taxes good 88.
(photo credit: )
Operating as an Israeli company may result in tax and social security advantages
as well as limited liability in the event of a lawsuit. But with the benefits
come some obligations – not only reporting to the Israeli Tax Authority, but
also to the Israeli companies registry. Until recently, Israelis have been
pretty lax at reporting to the companies registry, so the registrar has recently
sent an (undated) letter to many Israeli companies. The letter is ominously
headed “Information to company officers regarding sanctions against delinquent
According to the letter, the companies law, 1999 imposes
various annual obligations on every company vis-a-vis the companies registry,
including the need to pay an annual fee and to file an annual return form. This
year, Amendment 10 to the law was passed which imposes sanctions on delinquent
companies for non-compliance.
These sanctions can be imposed on the
company, its directors and major shareholders apparently holding 25 percent or
more, with exceptions.
Public warnings The registrar can send a warning
regarding non-compliance. If the deficiencies are not rectified within 30 days
after the prescribed date, the company will be declared a “delinquent company”
and a notice to this effect will be entered in the companies registry records
and extracts will be open to the public. In other words, the company will no
longer be of good standing! That doesn’t look good if a credit rating agency or
anyone else checks out your company.
Main sanctions The registrar has
some other sanctions at his disposal against a delinquent company. The registrar
can refuse to register a charge (lien) on the assets of the company, which can
prevent the company borrowing or leasing assets.
It can refuse to
register a charge in favor of the delinquent company, preventing it from
receiving collateral if it is a lender. It can also reject a request to register
a change of company name or objectives.
In addition it can oppose to
incorporate a new company that would be owned by the delinquent company or major
shareholders in it. Furthermore the mortgages registrar may refuse to register a
mortgage in favor of a delinquent company. And in extreme cases, the registrar
of companies can apply more extreme measures apparently – perhaps even
compulsory liquidation according to some reports.
Then there are fines.
The registrar is also allowed to impose a fine of, currently, NIS 7,340 per
deficiency. For a series of deficiencies, the fines may total up to NIS
Are directors also on the hook? If a delinquent company doesn’t
pay a fine on time, it can be collected from a director of the
How can you put things right? By paying the accrued annual fees
and filing the latest annual return.
How can you get a discount? Each
year, the annual fee payable to the companies registry is reduced if you pay it
by February 28. This year, the annual fee stood at NIS 1,043 if you paid it by
February 28, 2010 or NIS 1,386 if you paid it after then. But if you wait till
next year, to pay this year’s fee, it will be increased to next year’s rate. The
registrar may send you a payment voucher for the fee, but you must pay it even
if you don’t receive a voucher. This can be done online at the companies
registry website: http://www.justice.gov.il/
MOJHeb/RasutHataagidim/RashamHachvarot/Agrot/agra+shnati t.htm What is an annual
return? The annual return (Form 5) is an informational form in which the
registrar requests details about the shares, shareholders and directors, among
other things. It must be signed before an Israeli lawyer.
download the annual return – Form 5, from:
http://www.justice.gov.il/MOJHeb/SanegoriaZiborit/DohotRishmi/ dohot, but this
must be completed, signed and submitted the old-fashioned way, not
How can you avoid all this? If the company is dormant, why not
liquidate it? A company which provides confirmation that it is inactive and
carries out a voluntary liquidation it may obtain an exemption from paying the
annual fees if conditions prescribed in the companies regulations (fees) – 2001
The Israeli companies registrar has now served notice that
annual fees must be paid and annual returns must be filed, otherwise, it may
prove more difficult to operate. Sometimes, it’s the little things that matter.
The above relates to Israeli private companies. Additional or different
requirements may apply to public companies, foreign companies doing business in
Israel and charities.
As always, consult experienced legal and tax
advisors in each country at an early stage in specific
cases.[email protected] Leon Harris is an international tax specialist at
Harris Consulting & Tax Ltd.