Can I convert my Israeli sole proprietorship (osek murshe) into a limited company?

An osek murshe (licensed self-employed dealer) and a company are different legal persons, so you cannot simply relabel one as the other. You register a company with the Companies Registrar, open its tax and VAT files, and assign the business, its contracts, equipment, and goodwill, to the company. Section 104A of the Income Tax Ordinance lets you do this without an immediate capital gains charge, provided you receive shares matching the value transferred and observe the holding conditions the section imposes. Employees, if you have any, transfer with their accrued rights intact. Our guide to company formation in Israel covers the incorporation mechanics in detail.

For a foreign owner, incorporating often makes sense once profits rise, because company profits are taxed at the flat corporate rate rather than at personal marginal rates, though a second layer of tax applies when you draw dividends. Time the switch for the start of a tax year where possible, notify VAT and Income Tax to close the osek and open the company files, and re-paper key contracts and bank mandates in the company's name. Do not move assets before the Section 104A conditions are in place, or you may create a taxable event. Because the rollover has strict share-holding and reporting rules, most owners run the transfer past an Israeli accountant or tax lawyer first.

From the full guide: Company Formation in Israel

← Browse all Q&A