How an Australian Company Registered an Israeli Branch Without a Subsidiary

Result: Australian parent registered as a foreign company at the Israeli Companies Registrar, tax and VAT files opened, and punitive withholding on an AUD 3.2M contract reversed · Timeline: About 7 weeks to registration, withholding certificate by week 11 · Challenge: Servicing an Israeli contract with no Israeli legal presence · Authority: Registrar of Companies (Rasham HaChavarot), Corporations Authority, Ministry of Justice · Financial Impact: AUD 3.2M (about NIS 7.6M) contract cleared to invoice

Background

A Melbourne company that builds and services industrial control systems won a three-year contract at a manufacturing plant in northern Israel. The scope was equipment supply, on-site installation, and a maintenance retainer, with Australian engineers flying in for the build phases and returning home between them. The contract was worth about AUD 3.2 million across its term, roughly NIS 7.6 million, and the directors treated Israel as another export market. They would invoice from Melbourne, the client would pay, and Australian tax would be the end of it.

The client's finance department had other ideas. It refused to process payment against an Australian invoice from a supplier with no Israeli registration, told the company it needed to issue Israeli tax invoices, and deducted a large slice of the first milestone as withholding tax while everyone worked out what was going on. The managing director called us from Melbourne to ask two things: why an Israeli customer was keeping part of his money, and whether his company had to set up an Israeli subsidiary to get it back. The answer to the second question was no, and that saved him a great deal.

The Challenge

A foreign company that does business physically in Israel has to put itself on the Israeli register, but it has a choice about how. It can incorporate a local subsidiary, an Israeli limited company with its own shares, directors, and filings, or it can register the existing overseas company itself as a foreign company, which in practice means opening an Israeli branch of the Australian entity. For a fixed-term services contract, where the Australian parent was going to stand behind the work anyway and had no plan to keep an Israeli operation running afterwards, the branch was the cleaner instrument. It avoided a second company to govern, a separate share capital to fund, and a voluntary liquidation to run at the end of the term.

The branch route carries its own duties, and the clock on them had already started. The obligation sits in the Companies Law 1999. A foreign company that sets up a place of business in Israel has to register with the Registrar of Companies, and the registration is not a formality the company can slot in whenever convenient. The requirement that trips people up is the one about service. The company must name a person resident in Israel who is authorised to accept judicial documents on its behalf, and that appointment has teeth, because papers served on that person at the registered address count as served on the company. It cannot be a name pulled off a business card. The engineers had already mobilised for the first build, so the company was carrying on business in Israel while still deciding whether to register at all.

In Practice: Under Section 346(b) of the Companies Law 1999, a foreign company must register with the Registrar of Companies (Rasham HaChavarot) at the Corporations Authority within one month of setting up a place of business in Israel, filing a certified Hebrew translation of its constitutional documents, a list of its directors, a notarised power of attorney, and, under Section 346(b)(3), the name and address of a person resident in Israel authorised to receive judicial documents. The Registrar issues the foreign company a registration number, and the branch then owes an annual report under Section 348 and an annual fee (agra shnatit) of about NIS 1,500. With the Australian documents apostilled and translated, the file here was active within roughly three weeks.

What We Did

We started by confirming the structure, because the wrong choice here is expensive to unwind. A branch fitted the contract, so we built the registration around the Australian parent rather than incorporating anything new.

The document work ran through Australia first. We collected the company's certificate of incorporation, its constitution, and a current ASIC company extract, had the set notarised, and had it apostilled by the Department of Foreign Affairs and Trade in Canberra, since Australia and Israel are both parties to the Apostille Convention and a DFAT apostille is what the Israeli Registrar accepts from an Australian public document. The apostilled bundle was then translated into Hebrew by an Israeli notary and certified, because the Registrar will not read an English constitution. We prepared a notarised, apostilled power of attorney so we could file and act without a director leaving Melbourne, and we appointed a qualified Israeli-resident representative as the authorised recipient of judicial documents, a real appointment with a real address rather than a placeholder. With that in hand we filed the registration, and the Australian company took its place on the Israeli register as a foreign company.

Registration alone does not answer the tax the client had been withholding, so we opened the branch's fiscal files in parallel. A branch performing work on the ground in Israel is a permanent establishment, so we opened a withholding-tax file (tik nikuim) with the Israel Tax Authority and registered the branch for VAT, appointing a local representative for that purpose under Section 60 of the Value Added Tax Law 5736-1976 so the company could charge and remit Israeli VAT correctly. With the registration and the tax files in place, the company could issue compliant Israeli tax invoices for the milestones already delivered and those still to come. We then applied for a reduced withholding-tax certificate for the client, which stopped the deduction the finance department had been taking from each payment at the default rate that applies to an unregistered foreign supplier. For directors weighing the branch against a local company at the outset, our guide on registering a company in Israel as a foreigner sets the two structures side by side.

In Practice: Under Section 347 of the Companies Law 1999, service of a judicial document on the registered Israeli representative is valid service on the foreign company, which is why appointing an available, qualified recipient matters more than foreign directors expect, a nominal appointment can leave the company exposed to a default judgment it never saw. On the tax side, because a branch is a permanent establishment, the branch's Israeli business profits are also assessable in Australia, with a foreign income tax offset for Israeli tax paid, and the Australia-Israel double tax treaty in force since 2020 allocates the primary taxing right on those profits to the Israeli establishment. Coordinating the two sides with the company's Australian accountant took the last two to three weeks of the engagement.

The Outcome

The Australian company was on the Israeli register as a foreign company about seven weeks after we took the file, most of that spent waiting on the Australian apostilles and translation rather than on the Registrar. The tax and VAT files followed, the branch issued Israeli tax invoices the client's finance department accepted without argument, and the reduced withholding certificate came through around week eleven, at which point the deduction on the remaining milestones stopped and the cash the client had been holding back was freed. The company completed its build and maintenance work under the contract as a properly registered supplier, and it never had to incorporate, fund, and later liquidate a subsidiary it did not want.

The lesson the Melbourne directors took away was about sequence. The Israeli presence was not optional once engineers were on site, and the one-month clock in Section 346 had been running whether or not anyone in Melbourne knew it existed. A company that registers its branch before mobilising invoices cleanly from the first milestone and never sees a shekel withheld at the punitive rate. Catching it after the client had already started deducting cost some scramble and some translation money, but the exposure was contained and the contract finished on the numbers the company had bid.

Key Takeaways

What this case illustrates for foreign companies taking on Israeli contracts:

1. A subsidiary is not the only option. Registering the overseas parent as a foreign company under Section 346 of the Companies Law 1999 opens an Israeli branch and is often cleaner for a fixed-term contract.
2. The one-month clock starts when you set up a place of business, not when you get around to it. Mobilising engineers before registering means the deadline is already running.
3. The Israeli authorised recipient is a real appointment. Under Section 347, service on that person is service on the company, so a nominal name can leave you facing a judgment you never saw.
4. Registration and tax are separate steps. A branch is a permanent establishment, so budget for a withholding-tax file, VAT registration, and a reduced withholding certificate to stop the deduction on your payments.
5. Coordinate with home. The branch's Israeli profits are assessable in Australia too, and the double tax treaty and the foreign income tax offset decide that you are not taxed twice, provided someone owns the coordination.

---

Facing a Similar Situation?

If your company has won Israeli work, or has already started it, the registration and withholding questions apply from the moment your people are on the ground. We confirm whether a branch or a subsidiary fits, register it, open the tax files, and secure the certificates that stop your payments being withheld.

Contact us for a confidential consultation about your Israeli legal matter.