an annual filing fee of approximately NIS 850. Late filing attracts a fine of NIS 500 per month under the administrative penalty schedule. A branch that fails to file for two consecutive years risks having its registration cancelled by the Registrar, which is published publicly and can affect the company's commercial reputation in Israel.

Tax compliance

The branch's annual Israeli corporate income tax return (*doch shnati*) is due by May 31 following the end of the Israeli tax year (which runs January 1 to December 31). The branch typically files on a standalone basis, reporting only Israeli-source income. Provisional tax payments (*mekadmat mas*) are made monthly or bi-monthly throughout the year based on the previous year's tax liability, with the balance settled on filing.

The branch must also file monthly VAT reports on Form 141 and submit VAT payments by the 15th of the month following each reporting period. Employers withhold employee income tax (*nikui bamkor*) and make NII contributions (*Bituach Leumi*) monthly; late payment attracts CPI linkage and 4% annual interest under the Penalty Law 5745-1985.

What must be reported to the Rasham HaChavarot during the year

Beyond the annual package, specific changes trigger an immediate reporting obligation within 30 days of the change:

  • Any change in the parent company's name or registered address;
  • A change in the parent company's directors or shareholders;
  • An amendment to the parent company's constitutional documents;
  • A change of authorized person;
  • A change in the branch's Israeli office address.

7. When a Branch Makes More Sense Than a Subsidiary

The branch has real advantages in specific situations. It is not, however, the right default for everyone.

Short-to-medium term market entry

Setting up an Israeli subsidiary creates a corporate entity that must be formally dissolved when the market exit occurs, a process that takes 12 to 24 months under Israeli law and requires filing with the Tax Authority, NII, and the Rasham HaChavarot. Closing a branch is significantly simpler: file a notice of cessation with the Rasham HaChavarot and obtain a tax clearance certificate. For companies entering Israel on a trial basis or for a defined project, the branch avoids the exit complexity of a subsidiary.

Passing losses up to the parent

An Israeli subsidiary's losses stay within the Israeli entity. They can be carried forward against future Israeli profits, but they do not reduce the parent company's home-country taxable income. Whether a foreign branch's Israeli losses can be used to reduce the parent's home-country tax liability depends entirely on the parent's home jurisdiction tax rules, but in countries with worldwide taxation systems (the United States for US corporations, the United Kingdom under certain conditions), branch losses may flow through to the parent's consolidated tax position. This is a significant structural advantage in loss-making startup phases.

Simpler governance

An Israeli subsidiary requires at least one director, board meetings, annual shareholder meetings, and proper corporate governance under the Companies Law. A branch has none of these requirements. The parent's existing governance structure applies. This reduces administration for smaller operations that do not warrant a full Israeli corporate governance framework.

When a subsidiary is typically preferable

The subsidiary wins when liability isolation is the priority. A product liability claim, a large employment dispute, or a regulatory fine imposed on an Israeli subsidiary stays within the Israeli entity. The parent is protected (subject to veil-piercing). The same claim against an Israeli branch is a direct claim against the parent company. For companies selling consumer products in Israel, employing a large Israeli workforce, or operating in regulated sectors, this exposure difference is decisive. The subsidiary also works better when Israeli equity participation — employee stock options (*esopit*), local investors, or an IIA grant that requires an Israeli holding entity, is part of the plan.

Frequently Asked Questions

Yes, in practice. Israeli banks require a branch to hold a local NIS account for payroll, VAT payments, and day-to-day operations. Opening a business account as a registered foreign branch (sviv chutz) requires the Companies Registrar certificate of registration, the appointment of the authorized person, a corporate resolution from the parent company, and Know Your Customer documentation on the parent company's ultimate beneficial owners. The process typically takes four to eight weeks at most Israeli banks.
No. A registered foreign branch (sviv chutz) is not a separate legal entity under Israeli law. The parent company remains fully and directly liable for all the branch's debts and obligations. There is no limited liability shield between the parent and the branch. This is the most fundamental legal difference between a branch and an Israeli subsidiary company, and it is the main reason liability-conscious companies prefer the subsidiary structure.
A foreign branch pays Israeli corporate income tax at the standard 23% rate on its Israeli-source profits, identical to a locally incorporated subsidiary. Israel does not impose a branch profits tax on the remittance of after-tax profits to the foreign parent, which can make the branch structure more tax-efficient than a subsidiary in cases where dividend withholding tax would otherwise apply. The precise comparison depends on the applicable tax treaty and the parent's home-country treatment of the Israeli-taxed profits.
Yes. A registered foreign branch can hire Israeli employees on the same terms as any Israeli employer. The branch must register with the National Insurance Institute (Bituach Leumi) as an employer, withhold income tax at source from salaries, and make the mandatory pension contributions required under the Pension Law 5768-2008. All Israeli employment law protections apply in full, including the minimum wage (NIS 5,880 per month as of April 2025), advance notice requirements, and the pre-dismissal hearing obligation.
The Companies Registrar typically processes a complete branch registration application within two to four weeks. The main delays come from document preparation: apostilling the certificate of incorporation and articles of association in the parent company's home country and obtaining certified Hebrew translations can add three to six weeks depending on jurisdiction. Total elapsed time from deciding to register to receiving the certificate is typically six to ten weeks when all documents are prepared efficiently.