By Tsvi Kan-Tor, Partner |
Both Israeli or foreign construction company that is working in Israel, must apply for registration in the Contractor’s Register, where the value of the contract exceeds the sum of NIS 47,255 (if the works are categorized as the Secondary branch or NIS 90,471 per project if the works are categorized as the Primary branch.
The question of whether a foreign contractor receive an exemption from the general procedures for registering contractors in Israel, is a frequent question that is being asked by foreign contractors operating in Israel, normally on a large scale projects such as tunneling, constructions, infostructure and more.
In the past, we’ve offered an in-depth explanation of how to be registered as a contractor, as well as the possibility of applying for an exemption from this registration. This was primarily rooted in practical application, rather than on the firm legal foundation of the relevant criteria that would be used in the consideration of the waiver application.
However, In a very recent case number 8696/22 of Avraham Yitzhak Ltd. v. The State of Israel – Minister of Construction and Housing (20.7.2023), the Supreme Court deliberated for the first time on how Section 14A of the Law on the Registration of Contractors for Construction Engineering Works, 5579-1969, that allow waiver from contractor registration, should be interpreted.
This law permits the Minister of Construction and Housing to offer foreign contracting firms an exemption from the responsibilities prescribed in the Law on the Registration of Contractors. This exemption is intended to encourage foreign companies’ involvement in building and infrastructure projects in Israel. It does so by exempting them from the regulations normally enforced on contractors as per the Law on Registration of Contractors.
According the Supreme Court decision a foreign company should submit its waiver application before submitting its proposal in the tender, as a preliminary condition for submitting the proposal. Ideally, they should submit the request at the same time as submitting their bid, and provide evidence that they’ve requested an exemption. From the state’s perspective, the waiver application should be considered and decided upon before the tender results are known. Further, the court determined and severely criticized the practice by which foreign companies submit waiver requests according to section 14a only after winning tenders does not align with the language of the section and is also not consistent with the overall objectives of tender laws.
Within the application, the foreign contractor must demonstrate the following
a. The company main place of business is outside of Israel. The court clarified that this doesn’t mean the company can’t have any business activity in Israel, just that the majority of its activity must take place elsewhere.
b. The company must not have a registered place of business in Israel. The registration of a foreign company in the Companies Register as a branch of a foreign company (according to Section 346 of the Companies Law) does not negate the condition that “it has no registered place of business in Israel”. On the contrary, the obligation to register a foreign company as a foreign entity actually suggests that it is not incorporated in Israel, but outside of it, so that the registration may indicate that its business center is not in Israel.
c. , The tender for which the company is bidding must be “international” i.e., open to foreign suppliers. The tender can still be considered international even if it’s published in Hebrew.
In addition, the court held that previous exemptions don’t prevent a company from receiving another one. But a foreign company already registered in the contractor register in Israel (even if in a low classification) will not qualify for an exemption.
The court mentioned that the aim of these rules is to increase competition in the fields of price, knowledge, work methods, and engineering capabilities. It’s also to facilitate the participation of foreign corporations in construction and infrastructure projects in Israel.
Kan Tor & Acco leverages years of experience to provide clients with legal support in a variety of areas, including foreign company registration, contractor registration or obtaining waivers from such registrations. Additionally, we offer services for securing B-1 work visas for foreign staff in Israel and ensuring compliant operations in the country, in line with all legal requirements.
