VAT Representation Services in Israel – What Foreign Businesses Need to Know

As Israel continues to attract international companies especially in sectors like high-tech, e-commerce, and professional services one of the most overlooked yet critical aspects of operating locally is VAT compliance.

Whether your company is selling digital services to Israeli consumers, exporting SaaS solutions to local startups, or involved in import/export activity, Value Added Tax (VAT) representation is not just a bureaucratic formality it’s a legal requirement and a financial safeguard.

At AccountX, we’ve helped dozens of global companies navigate the complexities of Israeli taxation, and one of the most common needs we address is VAT representation.

When Is a VAT Representative Required?

Under Israeli tax law, any foreign entity engaging in taxable activities in Israel is generally required to appoint a local VAT representative. This representative acts as a liaison between the foreign business and the Israeli Tax Authority, ensuring proper registration, reporting, and payment of VAT obligations.

Common cases where this applies:

• Selling digital goods or services to Israeli customers (B2C)

• Operating a physical or digital presence in Israel without a permanent establishment

• Importing goods or software licenses

• Participating in Israeli exhibitions, conferences, or temporary projects

What Does a VAT Representative Do?

A registered VAT representative performs several key functions:

• Registers the foreign company for Israeli VAT

• Files monthly/bi-monthly VAT reports

• Pays VAT dues on behalf of the company

• Handles correspondence and inquiries from the Israeli Tax Authority

• Ensures compliance with local VAT laws and avoids penalties

In essence, the representative is legally responsible for the accuracy and completeness of the company’s VAT filings in Israel so it’s critical to choose a partner who is experienced and reliable.

 Why Foreign Companies Choose AccountX

At AccountX, we specialize in international tax compliance and have deep experience representing foreign entities of all sizes from early-stage startups testing the Israeli market to large multinational firms.

What sets us apart:

• Full transparency and proactive communication

• Deep knowledge of both Israeli and international taxation

• Seamless coordination with your legal, financial, or HQ team abroad

• End-to-end service: from registration to audit support

We act not just as your tax rep but as your trusted partner in navigating the Israeli financial landscape.

Compliance Is an Advantage

In today’s regulatory environment, compliance is not a cost it’s a competitive advantage. Companies that operate transparently and legally in every market they enter gain trust, open doors, and avoid costly surprises.

If your company is looking to expand into Israel or already has operations without a local tax presence—don’t let VAT obligations be an afterthought. We’re here to help you stay compliant, efficient, and focused on growth.

How to Form an Israeli Company in a Day

Forming a company in Israel has become faster and easier than ever before. With the right guidance and preparation, you can register a company in just one or two business day. Whether you’re a local entrepreneur or a foreign investor looking to tap into the vibrant Israeli tech and business scene, the streamlined process ensures a quick and professional setup. Here’s everything you need to know about how to form an Israeli company in a day.

1. Prepare the Required Documents in Advance

The first step is to gather all the necessary documents and information. You’ll need:

• Company name – At least three name options in Hebrew or English.
• Articles of Association – This defines the purpose of the company, the share structure, and internal regulations.
• ID documents – Israeli ID or passports for all shareholders and directors. If a shareholder is a company, corporate documents are required.
• Declaration forms – Signed by each shareholder and director, declaring they are legally allowed to open and manage a company.

Having all documents correctly filled out and signed (including notarizations if needed) is essential to avoiding delays.

2. Submit to the Israeli Companies Registrar

Once documents are ready, they are submitted to the Registrar of Companies at the Israeli Ministry of Justice. This can be done:

• Online (by a licensed attorney or CPA)
• In-person (less common today)
• Via a CPA or law office specializing in fast company registration

If everything is in order, the company will usually be registered within the same day, and you’ll receive a Certificate of Incorporation by email.

3. Tax Registration (VAT, Income Tax, and Social security)

After registration, the next step is opening files with:

• VAT Authority 
• Income Tax Authority 
• National Insurance 

This can be done online or in person and is typically handled by your CPA. If you plan to operate immediately, it’s advisable to open the files on the same day as incorporation. Most CPAs can complete this process digitally within a few hours.

