How to Start a US LLC From Israel

Putting it together: form the LLC (Wyoming and Delaware are the two most common choices for Israeli founders), get the EIN using the international applicant line above, open a US bank account with Mercury or Relay (virtual card first if you're in Israel right now), and decide the Circular 05/2004 classification election with an accountant who's actually handled US LLCs before rather than one applying general foreign-company rules to a structure Israeli law doesn't natively recognize. None of the individual steps are unusual — the election, the Greenfeld loss rule, and Form 150 are what make an Israeli founder's checklist different from a founder anywhere else's. Get those three right early, and a US LLC ends up being one of the simpler parts of running a global business from Israel, not the complicated one.

Whichever way you go, be aware of the Greenfeld ruling from the Jerusalem District Court, which addressed how ITA Circular 05/2004 treats losses. The court's answer: even under a transparent election, losses generated inside the LLC don't flow through to offset the owner's other personal income the way profits do. Losses stay trapped at the LLC level and can only be used against the LLC's own future profits. This asymmetry matters most in year one or two, when a lot of founders expect early losses (ad spend, inventory, contractor costs before revenue catches up) to reduce their overall Israeli tax bill the way a sole proprietorship's losses would. With a US LLC, they can't. This is one of the more concrete, court-tested downsides of using an LLC instead of operating as an Israeli atzmai (sole proprietor) invoicing US clients directly — a structure that keeps losses personal but loses the liability protection and US banking access an LLC provides.

Israel has one of the highest startup densities per capita in the world, and a growing share of that activity — SaaS subscriptions, Shopify and Amazon stores, freelance consulting for US clients — never touches Israeli soil in terms of customers. For these founders, a US LLC solves problems an Israeli company (Ltd.) doesn't: Stripe and PayPal treat a Delaware or Wyoming LLC as a first-class US business, US-based clients pay invoices without cross-border wire friction, and pricing in USD removes a layer of currency risk that an Israeli founder juggling Bituach Leumi and Mas Hachnasa obligations doesn't need on top. An LLC also keeps formation and maintenance costs far below an Israeli company's mandatory bookkeeping and accountant fees, and it separates personal assets from business liability the same way an Israeli Ltd. would, without requiring a local director or a minimum share capital filing. What most guides aimed at Israeli founders skip, though, is that a US LLC does not sit neatly inside Israeli tax law the way it does for founders from most other countries — the Israeli Tax Authority has no native equivalent of an LLC, and that gap creates a genuine choice founders have to make deliberately rather than by default. That gap is exactly why this page goes deeper than the usual formation checklist — forming the LLC itself is the easy 30% of the job for an Israeli founder.

Getting an EIN as a non-US-resident founder works the same way regardless of home country, and Israel is no exception. Since you have no US Social Security Number or ITIN, you can't use the IRS's online EIN application — you'll file Form SS-4 and call the IRS's international applicant line (267-941-1099, staffed 6am-11pm ET, this line is for international applicants only) to get the EIN read out over the phone, or fax the SS-4 (855-215-1627 from within the US, 304-707-9471 from outside) for a roughly 4-business-day official turnaround that often runs 1-2 weeks in practice. Mailing to Cincinnati, OH takes 4-5 weeks and should be your last resort. On Line 7b, write 'Foreign' or 'N/A' rather than leaving it blank — a common rejection trigger. The responsible party listed must be the actual Israeli owner, not EasyBrise or any formation agent. This EIN step is entirely separate from the Circular 05/2004 election above — the IRS doesn't care how Israel classifies your LLC, and the ITA doesn't care that the IRS treats it as disregarded by default. If you ever lose your CP 575 confirmation notice, the fix is Form 147C (a letter, not a duplicate CP 575) — and don't skip Form 5472 plus a pro forma 1120 each year; the penalty for missing it starts at $25,000.

Separate from all of the above, every Israeli resident who holds an interest in a foreign company must attach Form 150 (Declaration of Holding in a Foreign Corporation) to their annual tax return, disclosing the holding percentage, the country of incorporation, and — specific to LLCs — which classification election was made under Circular 05/2004. This is a disclosure obligation, not a tax bill: it applies whether the LLC made money, lost money, or sat dormant all year, and regardless of which classification election you chose. Missing it doesn't erase the underlying tax position, but it does create an easy, avoidable compliance gap that surfaces the first time an accountant reviews prior years. Most Israeli accountants who don't regularly handle US LLC clients aren't even aware this form applies specifically to LLCs, since it predates the LLC-specific circular by years — worth raising directly rather than assuming your accountant will bring it up unprompted. Build it into the same annual routine as the LLC's own US filings (Form 5472 and pro forma 1120) rather than treating it as a separate, optional step.

