Entrepreneurship in Israel

The tradition of entrepreneurship in Israel has deep roots in ancient history, paving the way for a robust entrepreneurial culture. Today, Israel is an absolute business powerhouse, with the country’s small businesses being the motor of Israel’s economy.

Photo by Din Ahahroni Rolland at "Just believe" Jewelry Shop, Tel Aviv
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Renowned as the “Startup Nation,” Israel had the third most start-ups in 2023 offering a robust local economy, advanced technology growth, fair tax practices, solid global connections, and straightforward business regulations.

In fact, Israel has been placed at the 35th spot out of 190 economies in 2020. Impressively, Israel excelled in critical areas such as starting a business (28th), managing taxes (13th), and safeguarding minority investors (18th).

  1. Starting a Business in Israel
  2. Making the Transition to Entrepreneurship
  3. Assistance With your Business Venture
  4. Tips For Small Business Owners
  5. Taxes in Israel
  6. Registering a Company in Israel
  7. Registering a Company as a Foreign National
  8. Establishing a Business as a Foreigner
  9. The Israel Innovation Authority
  10. Top 7 Tips for Doing Business in Israel
  11. Useful Links about Entrepreneurship in Israel

Starting a Business in Israel

Launch Your Dream Company in the World’s Most Dynamic Tech Hub
Embarking on a business journey in Israel is like stepping into a thriving hub of innovation and opportunity. From the bustling streets of Tel Aviv to the historic alleys of Jerusalem, this dynamic nation offers entrepreneurs a diverse landscape for growth and professional partnerships.

Different Business Classifications in Israel

In Israel, small businesses are categorized into 2 main classifications:

Osek Patur and Osek Murshe.

  • Osek Patur – This is the simpler classification and suits businesses with small financial turnovers (up to 120,000 NIS in a year, as of 2024). Annual turnover is limited and revaluated annually. Osek Patur businesses (and customers) are exempt from Value Added Tax (VAT).
  • Osek Murshe – This classification has no upper turnover limit, allowing businesses to grow rapidly. VAT applies to all trading operations, but it can be reclaimed on expenses such as raw materials, vocational education, insurance, etc. Unlike Osek Patur, Osek Murshe businesses are allowed to hire employees.

It should be noted that doctors, architects, lawyers, real estate agents, writers and auditors must register as Osek Murshe regardless of turnover.

Making the Transition to Entrepreneurship

1 Cultivate Entrepreneurship and Initiative

Employees often fall into two categories: those who prefer to maintain the status quo and those who actively seek opportunities. An essential tip for transitioning to self-employment is to consistently foster a proactive mindset. Your determination, motivation, and preparedness are your unique assets. As entrepreneurship becomes an integral part of your life and business, motivation and desire work in tandem, propelling you as far as your aspirations reach. For those who require guidance, it’s worth noting that consultants and businesses are available to help steer your entrepreneurial initiatives toward practical and tangible steps.

2 Construct a Strategic Business Plan

Beyond nurturing your entrepreneurial spirit, launching a new business requires proper organization, systematic planning, and strategic thinking. It’s essential to formulate a comprehensive business plan that addresses key elements, such as:

  • The necessary investments to establish your business
  • Sources of funding for business development
  • Identifying your target customer base and developing a marketing strategy
  • Projected income during the initial phase and after achieving stability
  • A well-structured strategic plan empowers you to allocate your business resources effectively, guided by clear objectives and timelines

3 Selecting the Right Financial Advisor

Every business must adhere to sound accounting principles, maintain records, manage cash flows, and handle tax obligations, including potential Value-Added Tax (VAT) concerns. As you prepare to embark on an independent business journey, whether as a sole proprietor or an employer, choosing a qualified financial advisor who can communicate effectively with you is critical. They will assist in registering your business, filing reports with relevant authorities, explaining significant business expenses, and more. Carefully select a financial advisor with whom you can communicate clearly, with professional expertise, experience, and a reputation for fairness and integrity.

