‘The Start-Up Nation’ – Legislation Boosting Efficiency at the Israeli Company Registrar
A recently enacted amendment to Israel’s Companies Law mandates paperless communication between the Israeli Registrar of Companies and all companies formed after June 2022.
Here, Diana Grosz, head of Legal and Corporate at TMF Israel, looks at what these changes mean for companies setting up and operating in Israel, and how they are already providing a dramatic efficiency boost in dealings with the government body – as well as simplifying compliance.
27 June 2022 was an important date for the Israeli business community. This was the day Israel’s legislature, the Knesset, passed laws mandating electronic communication between government departments and Israeli businesses. One particular piece of legislation, Amendment 35 to the Israeli Companies Law 5759-1999, saw the introduction of mandatory paperless communication between the Israeli Registrar of Companies (IRoC) – part of the Ministry of Justice – and all companies formed after the enactment date.
This move to paperless communication is just one of the initiatives which Israel’s government has taken to maintain, and build on, the country’s reputation as the ‘Start-Up Nation’.
Israel is already one of the world’s least complex countries to do business in, ranking 63rd out of 78 in TMF Group’s newly-published 2023 Global Business Complexity Index. This has contributed to the country’s ability to attract new market entrants and investment – especially in its tech sector. According to World Bank statistics, Israel’s net inflow of foreign direct investment (FDI) in 2022 was $27.76 billion, placing the country among the top 20 host countries for FDI.
Israel is known for its highly skilled workforce, advanced technological environment, entrepreneurial culture, robust technological infrastructure and innovation-driven economy. Over recent years, the country has been home to the world’s highest number of start-ups per capita, and is host to more than 350 R&D centres belonging to multinational corporations.
Israel is already one of the world’s least complex countries to do business in, ranking 63rd out of 78 in TMF Group’s newly-published 2023 Global Business Complexity Index.
The wider changes to digital communication between Israeli government bodies and the public are intended to accelerate the provision of digital services by public bodies and streamline and improve services to the public, In addition to providing Israeli businesses and residents with a faster and more efficient service, it is estimated that the move to digital communication will directly save the state around NIS 820 million per year.
There is also the positive environmental impact of a dramatic reduction in the quantity of letters and forms being printed and delivered – estimated to provide annual savings of around 30,000 trees and 18,634 tons of greenhouse gas emissions.
What Has Changed?
The changes to Israel’s Companies Law included a number of amendments, including the establishment of a digital default for the submission of incorporation applications, company notices and liquidation requests to the IRoC.
All companies incorporated after 27 June 2023 must have a digital address – an email address or mobile phone number to be used for communication between the registrar and the company. In fact, two digital addresses are needed: an email address, which will be visible to the public, and a second email address or mobile phone number, for use by the registrar only.
Once registered, this digital address is used by the registrar for all mailings to the company. There is a ‘presumption of delivery’, which means these electronic mailings are treated as if they were sent by regular mail to the registered office of the company. Companies are obliged to inform IRoC of any changes to the digital name or address within 14 days of the change.
Applications for company registration, company notices and liquidation requests must now be submitted online. The registrar may allow the submission of a paper application, but only under special circumstances.
Companies incorporated before 27 June 2022 can opt not to communicate digitally with the IRoC, for an interim period of two years (until June 2024). During this period, public bodies like the IRoC can only use digital communications to send warning messages to a company that has opted out. This might be an urgent message regarding an imminent threat to the health or safety of a person or cause serious damage to a property. Once the interim period has ended, all public bodies will be allowed to send mailings to companies digitally.
Applications for company registration, company notices and liquidation requests must now be submitted online.
In November 2022 the IRoC introduced an online-only enquiry service. This ticketing-based service enables businesses to submit written enquiries through an online portal. Once set up, there is no personal identification required each time an enquiry is submitted. Documents can be attached as needed, and a contact number is provided for further inquiry and follow-up.
What Do These Changes Mean for Overseas Businesses?
The paperless system implemented by the IRoC has dramatically accelerated the process of registering with, reporting to and communicating with the governmental body. It has provided a real efficiency boost, especially for overseas businesses wanting to set up and operate in Israel.
For example, the need to complete, print and get multiple wet ink certified signatures on company registration documentation has been removed. Where previously companies would typically have to wait weeks to get their Israeli entity registered, the process can now be completed in a few days. Enquiries that could take weeks to be dealt with are now often handled within a matter of hours through the online system.
However, there are some particular requirements placed on overseas entities registering a branch or subsidiary in Israel.
In order to submit notices online for foreign entities registered with the IRoC (branches), the company representative needs to be registered on the governmental portal and appointed as Power of Attorney (PoA) Holder for the branch in question. Subsidiaries need to appoint an Official Notifier to perform the same role. These notices cover various changes, such as: directors, registered address, shareholders, share capital, etc., which must be submitted to the IRoC within 14 days of the change.
Since the PoA Holder or Official Notifier still needs to be an Israeli resident, many overseas companies are still opting to appoint local outsourced providers to provide company secretarial and legal compliance services and act as their official notifiers.
Foreign documentation used in support of registration – such as passports, foreign certificates of incorporation, overseas registrars’ company excerpts and certificates of good standing – must still be apostilled and provided to the official notifier in the original. Thereafter, certified copies can be submitted online.
The paperless system implemented by the IRoC has dramatically accelerated the process of registering with, reporting to and communicating with the governmental body.
Branches which already have an ‘Attorney-in-Fact’ registered with the IRoC or private companies who appointed an Israeli director can opt to use this person to submit notices to the IRoC. Even if this is the case, many companies choose to use local outsourced service providers to assist with the process and ensure they remain compliant with the changing rules.
Physical submissions, though currently still possible, are taking longer to process, as the IRoC is directing most of its resources to online submissions. This heightens the already considerable risk of not meeting filing and notification obligations on time, or in an orderly way.
Overall, there are considerable efficiency and compliance benefits for moving to paperless communications with the IRoC, even if the legal obligation is not there. Those unsure about making the transition would do well to seek out professional third-party expertise to help smooth the process and ensure compliance with changing regulations.
Diana Grosz, Head of Legal and Corporate
Rival St 7, Tel Aviv-Yafo, 67778, Israel
Tel: +972 3-687-0701
Diana Grosz is a licensed attorney in Israel with over 10 years of experience working in law firms and multinationals in the corporate field. In her current position as Head of Legal and Corporate in TMF Israel, she manages the GEM department and oversees corporate governance and compliance of TMF Group’s clients in Israel. In addition, she is the Practice Lead for GEM in the MEA region, utilising her background and knowledge to ensure that global entity management clients are and remain compliant in the wider market.
TMF Group is an international provider of administrative services. Its 9,100 experts provide legal, financial and employee administration through the Group’s 120 offices worldwide.