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Should a foreign company set up an Israeli subsidiary or a branch office?

It depends on liability and tax goals, but most foreign companies choose an Israeli subsidiary. A subsidiary is a separate limited-liability company that ring-fences the parent from Israeli liabilities, while a branch registered under Sections 346-350 of the Companies Law 5759-1999 is legally the same entity as the foreign parent, which stays directly liable. Both are taxed on Israeli-source profits at the 23% corporate rate, so the decision usually turns on risk, longevity, and administration rather than tax.

A branch is not a new legal person. When a foreign company establishes a place of business in Israel it must register as a "foreign company" with the Registrar of Companies under Section 346 of the Companies Law 5759-1999, filing its charter, director details, and an Israeli address for service. The parent remains directly liable for the branch's debts and obligations. A subsidiary, by contrast, is incorporated as a distinct Israeli company with its own shares, directors, and limited liability, so creditors of the Israeli business generally cannot reach the foreign parent. The mechanics of registering a local presence are set out in the guide to registering a foreign company branch in Israel.

For tax, a branch is treated as a permanent establishment and pays 23% company tax only on the profit attributable to its Israeli activity, which can simplify a short-term or single-project presence. A subsidiary files as a standalone taxpayer and can more readily access grants, local banking, customer trust, and Israel's treaty network. The trade-offs are that a subsidiary carries fuller compliance, including annual reports, audited statements, and in practice a locally reachable director, while a branch exposes the whole group to Israeli claims and can complicate the parent's own reporting. Companies planning to hire staff, sign local contracts, or stay long term usually incorporate a subsidiary, following the steps in the guide to forming a company in Israel.

⚖ In Practice
  • Governing law: Companies Law 5759-1999, Sections 346-350 (foreign company / branch registration); general incorporation provisions for a subsidiary
  • Competent authority: Registrar of Companies (Rasham HaChavarot) at the Corporations Authority (Rashut HaTagidim)
  • Branch registration deadline: within one month of establishing a place of business in Israel
  • Liability: a subsidiary ring-fences the parent; a branch leaves the foreign parent directly liable
  • Corporate tax: 23% (2026) on Israeli-source profits under either structure
  • Typical choice: subsidiary for long-term operations and hiring; branch for a limited or project-based presence

From the full guide: Registering a Foreign Company Branch in Israel

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