Patience bears the sweetest fruit; you must have heard the adage. It surely stands true in the case of starting a business. You start full of pep until the time comes to endure the immense burden of fulfilling formalities and red tape procedures. Nonetheless, after this torrent of administrative and paperwork activities is over, you will finally take your hats off at what you have built.
Are you thinking of locating your business in Israel? Well, you are at the right place, then. Here, we shall walk you through the entire starting and running of a business in the country. Furthermore, you will also get to know the country’s ranking in different factors that help determine the overall ease of doing business. That’s why the last year itself saw the launch of the highest number of startups and juggernauts like Hewlett Packard, Google, Cisco Systems, Motorola, Facebook, and other high-tech multinational corporations had established their R&D centers in the country. Being a free and developed market, Israel unfurls the universe of opportunities for businesses.
Israel’s diamond industry which amounts to 23.2 percent of diamond exports, is one of the centers of the world for diamond polishing and cutting. Furthermore, the country has also started to take the leading role in the solar energy industry. In the sections that follow, you will know the process of starting a business in the country starting, from preparing a business plan to understanding the business registration process.
Establishing a business in Israel is fairly easy, especially the minorities enjoy better opportunities of launching a business in the country. To start a business in Israel, you must know the legal obligations, formalities, and costs and consider other factors regarded in the process. As usual, a venture starts by coming up with a viable business idea, doing market research, and preparing a convincing business plan. In the next steps, you will have to choose an appropriate legal business structure, get the business registered, know the taxation rules, etc. If you are an ex-pat, you might have to undergo additional procedures and formalities for starting a business in the country.
You will thoroughly understand the process of starting a business in Israel in the following sections. Read on!
Process of setting up a business in Israel
The startup nation, Israel, bagged 35th rank on the Ease of Doing Business (EODB) index conducted by the World Bank. Furthermore, the country sees many startups established every year, which is just next to the United States. R&D centers of behemoths like Cisco Systems, Facebook, IBM, Hewlett Packard, and more have been opened in Israel. Therefore, you can imagine the potential it hogs for new businesses. The figures augur the country’s ease and opportunities for those planning to base a business here.
However, before everything, you need to familiarize yourself with starting a business in Israel. Here is a master guide to help you understand the same. So, read on!
- Come up with a profitable business idea: First things first, you cannot start a business without having an idea that is marketable and profitable. When an idea strikes, one must take the pain of doing deep research on it. After all, you would be investing your resources, time, and money into the venture, so it must be such that it pays off. You can sleuth the market trends around the idea you have picked, check the competition, and know the demand and supply of the product in the market. Once done with this step, you can progress to complete the phases of business registration.
- Choose the legal structure of the business: Israel offers three business structures, namely, self-employed, partnership, corporation, non-profit, company, and foreign company. The most common business type in Israel is a company registered either as public or private. Private companies need to have a minimum of one shareholder and a director. Whereas a public company is registered on the Israeli stock exchange; thus, it must have a minimum of seven stakeholders. If you are a foreign company in the country, your company would be registered under branch or subsidiary status.
- Register the business: Regardless of the business legal structure you choose, the process of registration is the same for all, whether a non-profit organization or a self-employed business. For the registration process to proceed, the start-upper must acquire certain documents from the attorney, namely,
- Director’s affidavit mentions the ability to serve
- MoA (Memorandum of Association) describes the responsibilities and objectives of shareholders and directors.
- Article of Association which has signatures of initial stakeholders in the business.
- Form no. 1 is the Registrar’s form which will be provided to you by your attorney.
Once you have these registration documents in hand, your lawyer submits them to the Registrar of Companies. Although most documents can be in Hebrew, Arabic, and English, the Articles of Association must be scribed in Hebrew alone. Business registration in Israel has to be renewed every year.
- Registration in tax administrations: After registering your business with the Registrar of Companies in Israel, you must register it with the Customs and VAT department and the Income Tax department. You won’t be charged any fees at this step since both the bodies come under the Ministry of Finance. All you need to do is carry the business registration papers here for submission to respective departments.
- Registration with NII: NII stands for the National Insurance Institute, where you need to register your business as a final step in establishing a business in the country. The employer has to reimburse national insurance and health fund payments to the National Insurance Institute on behalf of the company’s employees. Income tax payments are also deducted from the salaries of employees and then sent to the Income Tax Department.
