CPA for Nonprofits in Israel

Nonprofits in Israel are a complex subject. It is a field regulated by law, with many professional terms, that calls for knowledge, experience and specialization. In this article we try to bring some order, address the important topics and answer the main questions.

Nonprofits — The Third Sector

Organizations in Israel are divided into three sectors: the public sector, the business sector and the third sector. The "first sector", the public one, comprises state institutions and local authorities. The "second sector" is the business sector, in which all for-profit companies operate. The "third sector" is the voluntary sector of organizations that do not aim to make a profit — nonprofits (amutot), associations, cooperative societies, public benefit companies (PBCs), public endowments (property dedicated to a public purpose), charities, international organizations and more.

About 38,500 nonprofits are registered in Israel and are defined by law as non-profit institutions (malkar), and about 25,000 of them filed a report with the Registrar of Nonprofits for one of the last two years (October 2026 figures). Although these are not businesses meant to generate profit for their owners, hundreds of thousands of people work and volunteer in nonprofits, which makes them a significant sector of the economy.

Malkar — Non-Profit Institution

A non-profit institution (malkar) is an umbrella term for nonprofits and organizations established to promote, encourage and fund a particular purpose for the public good. The institution does not accumulate profits, and the term is used mainly for tax purposes. The tax rules for non-profit institutions differ from those for business companies, so it is worth working with a CPA firm that specializes in the field in order to enjoy these benefits. In Hebrew these organizations are also called alkar — an organization without a profit motive — after the English term N.P.O., Non-Profit Organization.

Characteristics of a Nonprofit

Nonprofits and non-profit organizations usually share three characteristics:

1. Activity for a public purpose in areas such as education, welfare, culture, the environment, religion and the like.
2. Funding mainly from public money — through donations or government and institutional support.
3. A prohibition on distributing the surplus generated by the activity; the budget is used for the organization's purposes.

Nonprofits' Fields of Activity

The public purposes for which nonprofits are established touch every area of life — from human rights, the environment, nature protection, health and saving lives, through politics, education, culture, art, sport, science, research, higher education, religion and heritage, commemoration, immigration, absorption and settlement, to charity and community welfare, law, public administration and, as mentioned, animal protection.

It is common to classify a main field of activity and, within it, a sub-field. For example, a university is classified in the field of "education and research" and the sub-field "higher education", while an animal-welfare society is classified in the field of "environment" and the sub-field "care for animal welfare".

A Nonprofit's Profits

Nonprofits operate without a profit motive, and all their income funds their activity. Sometimes income exceeds expenses and a surplus is created — but unlike a for-profit body, this surplus may not be distributed to the nonprofit's members; it may be used only for the organization's purposes.

The Registrar of Nonprofits

According to the Israeli Corporations Authority's open database, at the end of October 2026 there were 38,515 nonprofits registered in Israel. About 24,900 of them filed a report with the Registrar for 2024 or 2025, and 22,406 received a proper-management certificate for 2026. Alongside the nonprofits there are about 1,270 public benefit companies (PBCs) — according to the latest published figure, from December 2023 — and 747 PBCs received a proper-management certificate for 2026.

A proper-management certificate is a condition for receiving support from the state and from local authorities, for contracts and tenders, for land allocations and for a Section 46 approval. The certificate is granted for two years, provided the nonprofit keeps reporting to the Registrar on time.

Nonprofits — Annual Reporting

A nonprofit is a corporation registered by law, so it must report to the Registrar of Nonprofits every year, online, by 30 June of the year following the reporting year (section 36(d) of the Nonprofits Law). The filing includes a financial report — a balance sheet and a statement of income and expenses, accompanied by a notice of the payments made to the five highest earners in the nonprofit; a narrative report on its activities; and the minutes of the general assembly that approved the financial report, together with the audit committee's recommendation and, where one was appointed, the CPA's opinion. Documents filed with the Registrar are open to public inspection, and the Registrar may publish them online — without donors' names. In addition, the nonprofit pays an annual fee, which is lower if paid by the end of March. A nonprofit in its first two years after the year of its incorporation, or one whose annual income turnover does not exceed ILS 300,000, pays a reduced fee — but is not exempt from it.

The Process of Opening a New Nonprofit

The law allows two or more adults to incorporate as a nonprofit, for a lawful purpose that is not aimed at distributing profits among its members and whose main purpose is not making profits (section 1 of the Nonprofits Law). The government body that registers and supervises nonprofits is the Registrar of Nonprofits at the Israeli Corporations Authority, Ministry of Justice. Important to know: for the nonprofit to be recognized as a "public institution" under section 9(2) of the Income Tax Ordinance — recognition that exempts its income from tax, other than income from a business, and is a condition for a Section 46 approval — it must have at least seven members, most of whom are not relatives of one another.

The application to register a nonprofit is filed with the Registrar online. It states the nonprofit's name, its purposes, its address in Israel and its digital address, and the founders' names, addresses and ID numbers, together with a declaration signed by all the founders that they are willing to found the nonprofit and to serve as board members (section 2 of the law). The founders may also submit their own bylaws; if they do not, the "model bylaws" in the First Schedule to the law apply to the nonprofit (section 10). Tailored bylaws let you set provisions that fit the activity of your new nonprofit.