4. Open a Bank Account

Opening a corporate bank account in Israel can take a bit longer, as banks require compliance procedures, including KYC (Know Your Customer). However, some banks offer fast-track services for new companies, especially if you work with an experienced CPA who has a working relationship with the bank.

You’ll need:

• Certificate of Incorporation
• Company documents
• Tax registration numbers
• Personal identification of shareholders/directors

5. Start Operating

Once your company is incorporated, tax files are opened, and the bank account is ready—you’re all set! You can now issue invoices, hire employees, and begin operations.

6. Why Work With a CPA?

While it’s possible to register a company on your own, working with a CPA ensures that the process is fast, compliant, and tailored to your specific business goals. We help you avoid costly mistakes, provide tax planning from day one, and ensure you start your journey with the right financial structure in place.

Need help registering your Israeli company? Contact us today, and we’ll have you up and running within 24 hours.

Cost-Plus Method

The Cost-Plus method is a widely used transfer pricing approach for determining the price of goods or services exchanged between related parties. Under this method, the transfer price is based on the production cost of the goods or services, plus a defined markup to cover expenses and ensure a reasonable profit.

The cost of production is calculated by summing all direct and indirect costs associated with manufacturing, including labor, materials, overhead, and other relevant expenses. Once the total cost is determined, a profit margin is added to arrive at the transfer price.

The profit markup is usually based on comparable transactions between unrelated parties or industry benchmarks. In other words, the price should reflect the return that an independent party would expect for performing a similar function in a comparable industry. This ensures that the transfer price complies with the Arm’s Length Principle.

Cost Plus Example

Suppose a subsidiary of a multinational company manufactures a product that is sold to another subsidiary in a different country. The production cost of the product is $100, and the company seeks a 10% profit margin. Using the Cost-Plus method, the transfer price would be calculated as follows:

Transfer Price = $100 (Cost) + ($100 × 10%)
Transfer Price = $100 + $10 = $110

In this case, the supplying subsidiary would charge the receiving subsidiary $110, ensuring a 10% profit margin—consistent with what an independent entity might expect to earn.

Advantages of the Cost-Plus Method

1. Simple to Apply
   It relies on actual production costs, making it easy to calculate—especially in the absence of comparable unrelated-party transactions.

2. Fair Return for the Supplying Entity
   The method allows for full recovery of production costs, along with a reasonable profit.

3. Transparent and Easy to Explain to Tax Authorities
   Since it is based on verifiable costs, it is generally considered acceptable by tax authorities and easier to defend in audits.

Limitations of the Cost-Plus Method

1. Does Not Account for Intangibles or Unique Contributions
   If the transferred product involves patented technology or unique know-how, these elements may not be reflected in the production cost—leading to an undervaluation.

2. Difficulty in Determining an Appropriate Profit Margin
   The markup must reflect the risk level and functions performed by the supplier, as well as industry profitability. This can be especially challenging in specialized industries or where comparable data is limited.

Conclusion

The Cost-Plus method is a common transfer pricing approach based on actual production costs plus a profit margin. It is easy to apply and provides a fair return for the supplying entity. However, it may fail to reflect the value of intangibles or unique contributions and can be difficult to benchmark the appropriate margin. Therefore, it is crucial to conduct a thorough functional and economic analysis and to consider other transfer pricing methods where appropriate.

What Is a SAFE Agreement?

A SAFE agreement stands for Simple Agreement for Future Equity.
It is a contract between an investor and a company they wish to invest in, designed to simplify the investment process by minimizing potential disputes over the company’s valuation.
The valuation will be determined in the future, making the agreement simpler and more straightforward.

Key Components of a SAFE Agreement

Typically, investments or fundraising are carried out through a SPA – Share Purchase Agreement, in which all parties clearly understand the investment terms and the equity received in return.

However, for early-stage companies or startups, the valuation is often unclear and may be a point of contention—founders aim for a high valuation, while investors prefer a lower one to receive a larger share of the company.

To bridge this critical disagreement, a SAFE agreement is used. It includes mechanisms that address the following points:

• Company Valuation –
  The valuation will be determined in a future qualified financing round, as agreed between the parties.
  If the company raises funds at a valuation lower than the one stated in the SAFE, the SAFE mechanism does not activate.

