In a significant move towards digitalisation, the Israeli Registrar of Companies has introduced mandatory paperless communication with all companies formed after June 2022. This amendment to Israel's company laws aims to enhance efficiency, simplify compliance, and bolster the country's reputation as the 'Start-Up Nation'. What do these changes mean for businesses looking to set up and operate in the country?
On 27 June 2022, Israel's legislature, The Knesset, passed an important revision to the Companies Act, making electronic communication mandatory between government departments and Israeli businesses. One key change, Amendment 35, introduced the requirement for paperless communication between the Israeli Registrar of Companies (IRoC) – a department of the Ministry of Justice – and companies established after the aforementioned date. This transition to digital communication aligns with Israel's commitment to maintaining its reputation as a leading hub for innovation and entrepreneurship.
Israel's business-friendly environment
Renowned for its skilled workforce, advanced technological environment, and robust infrastructure, Israel is already ranked as one of the world's least complex countries to do business in. Israel is ranked 63rd (out of 78) in TMF Group's newly-published Global Business Complexity Index 2023, according to the complexity of its business environment.
The country's favourable business environment has attracted numerous market entrants from overseas, and substantial foreign direct investment (FDI). According to World Bank statistics, Israel witnessed a net inflow of FDI totalling USD27.76bn in 2022, positioning the country among the top 20 FDI host nations globally. Furthermore, Israel boasts the highest number of start-ups per capita and hosts over 350 R&D centres belonging to multinational corporations.
For several years Israel has been making a conscious shift towards digital communication, with government bodies, to simplify and enhance the provision of public services and improve efficiency. Alongside providing faster and more streamlined services to businesses and residents, the transition to digital communication is projected to save the state approximately NIS820m annually. What is more, the environmental impact of reducing the need for printing and delivering physical letters and forms is significant – estimated to save around 30,000 trees and mitigate 18,634 tons of greenhouse gas emissions each year.
Understanding the changes
The amendments to Israel's Companies Act encompass several key provisions, including the implementation of a digital default for submitting incorporation applications, company notices, and liquidation requests to the IRoC.
All companies established after 27 June 2022 must possess a digital address, such as an email address or mobile phone number, for communication with the registrar. This digital address serves as the primary means of communication, with electronic mailings being treated as if they were sent via regular mail to the company's registered office. It is essential for companies to notify the IRoC within 14 days of any changes to their digital address.
The transition mandates online submission of company registration applications, company notices, and liquidation requests. The registrar may allow paper applications under exceptional circumstances. However, for companies incorporated before 27 June 2022, there is a two-year interim period (until June 2024) during which they can opt out of digital communication with the IRoC. During this period, digital communication is limited to urgent warnings regarding health or safety risks or potential property damage. Once the interim period concludes, public bodies will be authorised to send all mailings digitally.
Enhanced efficiency for overseas businesses
The paperless system implemented by the IRoC has significantly simplified the registration process and streamlined communications with the body. It has particularly benefited overseas businesses seeking to establish and operate in Israel. Previously, companies had to contend with the time-consuming process of completing, printing and obtaining multiple wet ink signatures on registration documents. Now, the registration process can be completed within a day or two, significantly reducing wait times. Online enquiries that previously took weeks to address are now resolved in a matter of hours.
However, specific requirements are in place for overseas entities registering a branch or subsidiary in Israel. To submit online notices for foreign entities registered with the IRoC, the company representative must be registered on the government portal and appointed as a Power of Attorney (PoA) holder for the branch. Subsidiaries require an Official Notifier fulfilling the same role. Certain documentation, such as passports, foreign certificates of incorporation, and certificates of good standing, must still be apostilled and provided to the official notifier in their original form.
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