Why Companies in Israel May Consider Moving Operations to Delaware

Why should an Israeli company, or any non-US entity, explore the option of a Delaware corporation?

For the last couple decades, Israel has been a safe and stable country for startups to operate in, with a well-developed economy and a highly skilled workforce.  Overall, the country has a supportive small business culture and regulatory framework.  Developing a product or software in Israel is advantageous, as they have robust laws and regulations that protect intellectual property rights, encourage entrepreneurship, and provide support for small and medium-sized businesses.   Israel has a well-established startup ecosystem, with many successful tech startups and a thriving venture capital industry.   Historically, the political climate in Israel has been complex and dynamic, causing marginal concern for businesses and investors.  That has changed.

Now there is a new threat to businesses that has nothing to do with the continuing age-old conflict.  A growing group of tech leaders are alarmed at Prime Minister Netanyahu‘s plans to give parliament veto powers over the Supreme Court.  Politicians nullifying the authority of the highest court in the land is bad for their democracy, and for business.  The value of the currency has decreased as protests rise.  Public and private tech companies have announced they are taking funds out of the country.  Even worse, startups have been reporting that it’s nearly impossible to raise funds within the country as well.  This change has already had an impact on the future of investment in Israel’s technology industry – both from inside and outside.

There are several reasons why a startup business from Israel might consider incorporating a related company in Delaware, if not moving their headquarters there. Reincorporating a business from one country to another can be a complex and challenging process, with tax implications being a substantial risk, and should be carefully considered on a case-by-case basis. However, developing an international presence is often an intelligent part of a larger plan as a hedge against the long-term effects of economic and political uncertainty, before the change plays out.

Some potential benefits of incorporating in Delaware include:

  1. Favorable corporate laws: Delaware has a well-established and business-friendly legal system that is often cited as one of the most favorable in the United States for corporations. Delaware has a specialized court system, the Delaware Court of Chancery, which is dedicated to resolving business disputes quickly and fairly.
  2. Tax advantages: Delaware has a low corporate income tax rate compared to many other U.S. states, and there are no sales tax or personal property tax in Delaware.
  3. Access to funding: Delaware is home to many venture capital firms and angel investors, which could potentially provide greater access to funding and resources for startups.
  4. Established business infrastructure: Delaware has a highly developed and established infrastructure for incorporating and managing businesses, which could potentially simplify the administrative and legal requirements for startups.
  5. Reduced bureaucracy: Starting a business in Israel can involve a significant amount of bureaucracy and paperwork, which can be time-consuming and frustrating. By contrast, incorporating in Delaware can be a relatively straightforward process.

It is important to note that each startup’s situation is unique, and the decision to incorporate in Delaware or any other location should be made after careful consideration of all the relevant factors, including tax and legal implications, access to funding, and the potential challenges and costs of moving the business to a new location.

Author Bio
David McKeegan
David McKeegan, the founder of Cleer.Tax is both an MBA and Enrolled Agent. As an entrepreneur and small business owner himself, he really understands the pain points that company owners and founders have in regards to tax compliance and having clean financial statements. What really differentiates David is his ability to distill complicated tax matters into layman’s terms, making the advice actionable and accessible to all.
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