• Discount –
  The invested amount will convert into shares based on the future valuation, with a pre-agreed discount on the share price, typically between 10% and 25%.

Advantages of a SAFE for Founders

• Faster Access to Funding
  The main benefit for founders is the ability to receive investment quickly, since the company valuation—a typically complex issue—is deferred to a later stage.

• Saves Founders’ Attention and Time
  Traditional funding rounds require extensive time and involvement from founders. SAFE simplifies the process, allowing for faster fundraising with minimal distraction from running the business.

• Lower Legal Costs
  A SAFE agreement is generally short and simple (just a few pages), making it significantly cheaper and easier to execute compared to a full SPA (Share Purchase Agreement).

• No Accrued Interest
  Since SAFE is not a debt instrument or a loan agreement, the investment does not accrue interest—unlike convertible notes.

Advantages of a SAFE for Investors

• Discount on Share Price
  Investors typically receive a 10%–25% discount on the price per share in the next priced round.

• Valuation Cap (CAP)
  Investors can set a maximum company valuation (a “cap”).
  If the next funding round closes at a higher valuation than the cap, the SAFE investors still convert at the lower capped valuation, giving them more equity.

Key Terms to Know

• Valuation Cap
  A maximum valuation at which the SAFE will convert.
  For example, if the next round values the company at $10 million, but the SAFE agreement included a $7 million cap, SAFE investors will receive shares as if the valuation were $7 million—giving them a better deal.

• Discount
  A percentage reduction on the share price in the next round.
  For example, if an investor puts in $1,000 and the share price is $10, they get 100 shares. But with a 15% discount, the price per share becomes $8.50, so they receive ~117 shares ($1,000 / $8.5 = 117).

• MFN – Most Favored Nation Clause
  This clause ensures that if future investors receive better terms (e.g., a lower valuation cap), existing SAFE holders can benefit from those improved terms as well.

Additional Notes

• No Interest Accrual
  SAFE agreements typically do not carry interest, avoiding tax implications associated with debt instruments.

• Be Cautious with Certain Clauses
  Watch out for clauses like MFN, which can unexpectedly change terms.

• Rolling Investment Option
  Unlike SPA-based rounds, SAFE agreements allow for rolling closings, meaning new investors can be added even after the initial SAFE is signed—without reopening the entire round.

• Available Templates
  Standard SAFE templates (with and without Discount or Valuation Cap) are available on Y Combinator’s website.

Establishing a startup is a rather complicated business—about 70% of startups in Israel don’t survive beyond their third year. Therefore, we must do everything we can to succeed. One of the key steps to building a successful startup is managing a cash flow statement and monitoring cash flow.
In this article, we will review what a cash flow statement is, why it is so important, and what are the different components of the cash flow report.

What Does a Cash Flow Statement Include?

A cash flow statement is a financial report that records all the income and expenses of a business over a specific period, usually a quarter or a year. In the report, we document how much money came in and how much went out. The difference between inflows and outflows is usually referred to as cash burn or burn rate.
It’s important to remember: cash flow and profit are not the same! While the income line may include potential or accrued revenues, the cash flow report only includes money that has actually been transferred from the customer (this is the difference between the accrual method used in P&L statements and the cash method used in cash flow statements).

What Is Recorded in the Report?

In the report, we record every income and expense and indicate the source of the income and the use of the expense.
Cash is the lifeblood of the business, and we need to be very careful with it.

Why Is the Cash Flow Report So Important?

• Finger on the Pulse – The report details monthly income and expenses, allowing us to forecast peak points in advance and prepare for possible liquidity challenges.

• New Insights About the Business – Thanks to the breakdown of income and expenses, we can uncover new aspects of the company and perform a more effective SWOT analysis (identifying strengths and weaknesses).

• Increased Profits –
  There are two ways to increase a company’s bottom line: increasing income or reducing expenses.
  In an early-stage startup, reducing expenses is usually the way to go, since revenues don’t exist yet.
  It’s always nice to earn more, but when we’re aware of every detail in our business, we can reduce costs and save wherever possible.

