International Tax Law – What about foreign companies in Israel?

The general principle in Israel is that if you own a company in a foreign country but exercise control from Israel—whether from your home or an office in Israel—the company may be reclassified as an Israeli company for tax purposes. Even if you only receive dividends, the condition of control can be assessed, and you could be subject to taxation in Israel on all of the company’s income. Regarding your personal income, that is a separate matter, but again, the key factors are where you work and where you exert control over the company.
For olim chadashim, the law specifies that the criterion of control is not applicable according to the legal definition. This means that if an oleh chadash maintains his company in his country of origin and continues to manage and control it after moving to Israel, it does not automatically classify the company as an Israeli entity. However, any work performed in Israel will be taxed as income generated in Israel. Concerning the question of foreign companies incorporated by an ole hadash after he made alya or in a different country that is not his country of residency, it can be submitted for an interesting pre ruling to the tax authority. This is specifically a very complex question that has to be dealt precisely.
In any case, it is relevant to address the issue of control while the Tax Holiday is in force, to plan for year number 11.

By consulting an expert lawyer or a CPA who is highly specialized in this field, you can be sure you can address all the issues that might arise according to you specific situation.

Yaël Hagege Maruani
Attorney-at-law in Israel and Notary

This circular is intended for general information purposes only and does not constitute a personal legal consultation.