United States Tax Considerations for Israeli Start-Up Companies

As you may already know, the percentage of Israelis engaged in scientific and technological inquiry, and the amount spent on research and development in relation to gross domestic product, is probably the highest in the world. Interestingly, Israel has the highest density of startups in the world and there may be more Israeli companies listed on the NASDAQ exchange than all companies from the entire European continent.

Naturally, much of this Israeli entrepreneurial activity is being allocated between Tel-Aviv or Hertzelia and Silicon Valley, as many Israeli startup and high-tech companies have significant presence and operations in both locations.

In the past couple of years, we have encountered an increasing number of Israeli entrepreneurs and startup companies making their way back to, and increasing their presence and operations in, Silicon Valley. Moreover, a growing number of Israeli high-tech companies and ventures are being purchased by Silicon Valley-based multinationals. One notable recent example is Facebook, represented by Fenwick & West, which recently acquired Snaptu, an Israeli-based mobile application developer. This was the first acquisition by Facebook of an Israeli start-up.

With this increase in entrepreneurial activity, and in light of the growing complexity of the ever-changing U.S. international tax regime, many entrepreneurs and Israeli high-tech companies now recognize the significance of tailored tax planning and structuring at the earliest stage possible, preferably even prior to incorporation. We have discovered that with careful planning and the setting up of an efficient tax structure, a new (or existing) venture can maximize its value and improve its prospect of raising capital or getting acquired. Accordingly, this article addresses some of these important U.S. tax considerations that needed to be taken into account perhaps a few moments after you have had the greatest idea and decided to pursue it.