FAQ – All About Nonprofits in Israel
This article, FAQ – All About Nonprofits in Israel, will briefly address many issues about establishing, managing and financially providing for an Israeli nonprofits.
Israeli amutot, or nonprofits, are regulated by the Israeli Corporations Authority
How Do I Register an Israeli Non-Profit (Amuta) or Public-benefit company (Cheletz)?
Israeli nonprofits associations (“amutot”, or the singular “amuta” or “amutah”) are sometimes referred to as charitable organizations, and the nonprofit must have the public benefit as its primary goal. Additionally, amutot are dependent on donations and grants.
Israeli social businesses \ public benefit corporations (cheletz) are different from amutot in that they have shareholders, and also may have a business component to their work that generates income.
In order to register a cheletz, you must appoint shareholders who are owners of the social business ‘\ nonprofit company. You need a minimum of two shareholders to start. Additionally, you must pay a fee, ~800 shekels, to the registrar of companies. Furthermore, the organization will need to accept or draft by-laws. The registration process generally takes 45 days.
To register an amuta, or nonprofit organization, you need: two founding members, a name, two alternative name suggestions, amuta goals, home address for the two founders, and address for the amuta. Once the registration is complete, the amuta will need five more members to join, and these seven members need to submit their names for the registration process. You also need to pay registration fees. Once this is complete, the founders need to sign the registration documents in front of a lawyer and submit the documents to the Registrar of Amutot. The entire process generally takes less than a month.
What’s the Difference between an Amuta and Cheletz?
An amuta has a few different names in translation — a nonprofit or charitable organization. A cheletz has a few different names as well — community interest company (CIC) or social business. Both of these types serve the public interest.
An amuta is accountable to the registrar of amutot and serves the public interest without generating a profit. An amuta obtains funds through donations and grants.
A cheletz is a limited liability company registered under the Israeli Corporations Authority while also abiding under the oversight of the registrar of amutot. While a cheletz does not generate income for shareholders, it does have a business component to it, allowing it to generate income, that an amuta does not.
How do I open an amuta bank account?
After registering your amuta or cheletz organization at the Ministry of Justice, you need to open a bank account. In order to open a bank account, you will need incorporation certification, organizational by-laws, a list of your board members and directors, protocol of the decision to open a bank account, documents showing that signatories are the same as those designated by the organization, Israeli ID or foreign passport of signatories, information about how the account will be used, FATCA declarations for US citizens, contact information for signatories, a letter of approval by an Israeli lawyer, and a declaration regarding holders of interest and beneficiaries of the account.
We provide more information on this along with mandatory paperwork for an existing nonprofit organization here: How to Open an Amuta Bank Account and Mandatory Paperwork to Open an Amuta Bank Account.
Can I get an arnona discount for my Israeli amuta?
Since August 2016, the Israeli Knesset approved an amendment to the 1938 Municipal and Government Taxes Ordinance (link in Hebrew only) making a 67% arnona discount relevant to most associations. In order to get this money, an organization must be properly registered and administered. The discount is given for no less than three years, and you need to submit a signed affidavit indicating that the amuta’s goals and activities will not change during the period when it receives a discount.
For more information about nonprofits in Israel, see our articles: Arnona Discount for Amutot, Certificate of Submission of Documents for Israeli Nonprofit Organizations, and Certificate of Proper Management for an Amutah.
What does the Israeli amuta general assembly do?
The General Assembly is one of three mandatory institutions in an Israeli amuta. The General Assembly includes all amuta members. It is required to meet once annually, or as often as indicated in the amuta’s by-laws. The General Assembly meeting should be scheduled at least ten days before it is held, and the call for a meeting should include an agenda listing subjects to be discussed in the meeting.
For more information, see our articles: The General Assembly in an Amuta, Israeli Nonprofit Organizations Executive Board, Israeli Nonprofit Organizations Audit Committee, Israeli Nonprofit Organizations’ By-Laws and Written Procedures and Nonprofit Law and an Amuta’s Institutions. .
What does an Israeli amuta executive board do?
The Executive Board is the institution responsible for managing the amuta’s affairs and has the authority to make decisions that are not already specified in the law, by-laws of the amuta or designated to the other institutions of the amuta.
What does an Israeli amuta audit committee do?
The Audit Committee is made up of at least two members of the General Assembly and are elected by the General Assembly. The Audit Committee helps make sure that the organization is properly managing its finances. This committee can examine the amuta’s financial affairs, review the financial affairs of the amuta, and more. It is required to examine the amuta’s finances annually, making recommendations for the Executive Board and General Assembly.
What do I need to know about choosing an amuta’s name and logo?
You must choose a name that isn’t used by an existing association. It is possible to look up names in advance to ensure that the name you have in mind is not already taken. When applying for amuta registration, you must provide three names (a preferred name and two alternatives).