Nonprofits — The Road to Section 46

The State of Israel encourages taxpayers to donate to public institutions approved for this purpose, through an income tax credit. A body that wants its donors to enjoy the benefit must apply to the Tax Authority and obtain an approval under section 46 of the Income Tax Ordinance. Under the section, an individual who donated more than ILS 207 in a tax year (the amount for 2024–2027) to an approved institution receives a tax credit of 35% of the donation, and a company — at the corporate tax rate (23%). The credit applies to donations of up to 30% of taxable income or up to ILS 10,354,816 a year — whichever is lower — and a donation above the ceiling earns a credit over the following three tax years.

From 1.1.2026, every institution holding a Section 46 approval must report online, in the Tax Authority's "Israel Donations System", every donation received and every cancellation of a donation, with no minimum amount. Meeting this reporting duty is a condition for keeping the approval.

A body applying for an approval under section 46 must attach:

• Financial statements (a new public institution submits a budget estimate for its first year of activity).
• Incorporation documents.
• A list of the founders and office holders.
• A letter of undertaking and appendices.
• Registration with Income Tax and VAT.
• A proper-management certificate.
• A withholding-tax certificate.
• Contact person details, with phone and email.

How Do You Raise Money for a Nonprofit?

Nonprofits are funded from four main sources: public funding, membership fees, self-generated income and donations from the public. The total receipts from all these sources over a year is the nonprofit's annual turnover. Some nonprofits charge membership fees to raise funds. Usually this is a uniform payment for all members, but sometimes the amount varies with the member's profile (regular member, senior citizen, student, soldier, etc.).

Nonprofits — Government Ministry Funding

Public funding consists of grants given by the state or by a local authority to nonprofits that applied for support and met the required criteria. This is equal support, transparent to the public, given under support criteria published in advance — and their threshold conditions almost always include a proper-management certificate and orderly financial statements.

→ Read our full article: Support and Grants for Sports Nonprofits

Which Is Better — a Nonprofit or a PBC?

Both a nonprofit and a public benefit company (PBC) are non-profit institutions, but their activity is regulated by different laws: a nonprofit — by the Nonprofits Law, and it is registered with the Registrar of Nonprofits; a PBC — by the Companies Law, and it is registered with the Registrar of Companies, with its registration subject to the approval of the Registrar of Endowments (section 345B of the Companies Law). The differences between the laws lead to differences in the supervising body, in the various requirements, in annual reporting, in day-to-day conduct and so on.

Similarities Between a Nonprofit and a PBC

Both forms of incorporation must set up proper organs: a general assembly, a board or board of directors, and an audit committee or audit body. Both can obtain a proper-management certificate and a Section 46 approval, which entitles their donors to a tax credit.

The Duty to Appoint an Internal Auditor

A nonprofit whose turnover exceeds ILS 10 million a year must appoint an internal auditor (section 30A of the Nonprofits Law). The internal auditor is appointed by the board, with the consent of the audit committee; if they cannot agree, the general assembly decides. The internal auditor's organizational superior is the chair of the board or the CEO, as set in the bylaws, or — absent such a provision — as the board decides (section 148 of the Companies Law, which applies to nonprofits with the necessary modifications). The auditor submits to the board a proposed annual or periodic work plan, after the audit committee has reviewed it. The role differs from that of the audit committee and does not replace it.

In addition, a nonprofit whose annual turnover exceeds ILS 1,380,630 (the amount for 2026; updated every year by the consumer price index) must appoint a CPA (section 19(c) of the law), and its financial report is presented to the general assembly audited by the CPA (section 37). A smaller nonprofit may also be required to have an audit: the Registrar may order it — on its own initiative, or at the request of the audit committee or one-tenth of the nonprofit's members.

Differences Between a Nonprofit and a PBC

The differences between a nonprofit and a PBC begin at the registration stage, in legislation and in regulation. Ideologically, a nonprofit can be established for any lawful purpose, whereas a PBC's purpose is taken from a closed list of public purposes set out in the Companies Law. An annual report audited by a CPA is mandatory for every PBC, but becomes mandatory for a nonprofit only when its annual turnover exceeds ILS 1,380,630 (the amount for 2026).

There is also a difference in the number of members needed to set up and run the body. A nonprofit has at least two, and membership in it is personal, non-transferable and not inherited (section 17), with no ownership, whereas a PBC can be set up even by a single person, and like any company it has shareholders, although the shares have no economic value and are not transferable.

Summary

Setting up a nonprofit is not a simple matter. Before taking the step, it is worth checking carefully what the implications are and what actions are needed to set one up. At Hager-Alperowitz & Co. we will be glad to help you set up a nonprofit as you wish, and to audit and run it successfully. With us you receive professional advice from CPAs who are also jurists and former Income Tax assessment inspectors.

The above article does not constitute a recommendation, professional advice or a legal opinion. If you have any questions, you are welcome to contact us — we will be happy to advise, accompany and represent you before the Israeli tax authorities.

Kind regards,
Hager-Alperowitz & Co. — Certified Public Accountants