Israel's Section 75B contains its own controlled foreign company regime, applying when an Israeli resident holds a controlling interest — 10% or more of any 'means of control' — in a foreign entity most of whose income is passive (dividends, interest, royalties, rental income and similar). If a foreign company meets the passive-income and low-tax thresholds, its Israeli controlling shareholders can be taxed currently on their share of undistributed profits, whether or not anything was actually distributed. The good news for most EasyBrise founders: active business income — SaaS subscription revenue, e-commerce sales, consulting fees — is not the passive income Section 75B is built to catch, so a single-member LLC running an active online business generally sits outside CFC scope on that basis alone. The regime becomes genuinely relevant only if the LLC's income shifts toward royalties, licensing fees, or investment income, or if the structure adds a passive holding layer later — worth flagging to an Israeli accountant if the business model changes, but not a day-one blocker for a typical operating LLC.

Here's the wrinkle almost nobody explains: the entire point of electing transparency is to unlock a foreign tax credit for US tax already paid on the LLC's income. But most EasyBrise-style LLCs — a SaaS product billed to global customers, a Shopify store shipping worldwide, consulting invoiced to clients outside the US — generate no US-source, effectively-connected income for a non-resident alien owner, which means the LLC typically owes $0 in US federal income tax in the first place. If there's no US tax paid, there's nothing for the transparency election to credit. That flips the decision: instead of 'elect transparency to avoid double taxation,' the real question for a typical non-resident founder becomes whether to report LLC profit on the personal return every year at marginal Israeli rates (transparent) or defer Israeli tax until you actually draw a dividend, at the cost of that flat 25-30% dividend rate applying to the whole distribution regardless of your personal bracket (opaque). Founders retaining most profit inside the LLC to reinvest often lean opaque for the deferral; founders drawing most profit out immediately often find transparent simpler, even without a credit to claim.

On the banking side, Mercury and Relay both remain open to Israeli founders in principle — being an Israeli resident does not put you on either platform's prohibited-country list. There is a current, narrower wrinkle worth knowing before you apply: Mercury has paused physical debit card shipments to Israel (along with several neighboring Gulf countries) due to regional security conditions, though this is a shipping pause, not an account restriction — approved accounts can still issue a virtual card immediately and use ACH transfers and wires normally while physical card delivery is on hold. Confirm the current shipping status directly with Mercury or Relay before assuming it's permanently resolved either way, since this kind of regional restriction tends to be reviewed and lifted rather than being fixed policy. For founders who need a physical card immediately, Wise Business remains a workable parallel option that isn't affected by the same shipping pause. In the meantime, a virtual card covers most online SaaS-tool and ad-spend payments a typical LLC needs day to day.

Israeli tax residency for a foreign-incorporated company hinges on where it's 'managed and controlled' — a facts-and-circumstances test with no statutory bright line, as Israel's own case law acknowledges. If an Israeli founder makes every real decision, signs every contract, and directs every bank transfer personally from Tel Aviv or Haifa with no meaningful activity happening anywhere else, the ITA can argue the LLC itself is managed and controlled from Israel — and treat it as an Israeli-resident company subject to the full 23% corporate tax rate on its worldwide income, layered on top of the classification questions above. Israel's Supreme Court has gone this route before: in a 2012 ruling, judges found that a foreign company's formal management structure existed only on paper while real decisions were made entirely in Israel, and taxed it as an Israeli resident despite its foreign certificate of incorporation. There's no registered-agent-style safe harbor that protects against this; it's evaluated case by case, and the practical mitigants are the ordinary ones — genuine US business activity, a US bank account actually used to pay US vendors, a real US mailing address — not just a certificate of formation sitting in a drawer while everything else happens from Israel.

Circular 03/2002 is where the trouble starts: the Israeli Tax Authority (ITA) doesn't recognize 'LLC' as a legal category at all, so by default it classifies every foreign LLC as a 'Body of Persons' — functionally, a corporation. That means an Israeli founder's LLC income is not automatically pass-through in Israel's eyes the way the IRS treats a single-member LLC by default. Circular 05/2004 gives owners a way out: they can actively elect to treat the LLC as a transparent (flow-through) entity for Israeli tax purposes, reporting the LLC's profit directly on their personal return and claiming a foreign tax credit for any US tax paid on it. Skip the election, and the ITA falls back to the opaque default — the LLC's profit isn't taxed to you personally at all until you actually take a distribution, at which point it's taxed as a dividend, currently at 25% (30% for a 10%+ 'significant shareholder,' which almost every single-member LLC owner is). This is the opposite of the 'it's automatically pass-through, don't worry about it' assumption most US-focused guides lead with, and the election has to be made proactively — not assumed.