Assistance With your Business Venture

Government-Backed Programs to Help Your Business Flourish in Israel
Several Israeli organizations provide subsidized services for small businesses, including A-Z guidance on opening a small business in Israel. Among the more popular one-stop shops for your Israeli small business needs is MATI.

MATI
The MATI (Center for Entrepreneurship Development) is a non-profit organization funded by the Ministry of Economy, and its purpose is to provide assistance and support for entrepreneurs running small to medium-sized businesses.

MATI provides a diverse array of services tailored to individuals venturing into entrepreneurship. If you’re embarking on a business journey, contacting your local MATI office is highly recommended. Their services for new Olim (those who have been in Israel for up to 10 years) are free of charge and supported by the Ministry of Klita. Some of the invaluable services they offer include:

  • Personalized one-on-one counseling to guide you through the initial stages, aiding in creating a well-structured business plan.
  • Courses on opening, running, and financing a business in Israel. These courses are frequently conducted in Hebrew, while English-language courses are significantly subsidized, making them accessible to all.

For those seeking guidance on securing business loans or looking for professional mentorship, MATI has you covered. Their mentorship program matches you with experienced experts with in-depth knowledge of the Israeli market, providing a personalized and comprehensive mentoring package. New Olim can benefit from up to 20 hours of free business mentoring with a recognized business coach sponsored by Mirsad Haklita.

For more information about the range of services MATI offers, reach out to your local MATI office. They are here to support and empower you on your exciting entrepreneurial journey.

Tips For Small Business Owners

As a new Oleh, you’re stepping into a world of unique opportunities and challenges. Understanding the local business culture and market nuances is key to your success as a small business owner. This short guide is designed to help you navigate the Israeli business landscape, blending your fresh perspectives with the dynamic Israeli economy.

Understanding the Israeli Market

  • Israel’s market is diverse and innovative. Begin by researching your specific industry within Israel. Identify gaps where your business can fit in or stand out.
  • Pay close attention to consumer behavior and preferences, which may differ significantly from your home country. Embrace Israel’s fast-paced, tech-savvy market by staying ahead of the latest trends.
  • Delve into detailed research to understand the specific needs and gaps in the Israeli market. Use both online resources and local market studies as pinpointing your niche is crucial.

Financial Navigation in Israel

  • Adapting to the Israeli business environment can be challenging due to distinct legal and cultural nuances, especially for those accustomed to U.S. or Canadian business practices.
  • As you venture into Israel’s commercial landscape, obtaining sound advice from legal and financial professionals is crucial. Also, engaging with peers in your industry and gathering extensive market information is key to a successful start.

Taxes in Israel

Filing Taxes

All private businesses in Israel must submit audited annual tax returns and financial statements within 5 months after their fiscal year ends. Additionally, companies must file monthly returns along with tax payments. Some small businesses may be allowed to file returns bi-monthly.

The types of taxes to be filed include:

  • Company Tax Installments – These represent a portion of the company’s monthly sales revenue
  • Supplementary Company Tax Installments – These relate to specific non-deductible expenses
  • Tax Withheld from Salaries and Supplier Payments – Applicable where relevant
  • VAT (Value Added Tax)
  • National Insurance

Regulations stipulate detailed invoices, and meticulous bookkeeping are necessary for income tax and VAT. Companies must maintain accessible accounting records for potential tax audits.

Grants and Taxes

The Israeli government actively promotes local and international investments, providing substantial grants and loans to foster business growth. For startups in Israel, a great advantage is a tax holiday granted through the subsidy program.

When a company receives a grant, it becomes eligible for a privileged enterprise status, enabling it to seek a tax holiday. Depending on factors like the business’s location and ownership, this can translate into a tax break of anywhere from 2 to 15 years.

Registering a Company in Israel

Get excited. You’re About to Learn the Process for Making Your Israeli Company Official

To establish a company in Israel, certain steps must be followed to comply with the requirements of The Registrar of Companies (Ministry of Justice) and the Tax Authorities (Ministry of Finance). While Hebrew and Arabic are Israel’s official languages, the Registrar of Companies generally accepts documents in English. However, it’s important to note that the Articles of Association must also be translated into Hebrew.

