Managing the Nonprofit

In previous articles, the structure of the Israel Corporations Authority was explained and variations of nonprofit organizations clarified. Now principles of the nonprofit corporation as an idea and legal entity should be laid out further.

When a corporation is registered, a registration fee is paid, which is the first annual fee. Every year this fee must be paid and if it is not paid on time, minor sanctions will be made– such as removal of 'proper management' (אישור ניהול תקין) status, or labeling as non-law-abiding. This fee is a payment of sorts to the Ministry of Justice. This is the only essential direct payment to the government by the nonprofit corporation.

A corporation will open a bank account, and need an accountant who will handle financial reports. If there are employees, payments will be made to Social Security (ביטוח לאומי) and to Income Tax institutions, in accord with salaries. However, nonprofit corporations pay an extra 7% 'employee' tax to the normal income tax rate, unlike for-profit corporations. This additional tax serves as a compensation to the government system of tax, whereas for-profit corporations generally pay 17% of their company income as VAT (value added tax), in Hebrew ma'am (מע"מ, מס ערך מוסף).

Ma'am is third government taxing institution, which for-profit organizations file with while nonprofits are exempt. That is why a receipt pamphlet of a for-profit corporation is actually two-fold: receipt and tax invoice. A nonprofit corporation normally handles a receipt pamphlet for donations, not receipt for payment upon service or purchase of product, and there is no VAT invoice to it. [Note that some nonprofit organizations provide some business-oriented paid services secondary to their nonprofit work, and for this they handle a receipt and tax invoice pamphlet as well, and there is yet another booklet of receipts (not donations, not business with tax invoice) for other income such as compensation for expenses or membership and participation fees.]

While there are even more potential tax cuts for nonprofit corporations, for example municipal tax (arnona), and potential funding from the government, the main tax exemption for nonprofit corporations is the VAT upon income, i.e. donations. The significance of this tax cut is also a matter of principle, which is that nonprofit corporations are conceptually 'public institutions', or, indirect channels of the public sector.

To state things clearly, tax benefits for nonprofit corporations reflect their purpose as serving the government, thus partaking in public money. Because of this principle, standards of management among nonprofit corporations are within the interest of the legal system. In comparison, if a private company wastes resources, it does not concern the government in principle. Therefore, the Amutot Registrar (registrar of associations) is set up not only to document nonprofit corporations, both associations and public benefit companies (cheletz), but to encourage and instate quality of management.

The Amutot Registrar functions to catalog and account for nonprofit organizations, as well as to provide oversight for proper management. The standards of proper management are communicated in a booklet (found online) published and renewed constantly by the Amutot Registrar named Guidelines for Proper Management Approval (הנחיות אישור ניהול תקין).

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