By Avrum Aaron
Today, most businesses are international – many call it a “global village”, unless of course you have a local dry cleaner or falafel stand that is exclusively local. Nevertheless, a prudent business person working in the global markets should consider the legal, tax and financial issues of international business to ultimately achieve a more successful business.
I’m a US and Israeli attorney and I help my clients in both countries deal with their legal issues all over the world. Here’s a case study of how I helped an Israeli client reduce her expenses thus increasing her bottom line by opening a US company.
My client opened an Israeli company that provided health services to Israelis, non-Israeli students studying in Israel and tourists. Most of these services were performed in Israel, but her customers often paid with checks written in US dollars or Euros, or through non- Israeli credit cards.
So, what was the problem?
When the company received US dollars or Euro checks, the Israeli banks held the funds for 30-days, took a fee and accepted less-than-competitive exchange rates for converting the money. (If you don’t realize that the usual bank currency transfer rate is a lousy rate, ask yourself why there are change places in every commercial place in Israel.) When her company charged a non-Israeli credit card, the credit card company took a 4% fee and converted the sum with the usual bank currency transfer rate.
Just to “do the math”:
- The company received a check for $1,000.The bank charged a 25 NIS foreign-check fee; converted the funds to shekels at rate that was around 1% less than the representative rate; and held the funds for 30 days. So, assuming an exchange rate of $1 = 3.8 NIS, this converts to 3,737.25 NIS, and only in 30 days – a cash flow nightmare!
- The company accepted payment with a US credit card for $1000. The bank took a 4% fee or $40 off the top and less 1% on the conversion, amounting to 3611.52 NIS as an immediate credit to the account, but a 188.48 NIS fee for that pleasure.
I encouraged my client to open a US Limited Liability Company (LLC). Another entity would also have worked. Following the establishment of the LLC, my client opened a US bank account and US credit card merchant account. With the LLC in place and having a US bank account, her company can now accept US checks with no fees and take US credit cards – at a lower fee of 3%. Of course, the company still has to exchange dollar to shekels, but now she has luxury to find the most competitive exchange rates. Having a US bank relationship, she can now pay her suppliers and vendors in US dollars without having to convert from shekels to dollars to avoid their outlandish high fees and lower than market exchange rates by the Israeli banks. All in all, fees for accepting payment have been reduced significantly and financial options are numerous, where they once were limited.
There are other benefits to having a US corporation. In dealing with suppliers and partners, being a US business has distinct advantage. Of course, it needs to be done right as tax and other legal issues will apply. Although it isn’t free to open a US business, registration and maintenance fees in the US are a fraction of what an Israeli business pays to register and maintain its status in Israel.
Contact me if you’d like to learn more about how a US business can help your Israeli business. I can be reached at email@example.com or at 054-398-4380. The first consultation is free.
Avrum Aaron graduated from Columbia University School of Law in 1994. He received an LLM in Taxation from the New York University Law School in 1998. He currently serves as COO of Legal Outsourcing Partner, LLC. www.lop-llc.com. His practice consists of advising startups and small businesses and his areas of specialization include licensing, employment, financing and corporate matters. He is admitted to the bar in New Jersey and Israel.