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Establishing a presence in the United States
For an Israeli company doing business in the U.S., whether and when it should establish
a presence in the U.S will depend on a company’s particular circumstances. For example,
the company may be required to set up a presence in the U.S. by a U.S. partner or
customer or because of its activities in the U.S. In this case, the company will want to
determine whether it would set up a U.S. subsidiary, create a U.S. “sister” company or do
a “flip” of the company to the U.S.
Common forms of U.S. companies include: (i) C Corporation; (ii) S Corporation; (iii)
Limited Liability Company. Please refer to DLA Going Global Guide for a discussion
of each of these forms
(https://www.dlapiper.com/en/uk/insights/publicationseries/guide-to-going-global-series/).
Companies establishing in California
Companies are subject to both federal law and state law. Many companies, particularly
in the technology, energy technology and life sciences industries, are set up as Delaware
C Corporations and situated in California. They are subject to Delaware General
Corporation Law and, if they meet certain thresholds of assets or investors in California
and satisfy specified property, payroll and sales factor tests, are also subject to certain
aspects of the California Corporations Code. Foreign corporations that do business in
California are required to obtain a Certificate of Qualification to do business in California
from the California Secretary of State.
Tax
Foreign companies engaged in business within the U.S. are subject to a 35% income
tax on the income connected to such business. However, under the Israel-U.S. tax
treaty, Israeli companies are exempt from U.S. income tax, unless the company has a
permanent establishment (“PE”) in the U.S. Having a PE generally requires that the
Israeli company have an office or other fixed place of business in the U.S. If an Israeli
company is deemed to have a PE, then it will be required to file a U.S. tax return and pay
tax on the income attributable to its PE. In addition, the Israeli company will be subject
to a branch profits tax on U.S. branch profits that are repatriated back to the Israeli
Foreign corporations that do business in California are required to obtain
a Certificate of Qualification to do business in California from the California
Secretary of State.
Doing
Business in
California