{"id":8541,"date":"2025-09-30T13:30:28","date_gmt":"2025-09-30T13:30:28","guid":{"rendered":"https:\/\/aboulafia.co.il\/?p=8541"},"modified":"2025-09-30T13:30:28","modified_gmt":"2025-09-30T13:30:28","slug":"overseas-companies-part-3-the-foreign-professional-company","status":"publish","type":"post","link":"https:\/\/aboulafia.co.il\/en\/binyamin-radomsky-en\/overseas-companies-part-3-the-foreign-professional-company\/","title":{"rendered":"Overseas companies, part 3 \u2013 the Foreign Professional Company"},"content":{"rendered":"<p style=\"text-align: left;\">Another type of company that the Israeli tax office doesn\u2019t like is one where a profession is carried out abroad, and the profits are not directly taxed in Israel. As such, the tax law sets out rules for a Foreign Professional Company (FPC). These rules were revised for 2014, and below are the new rules.<\/p>\n<p style=\"text-align: left;\"><u>What is an FPC?<\/u><\/p>\n<p style=\"text-align: left;\">In order to be an FPC, the foreign company must meet the following criteria:<\/p>\n<p style=\"text-align: left;\">(1) Be owned by fewer than 5 people. For these purposes, members of the same family or business partners count as a single person.<\/p>\n<p style=\"text-align: left;\">(2) At least 75% of the ownership and control of the company are held by Israelis. For these purposes, those within their 10-year exemption period are not considered Israelis.<\/p>\n<p style=\"text-align: left;\">(3) The majority of the income of the Company is from a \u201cSpecial Profession\u201d<\/p>\n<p style=\"text-align: left;\">(4) Controlling shareholders, who together control at least 50% of the company, work for the company in the \u201cSpecial Profession,\u201d either directly or via another company that they have control over.<\/p>\n<p style=\"text-align: left;\"><u>What is a \u201cSpecial Profession\u201d<\/u><\/p>\n<p style=\"text-align: left;\">The Regulations give a closed list of professions that are considered \u201cSpecial Professions\u201d for these purposes. They are the following (translation of list in alphabetical order in the Regulations):<\/p>\n<ul>\n<li style=\"text-align: left;\">Security<\/li>\n<li style=\"text-align: left;\">Agronomist<\/li>\n<li style=\"text-align: left;\">Architect<\/li>\n<li style=\"text-align: left;\">Art, including creation of art<\/li>\n<li style=\"text-align: left;\">Music &amp; entertainment<\/li>\n<li style=\"text-align: left;\">Audit (of various types)<\/li>\n<li style=\"text-align: left;\">Modeling<\/li>\n<li style=\"text-align: left;\">Teaching &amp; seminars etc.<\/li>\n<li style=\"text-align: left;\">Engineering<\/li>\n<li style=\"text-align: left;\">Veterinarian<\/li>\n<li style=\"text-align: left;\">Creating and operating computer hardware<\/li>\n<li style=\"text-align: left;\">Computer software<\/li>\n<li style=\"text-align: left;\">Investigations<\/li>\n<li style=\"text-align: left;\">Aircrafts &amp; boats<\/li>\n<li style=\"text-align: left;\">Telecommunications<\/li>\n<li style=\"text-align: left;\">Representation of any \u201cSpecial Profession\u201d<\/li>\n<li style=\"text-align: left;\">Advice, including the fields of financial, personal, security, agriculture, technical, engineering, organisational, management, national, scientific, tax, business &amp; economic<\/li>\n<li style=\"text-align: left;\">Economics<\/li>\n<li style=\"text-align: left;\">Writing &amp; composition<\/li>\n<li style=\"text-align: left;\">Scientific research &amp; development<\/li>\n<li style=\"text-align: left;\">Management \u2013 including assets &amp; investments, companies, organisations, institutions, businesses \u2013 including those in the process of dismantling, bankrupcy or administration<\/li>\n<li style=\"text-align: left;\">Statistics<\/li>\n<li style=\"text-align: left;\">Sport<\/li>\n<li style=\"text-align: left;\">Journalism &amp; editing<\/li>\n<li style=\"text-align: left;\">Advertising &amp; public relations<\/li>\n<li style=\"text-align: left;\">Lawyers, patent attorneys, representation before law<\/li>\n<li style=\"text-align: left;\">Photogoraphy<\/li>\n<li style=\"text-align: left;\">Accountancy<\/li>\n<li style=\"text-align: left;\">Medical \u2013 including developmental treatment, psychology, physiotherapy &amp; dentistry, and including para-medical and alternative medical services<\/li>\n<li style=\"text-align: left;\">Religious services<\/li>\n<li style=\"text-align: left;\">Surveying<\/li>\n<li style=\"text-align: left;\">Realty<\/li>\n<li style=\"text-align: left;\">Translation<\/li>\n<li style=\"text-align: left;\">Communications &amp; event organisers<\/li>\n<\/ul>\n<div><\/div>\n<div style=\"text-align: left;\"><u>How is the FPC taxed?