Draft Bill on the Application of Laws to a Foreign Dealer Directing its Activity Toward Customers in Israel, 5786-2026

On January 27, 2026, the Israeli Ministry of Justice published for public comments a draft bill titled Application of Laws to a Foreign Dealer Directing Activity Toward Customers in Israel, 5786-2026 (the “Draft Bill”). The Draft Bill seeks to prescribe the application of certain mandatory Israeli laws to foreign dealers operating vis-à-vis customers in Israel, in light of the continuing growth in the supply of goods and services to Israeli consumers by international companies.

These engagements are today most often entered into through standard-form contracts, in which the Israeli customer has no ability to influence the contractual terms. These contracts often include choice-of-law clauses that apply foreign law to the contractual relationship between the foreign dealer and its customers, including those located in Israel. This raises a fundamental question as to the substantive law applicable to the transaction and to the foreign dealer in engagements with an Israeli customer – a question that the Supreme Court has addressed on several occasions in recent years, while calling upon the legislature to regulate the matter by legislation.

Accordingly, the Draft Bill proposes to establish that a foreign dealer who directs its activity toward customers in Israel – whether directly or indirectly – will be subject to specific statutory laws defined therein as mandatory (i.e., provisions from which the parties may not derogate by agreement), as set out in the Schedule to the Draft Bill. These include: the Consumer Protection Law, 5741-1981; the Protection of Privacy Law, 5741-1981; the Standard Contracts Law, 5743-1982 (the “Standard Contracts Law”); and the Payment Services Law, 5779-2019 (the “Payment Services Law”). The Minister of Justice, in consultation with a committee of the Knesset, will be authorized to amend the Schedule so as to include additional statutory provisions that may not be stipulated against, subject to consultation with the minister responsible for that law.

The Draft Bill adopts a broad definition of “customer”, encompassing not only private consumers but also small businesses (employing up to five employees or whose annual turnover does not exceed NIS 2 million) that contract on a standard-form basis for goods or services. It further sets out the circumstances in which a foreign dealer shall be deemed to be directing their activities toward customers in Israel if they undertake proactive actions to market or sell assets or services in the Israeli market or to promote their activities therein, or where the subject matter of the transaction is real property situated in Israel. In addition, the Draft Bill provides for a narrow exception, pursuant to which a court may determine, for special reasons, that the provisions of the Law shall not apply to a defendant who is a foreign dealer directing activities toward customers in Israel, if it is satisfied that their application would result in substantial harm to the public interest.

The Draft Bill further proposes to require foreign dealers to publish on their websites either the address of their representative in Israel or an email address designated for receiving copies of pleadings (it being noted that the Explanatory Notes clarify that this requirement is not intended to derogate from the existing rules governing service of process outside Israel, insofar as such service is required).

The Draft Bill further seeks to provide that the rules on choice of law in private international law shall not apply if their application would result in the application of foreign law that would override any of the mandatory laws set out in the Schedule to the Law. The proposed Law also includes a provision stating that the Law itself is mandatory, that is, its provisions shall apply notwithstanding any waiver or conflicting agreement.

Finally, the Draft Bill proposes to introduce several indirect amendments to the following legislation:

• The Standard Contracts Law, so that a new presumption will be added, according to which any choice-of-law clause referring to a law other than Israeli law, or granting the supplier an exclusive right to select the applicable law, shall be deemed an unfair term and, pursuant to the provisions of the Standard Contracts Law, may be nullified or modified by the court.

• The Payment Services Law, so that Section 47, which applies the Payment Services Law to a payment service provider who is not a resident of Israel if they direct their activities toward customers in Israel (as defined in the section), will be repealed. The practical effect for foreign payment service providers, if the Draft Bill is advanced and adopted, is that the application of the Payment Services Law to them, as well as the other laws listed in the Schedule to the Law, will be determined according to the criteria described above.

If the Draft Bill is advanced and adopted, this would constitute a development with very significant implications for international companies operating in the Israeli market, requiring a reassessment of business models and contractual terms.

The Draft Bill is open to public comments until 17 February 2026.

To review the Draft Bill (in Hebrew) – click here.

We would be pleased to advise and assist regarding the implications of the Draft Bill and preparations for its implementation, including: through the Litigation Department – with respect to pending or future claims; through the Commercial Department – for review and adjustment of terms of use and agreements with customers in Israel; and through the Banking and Finance Department – regarding potential implications on foreign payment service providers operating with customers in Israel.

Sincerely,

Financial Regulation Team – Banking and Finance Department

Regulation Team – Commercial Department

 Litigation Department

 Herzog Fox & Neeman