An Israeli Company Operating in the US: Subsidiary or Branch, Permanent Establishment under the Treaty, Sales Tax, Employees, E-2 Visa and Bank Account

The US market attracts Israeli companies at every stage: a start-up raising money in the US, a manufacturer selling through distributors, a services company opening an office in New York or Miami. The first decision is how to be present: sell from Israel, open a branch or set up a subsidiary. This decision determines the tax exposure, the legal exposure of the Israeli company and the scope of reporting.

This guide explains the options, the permanent establishment rules in the treaty, sales tax and the obligations of an employer and of a registered entity. On the tax layers and transferring profits to Israel see our guide to tax in a foreign company, and on LLCs see our LLC guide for Israeli investors.

1What routes does an Israeli company have to operate in the US?

There are four main routes, from lightest to heaviest: direct sales from Israel, a distributor or independent agent, a registered branch and a subsidiary. A company can start with direct sales or through a distributor, and move to a subsidiary when the activity grows, when it recruits employees or when American investors require a local entity.

2When does an Israeli company have a permanent establishment in the US?

An Israeli company has a permanent establishment in the US when it has a fixed place of business there, a building or construction site lasting more than 6 months, or a dependent agent who signs contracts on its behalf, under Article 5 of the Israel-US tax treaty. Under article 8 of the Israel-US tax treaty, the industrial or commercial profits of an Israeli resident are exempt from US tax unless it has a permanent establishment there, and then the US taxes only the profit attributable to the permanent establishment. Article 5 of the treaty defines a permanent establishment as a fixed place of business through which the resident engages in industrial or commercial activity:

• A fixed place: a branch, an office, a factory, a warehouse, a workshop, a store or other sales outlet.
• Building and installation: a building site, a construction, installation or assembly project, or supervision of one, lasting more than 6 months. The same rule applies to keeping significant equipment or machinery in the US.
• A dependent agent: a person who has authority to sign contracts on behalf of the Israeli company and habitually exercises it in the US, unless the authority is limited to purchases.
• Sale of goods processed or purchased in the US: under article 5(4), even without a fixed place, an Israeli resident will be deemed to have a permanent establishment if it sells in the US goods that were substantially processed there, or that were purchased there and not substantially processed outside it.
• What does not count: a place used only for storage, display or delivery of goods, purchasing, collecting information, advertising or preparatory or auxiliary activity. A sale at the end of a trade fair also does not create a permanent establishment.

An important distinction: under US domestic law, a foreigner's income “effectively connected” with a US trade or business (ECI) is taxed at the regular rates after deducting expenses. The treaty can protect against this tax where there is no permanent establishment, but anyone relying on the treaty to change an outcome under the US Code files a disclosure on Form 8833. Moreover, on the US side the treaty applies only to federal income taxes (article 1), so it does not limit state tax.

3Must the company register in the state where it operates?

Yes, when the activity reaches the level of “doing business” in the state. Each state sets the rules. In Florida, under section 607.1501 of the state statutes, a foreign corporation (meaning any company not incorporated in Florida, including an Israeli company or a Delaware company) may not do business in the state until it has obtained a certificate of authority (Certificate of Authority).

• What does not count as doing business in Florida: under the section, among other things, maintaining a bank account, holding board and shareholder meetings, conducting legal proceedings, selling through independent contractors, and a single transaction completed within 30 days that is not part of a series. The list is not exhaustive.
• Registered agent: every state requires an address in the state for receiving legal documents.
• Reporting to the registrar: a registered entity files an annual report with the state and pays fees. In Delaware, for example, a regular corporation files an annual report and pays franchise tax by 1 March.
• BOI: according to FinCEN, since the final rule that came into force on 14 August 2026 only entities incorporated outside the US that registered to do business in a US state are “reporting companies”. A foreign entity registered on or after 26 March 2025 files a report within 30 calendar days of its registration taking effect. A US subsidiary is exempt.

4Is there VAT in the US, and what is sales tax?

There is no federal VAT in the US. Instead, most states levy a sales tax on sales to the final consumer of goods and some services, at state and local rates. The seller is responsible for collecting and remitting the tax, so the obligation falls on the Israeli company if it has a “nexus” with the state.

Until 2018, nexus required a physical presence. On 21 June 2018, in South Dakota v. Wayfair, the US Supreme Court abolished the physical presence requirement and upheld a South Dakota law applying to a seller delivering more than 100,000 dollars or 200 separate transactions into the state per year. Since then most states have adopted their own “economic nexus” thresholds.