• Better Company Valuation –
  Beyond the startup’s founders, the report gives investors, funds, and lenders the ability to assess the startup’s financial health.
  If the cash flow report is positive and shows growth, it builds trust and gives confidence to existing investors—and helps attract new ones.

• A Legal Requirement –
  Financial reporting regulations in Israel are aligned with international standards (IFRS).
  According to these, the cash flow report is a required financial statement for all companies, including both public and private ones.
  Beyond the legal obligation, the cash flow statement is an essential financial tool.

How to Write a Business Plan for a SaaS Company

A SaaS company is one that provides software as a service (Software as a Service), where customers can, after a short registration, access and use the software through a web browser and an internet connection (unlike the older generation who remember downloading, installing software, or even buying software CDs like Windows). Examples of SaaS companies include Monday.com, WIX, Salesforce, and others.

A business plan is a document that tells the story of the venture. Through the plan, we describe how, with an investment or a loan, the venture will go from point A to point B along a timeline.

It is recommended to first read the article on writing a business plan to understand and get familiar with the basics of business plan writing, as well as the article about KPIs.

The Reports to Include in a SaaS Business Plan

When preparing a business plan, we include the following reports that outline—in numbers—how we plan to execute the venture using the investment/SAFE funds:

• Profit and Loss Statement (P&L) – A report showing the venture’s revenues and expenses over a period of 18 or 24 months (sometimes even 5 years or more, for long-term ventures like drug development, real estate, medical devices, etc.). The P&L statement shows total income, expenses, and the operational profit or loss of the business. We’ll detail the revenue and expense components further below.

• Cash Flow Report – The most important report in the plan, where we present all cash inflows and outflows, simulating the company’s bank account. Unlike the P&L, which spreads costs over time (e.g., depreciation), the cash flow report shows the full cash amount at the time of payment. For example, if you purchase a computer for 4,000 NIS, the P&L will show only part of the cost as depreciation (e.g., 1,333 NIS), while the cash flow report will show the full cost and ignore depreciation.

Revenues

Before writing this section, you must define the revenue model of your SaaS company, as it determines how to calculate revenues. In the image below (not provided), you can see the common pricing models used in SaaS companies. The percentages are based on a survey of ~350 SaaS companies worldwide. It shows that the most common method is by “seats” or number of users (45%), followed by usage-based pricing or number of transactions (25%).

• Sales – It’s recommended to break down the sales section into subcategories, such as subscription types (Basic, Standard, Premium) or customer segments (Small, SMB, Enterprise). Each subscription type has a different CAC (Customer Acquisition Cost), revenue, and sometimes LTV (Lifetime Value). Therefore, to make the plan accurate, you should go one level deeper than just total revenue and analyze the income type based on your selected categories.

• If you intend to sell in multiple geographic regions, it’s best to reflect this in the revenue sheet, dividing it into key regions like US, EU, and Asia. This provides investors with information on where your main revenue sources are and where you plan to expand.

• Sometimes, sales are a result of your marketing and sales budget. Therefore, the spreadsheets may be linked—based on your marketing budget and the CAC for each customer type, the number of acquired customers will be calculated accordingly.

Founder – How to Properly Hedge Your Fundraising Money

Many founders grapple with the question of how to invest or hedge their fundraising money wisely. In a Seed round, an average founder encounters, for the first time in their life, a sum ranging between $2–8 million, and in a Round A, the startup receives several more millions. It feels great, the smile returns to their face—but how do you protect that money, and how should it be invested in a solid and safe way? Most importantly, how can you hedge the investment money so that you’re not affected by fluctuations in the shekel/dollar exchange rate?

Exposure to Exchange Rate

Most startups operating in Israel are inherently exposed to foreign exchange rate changes, as some of their expenses are in shekels and some in foreign currency (mostly USD). This raises the question of whether to hedge and what amount to hedge (hedging = protecting the investment funds), as well as which financial instruments to use for this protection—whether through deposits or more sophisticated tools such as forward contracts or currency options. It’s important to remember that proper hedging extends the startup’s runway, and sometimes even 2–3 extra months can be the difference between survival and failure.