<\/u><\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">The taxation of the FPC essentially turns the company into an Israeli company. The twist is that it is the shareholder who is taxed on his\/her portion of the income, rather than the company itself (this is the major change from the previous version). The rate of tax on this income is the corporate rate of tax (26.5% for 2014).<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">The profit of the company is calculated according to Israeli rules, unless the company is resident in a country with which Israel has a tax treaty \u2013 in this case the local rules apply.<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">Any tax paid in the country of the company\u2019s residence can be claimed against the tax due.<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">The rules for tax on dividends paid are similar to that of any other regular Israeli company, although there are some subtle differences. This is not the place to go into detail.<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\"><u>Some points<\/u><\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">Since the Israeli tax rate is amongst the highest in the world, these rules can hit people hard financially, and not just in the increased burden of reporting.<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">There may be a thought to get round the tax issues by zeroing out profits abroad by way of management fees to an Israeli entity. This though leads to issues of transfer pricing whereby the foreign tax authority (and potentially the Israeli authority as well) may challenge the approach in order to increase their own tax take.<\/div>\n<div style=\"text-align: left;\"><\/div>\n<div style=\"text-align: left;\">Due to the complicated nature of these companies, it is highly recommended that tax specialists and experts in both countries are consulted before going ahead with such schemes.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Another type of company that the Israeli tax office doesn\u2019t like is one where a profession is carried out abroad, and the profits are not directly taxed in Israel. As such, the tax law sets out rules for a Foreign Professional Company (FPC). These rules were revised for 2014, and below are the new rules. [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[200,253],"tags":[],"class_list":["post-8541","post","type-post","status-publish","format-standard","hentry","category-israeli-taxation-en","category-binyamin-radomsky-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Overseas companies, part 3 \u2013 the Foreign Professional Company - \u05d0\u05d1\u05d5\u05dc\u05e2\u05e4\u05d9\u05d4 \u05e8\u05d5\u05d0\u05d9 \u05d7\u05e9\u05d1\u05d5\u05df<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/aboulafia.co.il\/en\/binyamin-radomsky-en\/overseas-companies-part-3-the-foreign-professional-company\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Overseas companies, part 3 \u2013 the Foreign Professional Company - \u05d0\u05d1\u05d5\u05dc\u05e2\u05e4\u05d9\u05d4 \u05e8\u05d5\u05d0\u05d9 \u05d7\u05e9\u05d1\u05d5\u05df\" \/>\n<meta property=\"og:description\" content=\"Another type of company that the Israeli tax office doesn\u2019t like is one where a profession is carried out abroad, and the profits are not directly taxed in Israel. As such, the tax law sets out rules for a Foreign Professional Company (FPC). These rules were revised for 2014, and below are the new rules. 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