Significant News for Third-Sector Organizations (NPOs) – Direct Saving of Millions Following a Dramatic Reduction in the Regulatory and Bureaucratic Burden

Israeli NPOs (“Amutot”) and public-benefit companies (PBCs) tend to interface regularly with three government authorities: the Corporations Authority (Registrar of Amutot, Registrar of Companies, and Registrar of Endowments); the Israel Tax Authority (for the purpose of obtaining a certificate pursuant to section 46 of the Income Tax Ordinance, which allows a tax credit to contributors in respect of their contributions); and the Accountant-General (for the purpose of obtaining financial support from the State).

As a result, over the years, Amutot and PBCs have been required to file similar or identical reports to two or more of the aforesaid authorities, as well as to attach documents that were already in the possession of other government authorities, or that had already been submitted to the authorities in the past.

This situation imposed a heavy burden on third-sector organizations, and forced them to divert substantial resources, including financial resources, to fulfill these requirements. Third-sector organizations have had to contend with a high volume of work hours devoted to bureaucracy, payments to attorneys and accountants tasked with preparing the reports, and considerable attention given to working opposite government authorities. All of these obligations detract from Amutot and PBCs’ focus on promoting their objectives and optimizing their development. Moreover, they give rise to ambiguity and uncertainty with regard to the authorities’ requirements.

The above difficulties prompted an initiative aimed at reducing the regulatory and bureaucratic burden involved.

Recently, after a considerable number of meetings and discussions were held between representatives of third-sector organizations and representatives of a number of authorities, led by the Prime Minister’s Office, the interministerial committee tasked with easing the regulatory burden on Amutot and PBCs’ published a report of its conclusions. This report included the formulation of a work plan to improve regulations, so that they focus on creating coordination between the authorities and uniform requirements as a precondition to Amutot and PBCs’ filing applications to these authorities (applications for a certificate of proper management, for a certificate pursuant to section 46 of the Income Tax Ordinance, and to receive support from government ministries).

The aforesaid work plan is designed to provide a solution for the regulatory burdens deriving from two or more authorities demanding similar or identical documents and information. Subsequent to its implementation, this plan is expected to offer relief to organizations, to reduce bureaucratic requirements, and to prevent the need to refile documents or provide information (an “ask once” policy). The inter-ministerial committee assessed that most of its proposed solutions will bear fruit already next year (2019).

The work plan is said to offer significant  improvements. Besides benefitting the economy and improving the interface between the various authorities – according to the inter ministerial report – the plan is expected to eliminate a total of 21 bureaucratic operations, including the filing of forms, the furnishing of items of information, and other bureaucratic requirements. In addition, the volume of direct savings to be enjoyed by Amutot and PBCs subsequent to the plan’s implementation has been estimated at a total of about NIS 3.1 million per annum. This constitutes savings of about 20% of the cost of the regulatory burden currently being imposed on these organizations!

The implementation of the solutions specified in the committee’s report involves amendments to legislation, procedures, and forms. It also involves complicated technological adaptations, including the creation of a new online system, which is expected to launch during the first quarter of 2019. The online system will enable the filing of online reports remotely, so that it will be possible to extract the relevant information being reported from the computer system of the Corporations Authority and to forward it to the Israel Tax Authority and to the Accountant-General’s office.

The initial implementation of the aforesaid solutions already began in early June 2018 with the promulgation in Israel’s official gazette, Reshumot, of the Amutot Regulations (Forms), 5778 – 2018 and the Amutot Regulations (Setting the Maximum Sum and Procedures for Disclosing Anonymous Contributions in Financial Statements), 5778 – 2018.

Within the scope of the regulations, the maximum sum of a cumulative annual contribution from a contributor, in respect of which an Amutah will be allowed to not disclose the contributor’s particulars in its financial statements and deem them privileged information (without needing to file a detailed application to the Registrar and receive its approval), will be NIS 100,000 (instead of the NIS 20,000 prior to the inception of the amended regulations). This will hold true except in instances where such contribution constitutes at least 20% of the Amutot annual financial turnover (in such instance, the maximum sum for privilege will be NIS 50,000).

The regulations further prescribe that an Amutah whose annual financial turnover is less than NIS 500,000 will no longer be required to file its financial statements with the Registrar of Amutot. In addition, such Amutah will no longer have to also file a report about some of the matters listed in the descriptive report it is required to file with the Registrar. (This report was entirely rewritten within the scope of the new regulations.) The regulations further include additional significant reliefs pertaining to the reporting obligations imposed on Amutot. Thus, they provide, in essence, official approval for procedures and guidelines that have been put into practice in recent years independently by the Registrar of Amutot.

Some of the provisions of the regulations will come into effect in August 2018, while the provisions of the material portion of the regulations are expected to come into effect in 2019, subject to the Registrar publishing preliminary suitable guidelines.