To simplify things, let’s look at a following example:

A young startup raised $3 million in a Seed round, with 70% of its expenses in shekels (such as salaries, rent), and the remaining 30% in dollars (hosting expenses, licenses, marketing, etc.). This startup would prefer to receive most of the investment money in shekels, since the majority of its expenses are in shekels (mainly salaries), in order to align the investment currency with the expense currency.

As a side note, most VCs (venture capital funds) in Israel raise funds in USD, and therefore, in most cases, the investment currency will be in dollars. Since exchange rate fluctuations can reach up to 10% per year, this can erode the investment funds and harm the startup’s runway.

A startup whose fundraising money was supposed to last for two years until the next funding round, if it doesn’t protect itself through hedging, may find itself in a situation where it has lost 2–3 months of runway. This means it may not achieve its goals in time and will reach the next funding round with a lower valuation—or in the worst-case scenario, might not succeed in raising funds at all.

How to Hedge the Investment Funds?

First and foremost, a cash flow report should be prepared according to the currency of the expense. For example, in the cash flow report, employee salaries will be listed in Shekels, online marketing expenses in USD, and so on. This way, the final result will indicate what the company’s primary operating currency is, and which additional currencies it is exposed to.

For example 68% of the projected expenses in the company are in shekels and 33% in dollars. It’s also important to consider currency exposure in the revenue section, as it increases or decreases the overall currency exposure.

In the above example, to avoid exposure to exchange rate fluctuations, we would keep 33% of the fundraising money in dollars (typically in a dollar deposit) and convert 68% into shekels, placing it in a shekel deposit (assuming the fundraising money was received in USD).

Once we’ve calculated the future exposure to each currency, we’ll want to hedge the investment funds based on our cash flow. If we determine that 68% of the future cash flow is in shekels, then we should convert 68% of the investment funds received in dollars into shekels. The shekels would be deposited into a shekel-based deposit account for the company’s ongoing operations.

In this article, we’re not addressing the topic of hedging exchange rate risk, because when there is a match between the shekels and dollars held in the bank and the future cash flow needs, we are essentially indifferent to exchange rate fluctuations. Of course, even in the case of exchange rates, optimization can be done using deposits, forward contracts, and options. When we have future exposure to currency exchange risk, we can then use common hedging instruments like Forward Contracts, where we set the exchange rate in advance, or Options, which grant the right to sell at a predetermined rate in exchange for an upfront premium.

Comprehensive CPA and Accounting Firm in Israel for International Companies.

Navigating the financial landscape in Israel requires a deep understanding of local regulations, tax laws, and compliance requirements. Our firm provides expert accounting, bookkeeping, and CFO services tailored for international companies operating in Israel. Whether you are a startup, a growing tech company, or a multinational enterprise, we offer customized financial solutions to support your business growth and ensure compliance with Israeli and international financial standards.

Our Services:

Accounting & Bookkeeping

• Forming a Limited Liability In Israel within a week

• Full-service bookkeeping in compliance with Israeli regulations

• Monthly and annual financial reporting

• VAT, corporate tax, and income tax compliance

• Payroll management, including pension and social benefits calculations

• Financial statement preparation in accordance with IFRS and Israeli GAAP

CFO & Financial Management Services

• Strategic financial planning and cash flow management

• Budgeting, forecasting, and financial modeling

• Assistance with fundraising, including investor relations and financial due diligence

• Profitability analysis and cost optimization

• Risk assessment and financial control implementation

Taxation & Compliance

• Corporate tax structuring and international tax planning

• Transfer pricing compliance and reporting

• VAT advisory for international transactions

• Employee stock options taxation and reporting

• Representation before the Israeli Tax Authority

Government Grants & Incentives

• Assistance in applying for Israeli government and EU grants

• Preparation of detailed business plans and financial projections

• Post-grant financial management and compliance support

Why AccountX?

• Expertise in Technology and International Business: With 25 years of experience serving startups, tech companies, and multinational firms, we understand the unique financial challenges of global businesses operating in Israel.

• Personalized and Proactive Service: We offer hands-on financial guidance and strategic planning tailored to your company’s needs.

• Regulatory Compliance & Risk Management: Our team ensures that your business adheres to all Israeli financial regulations while optimizing tax efficiency.

• Seamless Communication: We work with clients across Europe and the U.S., offering services in English and maintaining clear, timely communication.