The Justice Ministry has just announced that in 2023 it will resume collecting annual fees for dormant Israeli companies and partnerships, bringing a five-year fee moratorium to an end.
Israeli company requirements
Israeli company law generally follows UK company law principles but not completely. Incorporation procedures are subject to stricter anti-money laundering checks by Israeli lawyers. Also, the annual fees for active Israeli companies are much higher than in the UK.
For example, in 2022, the annual company fee was NIS 1,162 if paid by March 31 this year or NIS 1,543 if paid after that date. By contrast, the annual company fee is typically a mere £13 in the United Kingdom and $50 in Delaware in the United States. So Israeli annual company fees in Israel are a tax, pure and simple.
The fees payable to the Israeli Companies Registry are unrelated to any taxes payable to the Israel Tax Authority, such as company tax, VAT, payroll taxes and withholding tax (30% for most goods and services) on payments to suppliers unless they present approval from the Israel Tax Authority for a lower rate or exemption from withholding tax.
But that is not all. The Israeli Companies Registry doesn’t strike off dormant companies on its own initiative, and you cannot just fill in a quick striking off form. You must formally liquidate the company to get rid of it – either a members’ or creditors’ voluntary liquidation. This is a longer process and usually takes several months. It is usually done by an Israeli lawyer.
Does a dormant Israeli company have to pay the annual fees?
In principle, all companies in Israel have to pay the above annual fees even if they do not have a tax file, so long as they have not been voluntarily liquidated. The Companies Registry doesn’t always post an annual demand, you must go online now and pay it.
In parallel an annual return must be filed listing company shareholders, directors and charges/liens. A private limited company does not file financial statements with the Israeli Companies Registry, so they are not published in Israel.
Until now, according to Section 5 of the Companies Regulations (Fees) 2001, a company that stops all activities goes into voluntary liquidation and files the required report and documents may be exempted from paying annual fees regarding the years after it stopped its activities.
A similar five-year exemption applies to annual Partnership fees in Israel (NIS 1,157-1,538 generally in 2022).
However, these exemptions entered into force for a limited period of five years pursuant to the Companies Regulations (Fees)(Amendment), 2017.
The Justice Ministry has now reminded the Israeli Institute of Certified Public Accountants that the five-year exemption period will be over at the end of 2022. Commencing January 1, 2023, dormant companies and partnerships in voluntary liquidation may no longer apply for an exemption from the annual company registry fees regarding the dormant years. Instead, in order for a voluntary liquidation to proceed, it will be necessary to pay all arrears of annual fees – perhaps thousands of shekels.
The Justice Ministry goes on to remind us all of the need to file annual tax returns and encourages us to pay the annual fees anyway, even if the company is dormant. Otherwise, the company will be labeled a “law breaker” on the Companies’ Registry website, which never looks good to someone checking the company’s status. But if the company really is dormant, who will see it is a “law breaker”?
The Justice Ministry does not publish the number of dormant companies or why the exemption from annual fees is being discontinued. Presumably one reason might be to help prevent money laundering or corporate identity phishing of unused companies.
If you own a dormant Israeli company, consider hiring a lawyer to start the liquidation process straight away, with a view to finishing the process before the end of 2022. This may avoid the need to pay off unpaid annual fees for all years (including 2017-2022) in 2023.
Don’t dump the job on a lawyer at the last minute. An attorney cannot control the time taken at the Companies Registry. If there are any tax skeletons in the closet, those will have to be cleared before in the closet, those will have to be cleared before the Israel Tax Authority will give its blessing to the Companies Registry to liquidate the company.
And in the interests of transparency and economic efficiency, the Companies Registry ought to publish financial statements at the Companies Registry as in other countries.
As always, consult experienced legal and tax advisers in each country at an early stage in specific cases. [email protected] The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.