How To Get Tax Refunds on a Donation to an Association (Israeli Amuta) or Public-Benefit Corporation?
Introduction – Recognition as a Volunteer Institution in Accordance with Section 46 of the Income Tax Ordinance:
One who donates at the right time, as is well known, is blessed as someone who has donated twice. More importantly, the donor can also receive a tax refund on his donation, provided that he donated to the right cause and in the right way.
Israeli public-benefit corporations and volunteer associations (amutot, plural of amuta) are entitled to receive special recognition from the State of Israel, through which local Israeli donors who pay tax in Israel are eligible to receive a tax refund of 35% on their donation. Thus, in effect, the State participates indirectly in the expenses of nonprofit organizations (NPO) that have been recognized as public institutions.
Lawyer Michael Decker, who specializes in association law and nonprofit law, explains below how to receive this recognition and how to apply for tax refunds on donations.
NPOs in Israel – Third Sector:
Amutot and public-benefit corporations represent what is known as the “third sector”.
The term “third sector” means that NPOs are considered to be between the private business sector (whose purpose is to gain income for personal use and, therefore, whose profits are taxable) and the government sector (which is supposed to use tax money for the benefit of the public).
Income Tax Exemption for NPOs
Amutot and public-benefit corporations are classified by the tax authorities as NPOs. This classification entitles amutot and public-benefit corporations to a full exemption from income tax and VAT. Although any donation received by an NPO must be reported to the authorities (and a receipt must be issued for the donation), the institution does not have to pay taxes for it.
The third sector represents interests that the State itself is supposed to promote and, therefore, the activities for the benefit of the public should not be taxed.
Amutot and public-benefit corporations are required to pay taxes (income tax, National Insurance, etc.) on salaries paid, but this is actually a tax that the employee pays through the employer as a private citizen.
Certain Benefits to Which NPOs Are Entitled:
There are other benefits relevant to amutot and public-benefit corporations, such as significant arnona (property tax) reductions. Many NPOs and public-benefit corporations are even budgeted by the State itself (tenders for this are published annually). Government ministries use the assistance of amutot and NPOs to implement and incorporate government policies.
Recognition as a Voluntary Institution, in Accordance with Section 46 of the Income Tax Ordinance:
- (a) If a person contributed in a certain tax year an amount in excess of 180 ILS to a national fund or to a public institution within its meaning in section 9(2) as defined for this purpose by the Minister of Finance with approval by the Knesset Finance Committee, then he shall be credited for the tax he owes in that year in the amount of 35% of the amount of the contribution, if he is an individual, and at the percentage of the contribution prescribed in section 126(a) if it is a body of persons, but in no tax year shall credit be given for a total amount of contributions in excess of 30% of the assessee’s chargeable income in that year, or in excess of 9,000,000 ILS, whichever is less (hereafter: credit ceiling); any amount contributed in that tax year in excess of the credit ceiling shall be credited against tax in accordance with the provisions of this section during the following three tax years, one after the other, on condition that in each of the said three tax years no credit be allowed in respect of a total amount of contributions in excess of the credit ceiling.
In practice, these funds are transferred directly to the donor’s bank account (if he pays taxes to the State of Israel – anyone who works in the State of Israel as an employee through a pay slip, or as a self-employed person with a VAT file, pays taxes) by submitting the relevant receipts to the tax authorities (it is recommended to use the services of an accountant).
Contact Lawyers Specializing in Association Law and Tax Refunds on Donations
Lawyer Michael Decker from our law firm, who specializes in nonprofit law, regularly represents amutot and public-benefit corporations, and advises them on their proper conduct.
Speaking from personal knowledge, there are many amutot and public-benefit corporations that are not recognized as volunteer institutions under section 46 of the Income Tax Ordinance.
Lawyer Michael Decker from our law firm has assisted, along with accounting firms, many NPOs in obtaining recognition as volunteer institutions, in accordance with section 46 of the Income Tax Ordinance, and he will be happy to assist you in this process, as well.