As discussed in a previous post, certain countries have legal entity types and tax exemption or charity requirements in their jurisdictions that contain helpful provisions with respect to equivalency determination (ED). One such country is Israel. In this post, we will explore Israeli nonprofit and tax exemption requirements that NGOsource often relies on for ED certifications.
The Israeli entity that NGOsource most frequently evaluates for equivalency is the nonprofit association (amuta). Amutas are governed by the Amutot Law (1980) and must be formed for a lawful purpose that is not aimed at the distribution of profits to its members.
According to the Israeli Ministry of Justice's guide to Proper Management of Amutot (Non-Profit Associations) (PDF), the three main characteristics of an amuta are
- Prohibition of the distribution of profits.
- Performing only activities that are within the framework of the goals that have been approved for the amuta.
- Membership of an amuta is personal, and may not be transferred to another. By contrast with bodies that are incorporated as companies, a member of an amuta has no proprietary right in the amuta.
Amutas can draft customized bylaws or adopt the Standard Bylaws for Non-Profit Organizations, which contain certain legal requirements for amutas and are available as an appendix to the Amutot Law (1980).
Public Benefit Companies
Public benefit companies (PBCs) are another common type of Israeli nonprofit entity. PBCs are organized under the Companies Law and registered with the Companies Registrar. Such organizations must have bylaws which prescribe only public purposes and also forbid any distribution of profits or any other distribution to their shareholders. A PBC is prohibited from directly or indirectly distributing its profits. It must also appoint an audit committee to examine whether its acts are in accord with its purposes, determine whether its objectives are achieved efficiently and economically, and check its monetary affairs, account books, and other financial and administrative functions.
Perhaps most helpful with respect to conditions that mirror charity requirements in the U.S. is "public institution" status, pursuant to the Israeli Income Tax Ordinance. This status is not a legal entity type, but rather a tax exemption designation: Either an amuta or a PBC may be recognized as a public institution. Public institutions must exist and function for a public purpose, which must be "concerned with religion, culture, education, science, health, social welfare or sport and any other purpose approved by the Minister of Finance as a public purpose."
These requirements closely parallel charity requirements in the U.S. As explained in a previous post, nonprofit and charitable are not synonymous. Thus, a nonprofit organization, such as an amuta or PBC, with public institution status must also be organized and operated for charitable purposes. Notably, however, an organization that does not have public institution status can also be organized and operated charitably.
In addition to assurances that public institutions be organized and operated for charitable purposes, the Income Tax Ordinance further requires that a public institution's property and income be solely used for its public purposes. This requirement not only precludes private benefit, but also ensures that an organization's assets will be dedicated to public (charitable) purposes in perpetuity, including on dissolution.
It is important to note that an Israeli organization can still qualify for equivalency even if it's not organized as one of the aforementioned entity types or does not have public institution status. All organization types are eligible for equivalency if they meet the necessary organizational, operational, and, if applicable, financial requirements.
All of the following are PDF documents.
- Proper Management of Amutot (Non-Profit Associations), Ministry of Justice
- Amutot Law (1980), The International Center for Not-for-Profit Law (ICNL)
- Companies Law 5759-1999, The International Center for Not-for-Profit Law (ICNL)
- Income Tax Ordinance, The International Center for Not-for-Profit Law (ICNL)
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.