Non-profit association - מלכר

Definition of legal structure 

Unlike a self-employed person or a limited liability company, a non-profit association belongs to no one, but is managed solely by people who are accountable to the tax authorities and to the rasham haamoutot (the government body overseeing non-profit associations). An association must work towards the achievement of public objectives that have been decided upon when the association was founded, such as: Sport, Religion, Art, Culture, Education etc...

Opening the legal structure 

The non-profit association must be created by at least 2 people, up to 7 if the non-profit association applies for recognition as a public entity (synagogue, school...). The non-profit association is registered with the rasham haamoutot and then follows the same procedures as a limited liability company (opening a bank account, registering with the tax authorities). Read also: Understanding the status of companies in Israel.

Tax and social security obligations :

A non-profit association is not subject to any form of taxation. Donations collected by the association benefit the association's activities in their entirety, and are not taxed by the state. The association's income is not subject to VAT. It's important to note that when an association distributes salaries, it must pay payroll tax, which is defined according to certain conditions. By meeting a number of criteria, a non-profit association can be granted the right to have seif 46 (paragraph 46 of the tax code, CERFA) enabling its donors to benefit from a tax credit of 35% on donations made to the non-profit association.

Auditing the association's accounts

The association will be audited and controlled by an audit committee which will check whether the association is operating within the objectives for which it was founded. The audit committee may be replaced by a chartered accountant. There are several advantages to using the services of a Chartered Accountant:

• It ensures that the association complies with the law.
• It highlights financial results.
• He points the finger at the association's shortcomings and internal problems.
• He can provide advice and solutions to financial and legal problems.
• It acts in complete independence and is not subject to any internal pressure from the association's management.

Important elements 

Here are a few important points that a non-profit association must pay attention to:

1. Not to distribute any salary or benefits to its directors.
2. Be careful not to engage in any profit-making activities (e.g. a reception hall in a synagogue), as the tax authorities may tax any profits made.
3. Salaries paid to relatives of directors on the management committee must not exceed 10% of the total payroll.
4. Banks are very reluctant to grant loans to non-profit associations.

Key benefits at a glance

The main advantage of opening a non-profit association is that it pays no tax. In addition, by meeting certain criteria, the association can be granted seif 46 of the Israeli Pkouda (tax law) allowing anyone who has made a donation to the association to deduct 35% of this donation from their annual tax bill.