An Israeli amuta is required to use its full name on all material the amuta signs and publishes. It is not permitted to use different names or shorter names for other purposes. Additionally, the abbreviation RA (registered amuta), registered amuta, or amuta must follow the name when it is mentioned.
It is permissible to use the logo of the amuta without writing RA or one of the other variations listed above. There are not specific limitations around the logo’s design so long as it does not mislead people regarding the work of the amuta.
What do I need to know about writing an amuta’s objectives?
When you register your organization at the Registrar or Amutot, you must list your organization’s objectives. This is important to consider carefully, as an amuta is not permitted to conduct activities which do not contribute toward the amuta’s objectives. If an organization is operating according to its objectives, it is eligible for a certificate of proper management.
After you have decided on your objectives and submitted them to the Registrar, you are able to update them. The Executive Board needs to present the General Assembly with the issue, also demonstrating that donor-advised funding will meet the objectives for which it was given. The General Assembly will also need to discuss any objective changes, and this then needs to be passed on to the Registrar. In order to add or take away from current objectives, the organization will need to obtain court approval.
For more information, please see our article further discussing an Amuta’s Objectives.
What are the amuta’s by-laws?
An amuta’s by-laws govern various situations for an amuta, providing various legal definitions and standards for operation. The Executive Board must act in accordance with the amuta’s by-laws, and the by-laws act as a contract between amuta members and the amuta. In the event an amuta does not have a by-law to address a particular situation, then model by-laws — supplemental by-laws to help an organization with governance when by-laws do not apply — are applied. However, model by-laws cannot override an amuta’s by-laws.
For more information all about nonprofits in Israel, see our website. For more on amuta by-laws, please see our article on Standard Amuta By-Laws.
What are written procedures?
An amuta’s written procedures address operational and routine management issues that are not addressed in the by-laws. In order to manage effectively, organizations need to detail how activities in the organization should be conducted. This can include written procedures on how employees are hired, how petty cash is dealt with, and more. Any written procedures must be approved by the amuta’s Executive Board.
For more information, please see our article on the Israeli Non-Profit Organization’s Written Procedures.
What documents does an amuta need to submit annually?
Documents that must be submitted to the Registrar of Amutot by an amuta are listed on the Registrar’s website. These forms must be filled in, signed, and submitted to the Registrar annually. These forms need to be accompanied by 1) a copy of the General Assembly minutes from the annual meeting, 2) an annual verbal report, 3) annual financial statements, 4) the General Assembly’s approval of #s 2 and 3.
There are other forms that need to be submitted when a situation applies, such as when the amuta has moved office location and needs to update its address with the Registrar, when new members are appointed to the Executive Board or Audit Committee, a lawsuit has been filed against the amuta, and more.
For more information all about nonprofits in Israel, see our website. For more on annual documents and situations when additional documentation is required, please see our article Requirements When Submitting Documents to the Registrar of Amutot.
How can I get a certificate of proper management (nihul takin)?
An amuta is eligible for a certificate of proper management (nihul takin) if it fulfills all the necessary annual reporting requirements. After the organization is active for two years and is in good standing for its document submissions, the Registrar of Amutot will issue a certificate of proper management to the amuta.
In the event you did not submit the correct paperwork in the past, it is still possible to obtain a certificate of proper management by providing the Registrar with three years of financial statements. This means that an organization that wishes to obtain a certificate of proper management for 2022 must submit the documents for 2020 along with documents for 2017, 2018, and 2019.
For more information on this issue and potential legal action that can ensue due to failure to submit required documents, see our article Certificate of Proper Management for an Amuta.
How can I get a certificate for submission of documents?
A new or recently inactive amuta is not eligible to receive a certificate of proper management. In order to be eligible, it has to be active for two years. However, the organization can apply for a certificate of submission of documents. This can be helpful for the amuta to show donors or others that it is being managed properly, and it can be used to demonstrate that the organization is a “public institution” to the tax authorities in Israel.
For more information on exactly what needs to be done to apply for a certificate for submission of documents, see our article Certificate of Submission of Documents for Israeli Nonprofit Organizations.
What do I need to know about amuta financial management?
Israeli laws for an Israeli amuta dictate that the organization must follow specific accounting standards. Every financial transaction undertaken by the amuta must be recorded, and accompanying documentation must be preserved, including, among others, invoices, receipts, and more. Additionally, any amuta that turns over more than 750,000 NIS annually must use a double-entry bookkeeping method.
For more information on the topic, see our article Financial Management and Record Keeping in an Israeli Amuta.
What do I need to know about amuta record keeping?
Accurate record keeping is essential in Israeli non-profit organizations. Financial accounting standards for non-profits are very high, and accounting must be maintained in the organization or by an external person who maintains accounting documents for the amuta. This includes records of every financial transaction, including withdrawals of money, invoices, and receipts. If your amuta turns over an excess of 750,000 NIS, it must follow the double entry bookkeeping method.
