Establishing a bank account in Israel for a foreign company or a subsidiary is a task more complex than what one might assume. The main obstacles are documentation, compliance requirements and the interface between two different legal systems and practices.
First, it is important to stress the difference between registering a local branch versus a subsidiary. A local branch is only “local” in the sense that it operates in Israel. The entity that will actually be acting (opening a bank account, contracting, hiring) will be the foreign company and not a true local entity. Rather a branch is a foreign company with a “license” to operate in Israel. On the other hand, a subsidiary is a true Israeli entity that will be owned by a foreign company.
Documentation is the easiest obstacle to overcome though not without cost in time and money. De Jura, any official document received by the bank needs to be signed and authenticated by a notary public/lawyer and then also be legalized with apostil. Alternatively, the document can be sometimes authenticated by an Israeli consul/diplomat.
Different banks have different internal practices regarding which documents they require authentication for. Most do not require all documents to be authenticated but all require some of them. The problem is both monetary and logistic: some documents need to be signed originally by several people, some not living in the same countries depending upon the entity involved, and then authenticated and legalized. This is becoming increasingly cumbersome as sometimes banks will issue demands for further documents and authentications, mid-way.
The difficulty of meeting Compliance requirements is a result of the recent development in worldwide efforts in fighting terrorism funding and money laundering, and in particular due to Israel’s recent joining of the FATCA protocol. Banks are usually worried when facing a company/corporation with an elaborate ownership structure. A letter form a lawyer elaborating upon a company’s ownership structure is usually enough to solve the issue, but this usually requires us to receive information from both the company and its legal counsels. This is usually a back-and-forth process between us, the bank and the company.
Which brings us to the final issue of this post – the interface between different legal practices. In order to sign all the legal documents and bank forms, some lawyer’s signatures and opinions will have to be made regarding information that is not readily available to us as it is either based on foreign law or the company’s history. This is where both creativity and flexibility are required in order to provide solutions to friction points and solve deadlocks.
For that matter, a branch will be harder to manage and operate then a subsidiary: since a branch is a foreign entity, an Israeli lawyer might not be able to certify a great many things that will be required by the bank, as it and cannot attest for entities acting under foreign law.
For example, in opening a bank account, the bank might require a lawyer’s confirmation that the company does not bear a first degree floating charge. We will not be able to confirm that, since that company shall be a foreign company, subject to foreign property laws. This would mean that the company’s foreign lawyers will have to attest the same, which may, from our experience, create further complications (such as foreign lawyers not willing to sign documents that are in a wording that is not customary in their own country).
On the other hand, if the entity of choice shall be an Israeli subsidiary, it will be subject to Israeli property laws and thus – we could attest for the subsidiary’s legal status.
We believe most issues can be dealt with, regardless of the type of entity chosen, with effort and creativity.
Dardik, Gross & Co. has great experience providing legal advice in these situations and can provide multiple means for overcoming various obstacles along the way. We hope to be your lawyers of choice in you Israel corporate and transactional needs.