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Non-profit organizations will need to obtain approval from the Israel Tax Authority (VAT) to participate in government tenders as non-profit organizations

28 September 2022

Dear friends and colleagues,

On August 15, 2022, the Israel Tax Authority (“ITA”) published guidelines regarding non-profit organizations that bid to provide services in government tenders (to read the guidelines, click here). Under the guidelines, non-profit organizations will be required to obtain approval from the ITA to classify their activities in the tenders as non-profit organizations according to the Value Added Tax Law, 1975 (hereinafter: the “VAT Law“). Following claims of discrimination against VAT dealers, the guidelines’ purpose is to regulate the participation of non-profit organizations in tenders, due to the different tax rates imposed on them.

The background to the publication of the guidelines

The guidelines were published following a previous decision of the ITA on August 11, 2018 (to read the decision click here), and following the verdict of the Supreme Court in 6466/19 Ministry of Defense v. Association of Nursing Companies (to read the verdict click here) according to which it was determined that non-profit organizations must obtain approval from the ITA when they bid to provide services in government tenders.

Following the publication of the guidelines, Mr. Roland Am-Shalem, Senior Deputy Director of Professional Matters of the ITA, held a meeting with “Civic Leadership” – the umbrella organization of the non-profits organizations in Israel – in which he agreed to make various concessions in the implementation of the guidelines.

The procedure for obtaining the approval

A non-profit organization that is interested in submitting its proposal to provide services in a tender published by the government – including government corporations, religious councils, health maintenance organizations, and public-funded academic institutions – is required to obtain approval in advance to be classified as a non-profit organization for the tender.

According to the guidelines, the non-profit organization can obtain approval by choosing the “Regular Track” or the “Green Track”.

Application to the “Regular Track”

The non-profit organization is required to apply – no later than 45 days before the deadline for submitting bids in the tender – to the Professional Department (VAT) to obtain approval of its status as a non-profit organization for the tender.

The application will be submitted through the “Pre Ruling System” on the ITA’s website and will detail the nature of the tender and the services offered by the non-profit organization. The following documents will be attached to the application:

  1. ​The tender documents.
  2. Registration of the non-profit in the VAT registers.
  3.  A “proper management” certificate from the Registrar of Amutot and Endowments (certificate of good standing).
  4. Approval of bookkeeping according to the Law on Transactions with Public Bodies, 1976.
  5. If available – approval according to section 46 of the Income Tax Ordinance.


The tax authority will examine the requests in a sampling manner. If the non-profit organization did not receive any response to the request submitted by the tender’s deadline, it may submit its proposal with approval from its “representative” stating that the request has not yet been answered. The representative’s approval will include the content of the request and its reference number received from the “Pre Rulings System”.

It should be noted that the decisions to classify a non-profit organization’s activity as a business activity for the government tenders will be approved by the Senior Deputy Director of Professional Matters of the ITA.

Application to the “Green Track”

Under the “Green Track”, a non-profit organization can receive approval of its status as a non-profit organization within 30 days, if it will meet special conditions and supports them with documents and a declaration.

Please note that under the “Regular Track”, the non-profit organizations will not be required to meet the special conditions of the “Green Track” to be classified as non-profit organizations. Their classification will be examined in accordance with the provisions of the law, case law and the policy of the ITA in practice until now.

Below are the conditions for receiving the approval that the activity of the non-profit organization in the tender constitutes a not-for-profit activity according to the green track:

  1. The non-profit organization is registered as such in the VAT Authority; has a valid “proper management” certificate from the Registrar of Amutot and Endowments; has a “proper bookkeeping” certificate under the Law of Transactions with Public Bodies, 1976; and has an approval in effect according to section 46 of the Income Tax Ordinance [new version], 1961.
  2. The activity of the non-profit organization in general, and under the tender in particular, is following the goals specified in the articles of association of the non-profit organization and has no profit motive. The services that will be provided by the non-profit organization under the tender have essential and unique components and characteristics that distinguish between the non-profit organization and service providers that are classified as dealers for VAT purposes.
  3. The activity of the non-profit organization relies significantly on volunteers.
  4. The total expected receipts from the tender do not exceed NIS 20 million.
  5. The rate offered by the non-profit organization minus all expected expenses is not expected to result in a “positive balance”.
  6. In the three tax years preceding the tax year in which the bid was submitted, the following conditions were met:
  • The revenues of the non-profit organization from government tenders did not exceed 25% of its total revenues.
  •  There is no employee (including officers) of the non-profit organization whose salary is higher than the maximum monthly salary of a General Director of a government ministry.
  •  The non-profit organization uses its assets and income to achieve the goals specified in its articles of association and does not accumulate assets or capital for an extended period without investing them in promoting its goals.
  • The non-profit organization’s receipts from donations or supports exceed 50% of its total revenue or the non-profit has an operating deficit financed through donations or supports.


We are in constant contact with the ITA and will be happy to assist you with obtaining approval from the ITA.

Happy new year
Herzog Fox Neeman

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