Hiring Employees in Israel
Once you have got your business registered in Israel, you will need to recruit staff and employees for carrying out various business operations. You need to first acquaint yourself with legal obligations, restrictions, etc., involved in hiring people. With experienced HR experts like Zimyo by your side, all the worries regarding your human resources are taken care of. Here are some essential aspects of hiring employees in Israel that you must understand: –
- Trial Period/Probation Period: There are no regulations that oversee the duration of the trial period in Israel. Typically, trial periods in the country can range from 6 months to 3 years under the collective agreement. Most commonly, the probation period is about 6-24 months in Israel. Under specific circumstances, the employer has the liberty to extend the duration of trial periods. Although an employer can dismiss a person during the trial period, it should be done on fairgrounds as per Labour Court decisions.
- Leave and Holidays: According to the Sick Leave Compensation Law of Israel, an employee is entitled to receive compensation in case he/ she takes leave due to injury, illness, or medical treatment. As per the law, an employer doesn’t need to pay for the first day of sick leave. At the same time, the person would be compensated with an amount equal to 50 percent of the basic salary. If a person suffers from a prolonged illness, the NII may reimburse compensation even after the accrued sick leave period ends.
Furthermore, the law allows parents to take eight sick days annually to look after a medically unfit child under 18. In certain illnesses, the leave may be extended for up to 60 days. Employees who have been working with a company for more than three months are entitled to get mourning to leave for up to seven days following the death of immediate kin.
- Maternity Leave: It is illegal for a company to dismiss an employee on the grounds of pregnancy in Israel without the allowance of the Ministry of Labor, Social Affairs, and Social Services. As per the law, a pregnant employee cannot be fired from the beginning of her maternity leave until 60 days after the leave ends. If a woman requires medical treatment after childbirth, she can remain the company’s employee without getting fired for six months. However, all her ill health medical certifications must be yielded to the employer.
In case an employment contract of a pregnant woman expires during maternity leave or pregnancy, it needs to be renewed automatically. The employee should inform the pregnancy to the pregnancy by the fifth month. Pregnant women who fulfill the criteria of the NII must receive paid maternity leave. In the case of multiple births, maternity leave can extend further. If a newborn is hospitalized, 12 weeks of leave is added to the maternity leave.
- Termination of Services: Different laws of Israel forbid the termination of an employee on the grounds of discrimination due to religion, age, disability, sexual preference, and gender. Furthermore, if an employee has exposed corruption in the company, he/ she cannot be terminated as well. Nor can a company terminate an employee for associating with a particular union or a strike.
As per the Advanced Notice of Discharge or Resignation Law, the employer and worker must pose prior notice of resignation or discharge. Suppose the employer or worker or employer terminates the employment contract without prior notice. In that case, he/ she shall have to reimburse the other party with an amount equivalent to a month’s salary.
- Pension: All folks who reimburse NII premiums for a minimum period must receive an old-age pension. Those who get a pension from a job are also entitled to enjoy the pension from NII, given that the pension from employment does not surpass a specific level.
Special old-age pension may be allowed for individuals who are not eligible for NII pension through their employment years, those who lack any income source, and immigrants who have approached retirement age.
- Work Hour Norms: Workday in Israel is set to 8 hours which cannot be exceeded. The total number of work hours in a week is 40. The law forbids working overtime for minors. Furthermore, it is not legit for those below 16 years to work between 8:00 PM and 8:00 AM. Minors working for over 6 hours must receive a break for rest and lunch of a minimum of three-fourths of an hour. There should be at least one break of half an hour.
How easy is it to conduct business in Israel?
The ease of doing business in any country is evaluated by the Doing Business, which looks at various factors that play a role in easing or complicating starting a business. It looks at factors like managing permits, starting a business, getting electricity, etc. The individual rankings of particular economies on these sub-indices are then used to estimate the overall Business Enabling Environment. Here are all the factors with Israel’s ranking on each to help you better understand how easy it is to start a business there. Dive in!
