Can my Israeli Nonprofit have a Credit Card?

The Answer

The answer should hopefully be “yes,” nonprofit organizations can use credit cards.  Credit cards have become an integral part of running any kind of business; whether it be a not-for-profit or a for-profit corporation.   Credit cards are safer than cash and are the preferred method of payment when shopping on the internet.  Not to mention, the ease of an itemized monthly billing statement.  Nonprofit governing agencies should love credit cards and promote their use whenever possible.

But, alas, in Israel the answer is no…kind of.  Cryptic, but true. That is to say that in my experience as a banker, I have both ordered credit cards for charities that wanted them and canceled credit cards for charities that were told it was “illegal” to have them.

Why is it so Complicated?

Khok Ha’amutot [The Nonprofit Law] in Israel does not restrict a charity from ordering or using a credit card.  The law details that the default by-laws of an organization require at least two authorized signatories to sign on all transaction requests.  The law also allows for changes in the organization’s by-laws.  Examples of common changes include requirements for certain combinations of signatories that are dependant upon the amount of a transactions, as well as, permission for less than two people to sign.  This last one is pertinent as credit card transactions are viewed by the Rasham Ha’amutot [Israel’s Registrar of Nonprofits] as having been approved by only one signatory.

Included in the law are the various subcategories or licenses that an Israeli nonprofit can obtain (for a full list and description please view my previous post “Defining an Israeli Nonprofit”).  Among these statuses is the Nihul Takin, or Proper Management status.  As the name implies, this license is provided to organizations that are viewed as being run well; and the Rasham has its own definition of what “being run well” means (the determination is currently left up to the complete discretion of the Rasham).  The Registrar believes that all decisions should be approved by a minimum of two signatories.  While the State law allows for only one, those organizations that want to earn their Nihul Takin status are forced to adhere to the ultra-amutah standards of kosher behavior set by the Registrar of Charities.

As previously discussed, the Israeli government and many foreign foundations use the Nihul Takin as the benchmark to determine if an Israeli nonprofit is eligible to receive a grant.  So while the State law allows for credit cards decisions, the Rasham frowns upon them.  Frowning upon, of course, is not the same as outlawing them.  And since the audits done by the Rasham are subcontracted out to a wide variety of accounting firms there seems to be no set rule.  I, personally, know of charities that the first thing they were required to do was destroy any existing credit cards while a few nonprofits seem to have not been asked at all.  Go figure.

Current Possible Solutions

I have seen organizations adopt the following solutions:

  1. Create an Israeli “Friends of” organization.  Being as only the “main” amutah is concerned with obtaining a Nihul Takin, some organizations have started a brother/sister organization in Israel.  This organization absorbs the expenses and practices that are frowned upon for Nihul Takin status; thereby allowing the main amutah to avoid any troubles when applying for its Nihul Takin.  Recent auditing laws and practices designed to combine all financial statement of “related” amutotare making this option less workable.  A licensed accountant can advise if this option is relevant and feasible. 
  2. Having the foreign “Friends of” organization apply for a credit card.  For this option to work, the foreign supporting charity would have to operate a bank account in Israel.  Even though this organization operates in Israel, it is not subject to Israeli charity laws (this is true even for foreign charities registered in Israel).  As such, this account can absorb the expenses and practices that are frowned upon for Nihul Takin status.  Just remember, this account must reported to the United States and should conform to IRS standards.  Somewhat simpler.  Still ask an accountant.

Hopeful Signs

I was meeting with a colleague who is a partner of a leading accounting firm in Israel.  This individual is an expert in the area of amutah financial matters and has been invited to participate in various Knesset committees concerning amutot.   In one such meeting a few months ago, the issue of credit cards for amutot arose.  The matter was supposed to be covered over a short time but ended up taking up the next hour and a half.  This person presented to the committee an article that delineated the reasons why a credit card is important and numerous ways how an organization can provide proper oversight for credit card usage; for example, one idea presented was that two signatories sign on every credit card statement.  He told me that after heated debate a few MKs were even asked to join.  It was made clear that credit cards are a way of doing business in modern times and that the Nihul Takin should reflect this.  The Rasham Ha’amutot promised to take this under advisement and provide a solution.  Let’s hope we see something sooner rather than later.

Conclusion

So how do we proceed in the interim?  Like I said, credit cards in Israel are cryptic.  Ask your accountant for the final answer and he or she will let you know if it is worth ordering a card or not. 

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey

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One Response

  1. […] 35 pages) but am looking forward to the task at hand.  As explained in an earlier post (“Can My Israeli Nonprofit have a Credit Card”), the Nihul Takin is one of the main instruments that confuse and muck Israeli nonprofit […]

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