Tax Benefits and Public Funds

Nonprofits are conceptually quasi-public organizations, as they are committed to an objective that would benefit the public (for example, religious services, welfare). All nonprofits are exempt from the fundamental VAT, state tax, on income not to be profited from, i.e. donations.

As organizations develop, they gain credibility because of their responsibly managed operations and financials, and along with this progress they may apply and receive additional forms of tax benefits, which are indirect forms of public funding, as well as direct forms of public funding, such as government grants.

Two notable additional tax benefits are: (1) certification as a voluntary body by income tax and thus liability for tax returns from income tax to donors, based on clause 46 in the income tax law; and (2) certification as a voluntary body by the Ministry of Interior and thus significant reduction of municipal tax (arnona), based on clause 5.10 of the municipal tax law (סעיף 5י).

For both special tax benefits, the organization must fill out designated application forms along with numerous financial and legal documents. The municipal tax reduction is submitted to the relevant municipality and to the Ministry of Interior, while the income tax certification is received through the tax authorities (Ministry of Finance) and is approved by a parliamentary committee.

Government offices, such as the Ministry of Welfare, Ministry of Health and Ministry of Education, have annual budgets, and they must use those funds to enact policy. These offices have regular funds allocated to nonprofits. Organizations in the field may search for relevant funding programs, apply and maintain the government resources. This is perhaps the highest or fullest potential of nonprofit organizations, as quasi-public institutions, that are in effect a means of government policy outsourced or privatized through the third sector.

Funds are available through several channels, among them municipalities, government offices, social security, and the estates fund, in the form of grants, joint projects or matching, request for tenders, and more. Application processes are bureaucratic and must be done within a particular time frame. Standards of qualification are high, as are measures of reporting before and after.

An organization may apply only if it has proper management status. It must provide details of projects for which funding is requested. Often the government will demand a matching fund before investing in a project. Authorized budgets and balance sheets are demanded, as well as proof of financial stability, proven experience and professional credibility, and more.

An organization cannot receive government funding from multiple sources for the same project or operation. In other words, you cannot request funding from the Ministry of Education and from the local municipality. If somehow you manage to acquire multiple government funding, the authorities will eventually discover the incident and penalize the organization.

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