Here are the necessary documents needed to submit to the Registrar of Companies when registering a business as a company in Israel:

  • Form No. 1 of the Registrar of Companies – This is the application form used to register a company
  • Memorandum of Association – This document establishes the company’s identity, primary objectives, shareholder responsibilities, and issued shares
  • Articles of Association – These lay out the company’s conduct rules. If a company doesn’t provide its own Articles of Association, the standard articles listed in the Companies Ordinance will apply

Be advised that there is a registration fee, make sure to check as it could be subject to change.

Once the registration process is complete, the Registrar of Companies issues a Certificate of Incorporation and a 9-digit company number. Typically, an Israeli lawyer oversees the verification of company documents and handles the registration process, often representing the company at the registrar’s office.

Following registration with the Registrar of Companies, the company also needs to register with the relevant tax authorities. This registration should occur when the company begins its operations.

The filing number is often the same one issued by the Registrar of Companies. Form 4436 is used for registration with the Tax Authority, providing the basic company details required.

Registering a Company as a Foreign National

Commerce in Israel is Welcome to all

As mentioned earlier, the simplest type of company that a foreigner can establish is a Limited Liability Company (LLC). Below are the basic steps a foreign citizen needs to follow to initiate a business in Israel:

  1. Choose a Guarantor
  2. Register with the Companies Registrar
  3. Open a Business Bank Account
  4. Register with Israel’s Tax Authority

Establishing a Business as a Foreigner

Foreign citizens aiming to establish a legal entity in Israel must designate an Israeli citizen as a tax guarantor to accept legal responsibilities on behalf of the foreign citizen.

A common and straightforward choice for foreigners is to set up a Limited Liability Company (LLC).

Foreign citizens can also become private entrepreneurs if they are married to an Israeli citizen and intend to obtain an Israeli ID card (Teudat Zehut).

The Israel Innovation Authority

Imagine a one-stop shop for all your entrepreneurial needs in Israel. The Israel Innovation Authority (Rashut Hachdshanut) was established to offer an array of valuable resources and financing channels to meet the evolving needs of local and global innovations.

Its services include:

  • Startup assistance
  • A growth Division
  • Technological Infrastructure
  • International Collaboration
  • Advanced Manufacturing
  • Societal Challenges
Learn more about The Israel Innovation Authority

Top 7 Tips for Doing Business in Israel

Prepare to dive into the vibrant Israeli business world with these 7 must-know tips

Understanding the standard work week

Standard work weeks start on Sunday and end on Thursday, although some do go into Friday morning as Shabbat begins in the evening. That’s why the Israeli business week is often Sunday-Thursday. Keep an eye on Jewish holidays, as the nation also takes pauses during these periods.

The Israeli office dress code

With the sun shining bright, you’ll spot men rocking open-collared shirts or polos paired with casual trousers. Ladies sport stylish blouses, pants, or skirts – even in important meetings. Dressing modestly is also recommended when doing business with religious clients.

Israelis are known for their directness

Israelis speak their minds and cut through the fluff, all in the name of efficiency. Consider it a refreshing approach to communication – also known as ‘Israeli chutzpah.’.

Colleagues are more than just co-workers

Mixing business with pleasure is the norm, as socializing with colleagues after hours is embraced. Connecting on a personal level is seen as an asset for the office culture. It’s also a great way for new Olim to expand their network of friends and family.

A firm handshake is the way to go

Handshakes are often welcomed. However, be mindful that some religious associates might have different customs, especially regarding shaking hands with the opposite sex. So, when in doubt, let the other party extend their hand first to spare a potentially awkward scenario of getting left hanging.

Always check for dietary preferences

Check for dietary preferences or restrictions when meeting business associates, as some Israelis observe Kosher dietary laws. Additionally, Israel has the most vegans per capita globally, so inquiring about other dietary restrictions is advised.

Gift giving is a way of life

From customers to employees, holidays like Rosh Hashanah and Passover are when Israeli employers often give gifts to their employees.

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