For those individuals or corporations familiar with nonprofit organizations in the United States, any analysis of the status of an Israeli charity should begin with a comparison.  This contrast will shed light on the many differences that exist in the two countries’ legislation and definition of a nonprofit organization.

American Nonprofit Organizations

In the United States, all for-profit and nonprofit organizations are companies.  Each company is registered in the state where it is headquartered; the definition and governance of these companies differs slightly from state to state.  In the United States the title of nonprofit is a federal one, referring to any organization that is exempt from some federal income taxes (although many states use the federal guidelines to exempt similar organization from state taxes, as well).  All organizations that fall into this category are labeled as 501(c).  While there exist 28 categories, only those organizations belonging to the 501(c)3 category will allow an individual’s donation to be tax-exempt.  This group is divided into public charities and private foundations.  For the purpose of this article, the definitions of the two groups are not relevant.  In short, it is these 501(c)3 organizations that have been colloquially dubbed “nonprofits” in the United States.

Israeli Nonprofit Organizations

In Israel, traditional nonprofits are called amutot (or amutah in singular) and have their own governmental oversight body, called the Rasham Ha’amutot (Registrar of Nonprofit Organizations).  Companies have a separate federal group tasked with overseeing them called the Rasham Hata’agidim (Registrar of Companies).   Both registrars can contain organizations that would be considered non-profit and for-profit under American standards.

Further investigation reveals that within each registrar are subcategories that will be referred to as licenses or statuses for the purpose of this article.  As most nonprofits are registered with the Rasham Ha’amutot (Registrar of Nonprofit Organizations), it is logical to start the analysis from here.

1. Mispar Ha’amutah [Nonprofit Organization Number] – This is simply a number that the charity receives letting the public know that this organizations is registered with the government under the Registrar of Charities; as such, this charity is subject to government scrutiny under the Amutah (Nonprofit) Law.  This number will function like an I.D. number (for Israelis) or like a social security number (for Americans).  This number is for identification purposes only and does not label donations the charity receives as tax-exempt.  The process for receiving a nonprofit ID number takes approximately a month, according to the staff at the Registrar of Charities.   
2. Nihul Takin [Sound Management] – This is a certificate awarded to organizations that follow an additional set of management guidelines as decreed by the Registrar of Nonprofits.  This status is assigned to organizations that have been in activity for no less than two years.  For the first two years, there is an interim document that can be obtained called “Certification of Validity of Presentation of Documents.”  An organization will not be able to obtain grants or contracts from the government without the nihul takin status.  For better of for worse, many institutions outside Israel are using the nihul takin as their benchmark, as well. 
3. Mosad Tziburi [Public Institution] – This status is given by the Ministry of Finance and declares the organization’s funds are to be tax exempt; for example, profit earned from investments made with a bank or financial institution would be tax exempt for this kind of organization.  This status does not brand the donations that the charity receives as tax deductable.  A nihul takin license is required when applying to be a “public institution.” 
4. Se’if 46 [Paragraph 46] – This status is granted by the Finance Committee of the Knesset on the recommendation of the Finance Committee to organizations that have obtained status as a public institution.  It is the “Paragraph 46” status that is comparable to the nonprofit 501(c)3 status in the United States.  Individuals that donate to charities that have Paragraph 46 status can get up to a 35% refund on their taxes.  An expert accountant in the field estimated the minimum time required to receive Paragraph 46 status as six months.  Practically speaking, this means that two and a half years of existence is the absolute earliest an Israeli nonprofit can expect money donated to them to be tax-exempt.  It is important to note that only approximately a third of the charities operating in Israel have this status. 
5. Malkar [Institute Not-Intended for Profit] – This license is granted from the Ministry of Finance and can be interpreted as “additional level of fiscal approval.”[1]  Organizations with this status can sell goods and services without charging VAT [Value Added Tax], or sales tax.  Purchases made by the charity, however, are still subject to VAT. 

A small fraction of nonprofit organizations exist as Chevrot Leto’elet Hatzibor [Companies for the Benefit of the Public].  These organizations are governed by company laws and are registered with the Rasham Hata’agidim [Registrar of Companies].  These institutions can also apply for all of the above licenses, if they are founded “for the promotion of commerce, arts, science, religion, charity, or any other social function with the aim of benefiting the public.”[2]

While the Amutah (Nonprofit) Law established by the Knesset is quite clear and concise, the guidelines managing nonprofits in Israel are murky, cumbersome, and confusing; this is due to the Israeli Government having created additional licenses and leaving them in the control of different branches of the government.  Those individuals or institutions looking to make a comparison between organizations registered in the United States and Israel will, thus, find their compass missing its needle.  The simple charity ID number does not tell a donor or oversight committee anything about the organization.  The additional steps of obtaining public charity, tax-exempt, or malkar status are less an evaluation of the management of the amutah and more of an internal argument to the Israeli Government that the organization has earned to right to be tax-exempt.  This leaves the general public with only the nihul takin (albeit its own deficiencies and stringencies) as the only fair judge of an organization’s true nonprofit status.

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Works Cited 

[1]  Eliezer David Jaffe “The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” (Giving Wisely, The Internet Directory of Israeli Nonprofit
and Philanthropic Organizations), http://givingwisely.org/State.htm

[2]  Ibid

Bibliography

To supplement my own knowledge and experience, I drew upon the following resources:

“501(c)” (Wikipedia, The Free Encyclopedia), http://en.wikipedia.org/wiki/501(c)

“Application to be Recognized as a Public Institution” (Israeli Tax Authority), http://www.finance.gov.il/taxes/docs/malkar_2006-09-20.pdf

“Presentation of Documents to Obtain Certification of Sound Management for 2010” (Israeli Ministry of Justice) http://www.justice.gov.il/NR/rdonlyres/AA0674DA-C669-4242-B2A2-448BAE3257B2/14849/2012.pdf

“The State, Volunteers and Nonprofit Organizations in Israel: the Nature of the Relationship” Eliezer David Jaffe, (Giving Wisely, The Internet Directory of Israeli Nonprofit and Philanthropic Organizations), http://givingwisely.org/State.htm

Translations of Hebrew words to English were done through Morfix @ http://milon.morfix.col.il