A software or digital services company needs to check in each state separately whether its product is subject to sales tax at all. The definitions differ from state to state.

5What are an employer's obligations in the US?

A company employing staff in the US, directly or through the subsidiary, is a US employer in every respect. According to the IRS, the basic federal obligations are:

1. Form I-9: verification of identity and work authorisation for every new employee, citizen or foreigner, with the participation of the employee and the employer.
2. Federal income tax withholding according to the employee's Form W-4.
3. Social Security and Medicare: withholding the employee's share and paying the employer's share.
4. Federal unemployment tax (FUTA): paid by the employer only.
5. Reporting: quarterly Form 941, annual Form 940, and Form W-2 for each employee at year end.
6. State obligations: state income tax (if any), state unemployment insurance and workers' compensation insurance. In Florida, a private employer with 25 or more employees must verify new employees through E-Verify, under a law that came into force on 1 July 2023.

US employment law is very different from Israeli law: in most states employment is “at will” (At-Will), there is no general statutory severance obligation, and there are federal and state rules on minimum wage, overtime and discrimination. The employment contract should be written under the law of the state where the employee works.

6Are Israelis eligible for the E-2 investor visa?

Yes. Israeli citizens have been eligible for the E-2 visa since 1 May 2019, after the US determined that the Israeli B-5 visa for American investors satisfies reciprocity. Israel is also eligible for the E-1 treaty trader visa. According to USCIS, the main E-2 conditions are:

• The investor is a citizen of a treaty country, and has invested or is actively investing a substantial amount in a real, operating US enterprise that is not marginal. The capital is at risk.
• The investor comes to develop and direct the enterprise, and holds at least 50% of it or operational control.
• An employee on an E-2 visa must have the same nationality as the employer, in an executive or supervisory role, or have skills essential to the enterprise. When the employer is a company, at least 50% of it is owned by citizens of the treaty country.
• The initial stay is up to two years, and extensions of up to two years each are possible, with no limit on the number of extensions, as long as the conditions are met.

An E-2 visa does not confer permanent residence. In addition, a long stay in the US may affect tax residence in both countries, so the decision should also be coordinated with an accountant.

7What matters in contracts with American customers and suppliers?

• Language: the contract is usually in English. When there is also a Hebrew version, set which version prevails.
• Governing law and forum: contract law in the US is mainly state law. Choose the law of a specific state and a forum for resolving disputes, a court or arbitration.
• Limitation of liability and indemnity: clauses that are generally enforced, subject to state law.
• Tax: who is responsible for sales tax, and what happens if the customer withholds tax. For royalties and interest, the treaty limits the withholding (royalties 10% or 15%, interest 17.5% or 10%), subject to providing Form W-8BEN-E.
• Licensing: certain activities, for example financial services, food, health, construction or selling alcohol, require a federal, state or local licence. The requirements are checked by sector and by state before the activity begins.

8Which reports and deadlines does an Israeli company with US activity face each year?

9How do you obtain a tax number and a bank account for the Israeli company or the subsidiary?

Every entity operating in the US needs a federal employer identification number (EIN). An international applicant cannot use the online application, and files Form SS-4 by phone, fax or mail. Under the federal customer identification rules, a bank may open an account for a foreigner on the basis of a passport number and country of issuance, but each bank sets its own policy and will ask for incorporation documents, beneficial owner details and the source of funds. Full details in our ITIN, EIN and bank account guide.

10What needs to be checked on the Israeli side?

An Israeli company is taxed in Israel on its worldwide income, including US branch profits, and receives a credit for the US tax under article 26 of the treaty and under Israeli law. A dividend from a US subsidiary is generally taxed in its hands at 23%, with a credit for the withholding. It must also be checked that the subsidiary will not be treated in Israel as a controlled foreign company, and will not be treated as resident in Israel if its control and management are exercised from Israel. The structure should be coordinated in advance with an Israeli accountant; see also our guide to Israel's tax treaties.

The information in this guide is general information as of November 2026, and is not legal or tax advice. Every entry into the US market requires review according to the type of activity and the states in which you operate.

More on doing business in the US: Setting up a company in the US · Corporate tax and transferring profits to Israel from the US · Commercial disputes and litigation in the US · Comparison of 8 countries · All guides for companies and businesses

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