Subsidiary, branch or Employer of Record?
| Option | Pros | Cons |
|---|---|---|
| Israeli subsidiary | Limited liability, clear local profit, eligible for incentives | Audited financials and transfer pricing required |
| Branch of the foreign company | No new company | Foreign company itself becomes taxable in Israel; liability not ring-fenced |
| Employer of Record (EOR) | Fast for 1–3 hires | Costly at scale; does not remove permanent-establishment risk by itself |
Step by step
- Board resolution of the parent and choice of company name.
- Articles of association, director and shareholder documents (apostilled where needed).
- Registration with the Registrar of Companies.
- Opening income tax, VAT and withholding files; Bituach Leumi employer registration.
- Intercompany services or R&D agreement and transfer pricing policy.
- Bank account, payroll and pension (handled with your bank and payroll provider).
Transfer pricing and IP
Most foreign-owned Israeli subsidiaries act as contract R&D or marketing service providers to the parent. The parent pays the subsidiary its costs plus an arm's-length markup, supported by a benchmarking study. The subsidiary files an annual transfer pricing declaration with its return.
Where IP is developed and where it is legally owned matter: moving Israeli-developed IP abroad later can trigger significant Israeli tax, so the agreement should be right from the start.
What Tax-IL handles for you
- Choosing between subsidiary, branch and EOR
- Intercompany agreement and transfer pricing policy
- Coordinating incorporation and all tax registrations
- Treaty analysis for dividends, interest and royalties to the parent
- Incentive and tax-ruling applications
Planning to set up in Israel?
One free 15-minute call. Tell us what you're setting up and where you're coming from — we'll map the right structure and next steps.
- Licensed Israeli tax advisors
- Reply within one business day
- Confidential — never shared
Frequently asked questions
Does a foreign company need a subsidiary to hire in Israel?
Not legally, but employing through an entity is the cleanest way to manage payroll obligations and reduce permanent-establishment exposure.
What markup should an Israeli R&D subsidiary use?
There is no fixed statutory rate; it must be arm's length and supported by a benchmarking study for the specific functions performed.
Are audited financial statements required?
Yes. Israeli companies, including subsidiaries, file annual audited financial statements with their tax return.
Can the subsidiary benefit from Israeli tax incentives?
Qualifying technology companies may benefit from Preferred Technology Enterprise rates, subject to conditions. We assess eligibility case by case.
Figures reflect Israeli rules as of 2026 and change periodically. This page is general information, not tax or legal advice. See also corporate tax services.