What needs to be included in the annual financial statement?
The Executive Board of an amuta is responsible to prepare an annual financial statement. The preparation can be outsourced, but the Executive Board must ensure that it is prepared properly. This statement includes a balance sheet of the amuta’s income and expenses along with details for the five highest salary earners in the organization.
In addition to the financial report, an amuta must submit an annual verbal report (see below).
What is the annual verbal report?
All three mandatory institutions of the amuta must be involved in the verbal report. The Executive Board is responsible to prepare the report detailing how the amuta has been promoting its objectives, address how the amuta has used its funds over the past year, and detail major transactions that occurred or anything else of note. The Audit Committee is responsible for examining the report and making any recommendations. The report is then passed on to the General Assembly prior to being submitted to the Registrar of Amutot.
For more information, see our article, The Verbal Report and Israeli Non-Governmental Organizations.
When can board members be paid for services?
Israeli law on non-profits is very strict with regard to payments to board members in order to avoid conflicts of interest. The General Assembly can decide if an Executive Board member can be paid for their services. At the same time, Israeli law clearly says that board members may not be employed by the non-profit organization. However, they may receive limited reimbursements for participation in meetings.
For more information on payment to board members, and particular cases when board members can be paid, see our article Israeli Amuta Payments to Board Members, Rules, and Restrictions.
What do I need to know about reimbursements in an amuta?
Israeli law on non-profits provides general rules around permissible reimbursements in an amuta. A lot of this information relates to board members where there is a need to avoid conflicts of interest. There are two overarching categories related to reimbursements, those related to amuta meetings, and those related to promoting the amuta. There are options to reimburse board and other amuta members for expenses related to amuta meetings and promoting the amuta, but only under certain conditions related to the person’s residential distance from the meeting place, if they have a disability that might require special traveling expenses, if the amuta’s turnover is higher than 50 million NIS and board members live outside the country, and more.
The underlying principle behind the stipulations, which we detail in an article linked below, is to ensure responsibility and accountability between the three mandatory institutions of the amuta, the Executive Board, Audit Committee, and General Assembly.
For more specific situations and scenarios detailing permissible reimbursements in an amuta, see our article Reimbursements and Israeli Not for Profit Organizations.
What do I need to know about donors and reporting large donations?
Israeli non-profit organizations are required to maintain internal records about their donors and donations. This includes: the donor’s name, a description of the gift or donation given to the non-profit organization, and the date of the receipt.
A donor is allowed to remain anonymous so long as they donate less than 20,000 NIS per year. If the donor gives more money than this but still wishes to be anonymous, the amuta can submit a letter to the Registrar of Amutot providing the name, gift, and date of receipt for transparency’s sake, and a case arguing why the donor should remain anonymous.
There is an exception to anonymity, and that is when a foreign state provides a gift or donation greater than 20,000 NIS to an organization that has a turnover exceeding 300,000 NIS; the foreign state may not remain anonymous, and this information must be listed on the amuta’s website.
For more information about donors, donations, and how a foreign state is defined, see our article Non-Profit Organizations and Donations in Israel.
What do I need to know about conflicts of interest?
Section 27 of the Israeli Amutot Law clearly states the responsibility of the Executive Board to implement the amuta’s interests, which includes managing employees and avoiding conflicts of interest in the organization. Family relationships include siblings, parents, grandparents, children, grandchildren, a spouse, and more. Objectivity in the organization can be influenced due to family relationships. As a result, for example, an Executive Board member’s family member may not serve on the Audit Committee. Additionally, family relationships are not permitted between a majority of Executive Board members. This means that, if an Executive Board has five members, two may be related to one another, but three cannot.
For more information detailing conflicts of interest and family relations, see our article Conflicts of Interest in Israeli Non-Profit Organizations.
What can I expect in an in-depth audit?
The Registrar of Amutot regularly engages in audits of non-profit organizations to ensure they are acting according to their obligations and objectives. New organizations are not audited, but once you obtain a certificate of proper management, you can be audited.
Auditing can occur if the government has received complaints about mismanagement in the organization. In an in-depth audit, an organization’s use of funds are scrutinized, looking for leftover money, double funding (money from more than one source for the same project), mistreatment of employees, and more.
It is important to comply with an in-depth audit and obtain expert legal advice on preparation for an in-depth audit.
We provide many details on how an audit begins, what it examines, and addressing problems in our article Israeli Non-Profit Organizations and an In-Depth Audit in Israel.
Contact Us – All About Nonprofits in Israel
If you seek legal assistance with your amuta or cheletz in Israel, please contact us. Advocate Joshua Pex specializes in non-profit law and would be happy to help you.