- Starting a Business: Starting a business requires the person to endure different formalities which demand time and money. These factors may vary across different countries. The one that involves fewer procedures to go through and low cost and time are ranked higher than those that don’t. According to the Doing Business Report 202, Israel was ranked 28th and scored 94.1 out of 100. The country streamlined starting a business by paring down the time it took to register with the National Insurance Institute and the Income Tax Department.
- Managing Permits: A business needs various permits to establish and perform its operations. The kind of licenses and permits a particular business requires depends upon the company’s location, business structure, and business activities. The Doing Business evaluates the time, number of procedures, and cost it takes in getting various necessary permits for setting up a company. In the sub-index of Managing Permits, Israel got 35th position while scoring 76.7 out of 100. Some formalities you may go through for getting a permit in the country are acquiring a land registration extract from the Office of Land Registry, evaluating a Municipal record of the property, etc.
- Getting Electricity: Electricity is the lifeline of any business. Therefore, one needs to ensure a proper and reliable electricity supply in a country before planning to establish a venture. Hence, the Doing Business looks into the time, cost, and a number of procedures it takes to get connected with the electricity grid and understand how reliable and efficient the electricity supply is. Israel got 83rd position and scored 76.2 out of 100. Getting electricity involves various procedures such as applying to Israel Electric Corporation, completing the project’s technical coordination by Israel Electric Corporation (IEC), awaiting and receiving site inspection by IEC, and so forth.
- Getting Credit: Credit helps the business by allowing them a chance to expand, satisfy overheads and outlays, get the inventory, recruit needed staff, and regulate the costs of operating a business. You may avail yourself of credit more easily in some countries than in others. Thus, the Doing Business considers the factor of Getting credit to calculate the overall Ease of Doing business in a particular country. It investigates the cost, time, and a number of procedures involved in getting credit and assesses the strength and efficiency of credit reporting systems in the country. Israel got 48th rank and scored 78 out of 100 in the sub-index. In 2018, Israel established a public credit registry to enhance access to credit information.
- Managing Payroll: You already have a lot on your plate to be managed in a new business. So, filling your precious hours in managing the payroll, employee absence, and other related factors would only help you go bankrupt no sooner than later. Therefore, it is pragmatic to integrate a productive and competent payroll management partner like Zimyo to manage your payroll-related requirements. Meanwhile, you may go on improvising your business.
- Paying Taxes: Tax payments are highly bound by different regulations, and daring to defy them can lead to issues such as paying hefty penalties and interests. In some countries, it is relatively easier to go through tax filing and post-tax filing procedures than in others. The Doing Business report looks at this indicator to understand where a country should lie on the EODB index. Israel ranked 13 while scoring 89.6 in the sub-index of Paying Taxes. The country made tax payments less expensive by eliminating stamp duty and lowering the corporate income tax in 2009.
- Enforcing Contracts: This is yet another indicator that contributes to gauging the overall EODB rank of a particular nation. It probes into the number of procedures, costs, and time involved in settling an economic or commercial dispute in the courts. Furthermore, it also estimates the strength and efficiency of courts and their laws in enforcing contracts. Israel was ranked 85 in this sub-index while scoring 58.9 out of 100 in 2020 in the Doing Business report.
- Resolving Insolvency: Insolvency is every business’s nightmare, leave alone startups. It results in a business ceasing all its trades, entering into liquidation, going bankrupt, and losing personal assets. However, the law can still mitigate the pain for businesses through its efficient court systems and insolvency laws. The Doing Business report considers further knowing the Ease of Doing business in a particular country. Israel came at 29th position in the sub-index of Resolving Insolvency. In 2012, the country tweaked its judicial laws to set up specialized courts handling economic matters. Furthermore, in 2014, resolving insolvency in the nation was streamlined by amending its company law. The law allowed maximum priority to post-commencement credit, stretching the maximum moratorium period through restructuring proceedings and the sale of secured assets when it is necessary for successful restructuring.
Israel proudly bears the label of the Startup Nation, which directly implies the opportunities and ease the country offers to people seeking to establish ventures here. Businesses promised the most scope today in the country are bottled water business, tourist guide business, gadget accessory store business, solar panel installation business, diamond store business, pharmaceutical manufacturing business, fruits plantations business, and tourist guide businesses.
Zimyo is a leading HR and Payroll management services provider in Israel with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.