The Israeli Tax Authority (ITA) unveiled on March 23, 2025 a new digital donation system for Israeli charities approved under Section 46 of the Income Tax Ordinance (ITO). Charity begins at home and can avert a harsh decree on Yom Kippur, but easier access to tax relief is also okay. The new digital donation system should help donors and charities alike, from the biggest organization to small local synagogues.
What are the tax breaks?
Donations to charities ranging from NIS 207 to NIS 10,354,816 (in 2025) generally confer a 35% tax credit for individuals or 23%, for companies if various conditions are met. In particular, the charity must be approved by the ITA (under ITO Section 46) and the tax break is capped at 30% of taxable income. For example, if you donate NIS 1,000 to an approved charity, your tax bill may go down by NIS 350.
What is changing?
The tax breaks are not changing but the implementation is being upgraded. Until now, it was necessary to file an annual Israeli tax return and attach original or digitally signed donation receipts. Quite a palaver. There were apparently cases of fraud – filing phony donation receipts.
So the ITA is adopting a hitech solution similar to the "Israel Invoice" system for businesses.
The ITA has introduced an electronic system which lets public institutions (i.e. charities approved under Section 46) transfer donation info straight away to the ITA's computer system.
The system saves donors the bother of saving donation receipts to claim their tax break as the receipts are all stored electronically at the ITA from the outset.
At this stage, the new system only applies to charities that issue digital donation receipts. In the case of charities still issuing paper receipts, another new system should be launched to issue special numbers for each donation receipt, But this is less recommended as it involves keying in manually all the donation information. Instead, charities (local synagogues etc) should consider investing in digital receipt software (see below).
What does the new ITA system do?
The new ITA system allocates a special number to each donation receipt which will appear on the receipt. Details of the receipt are stored in the "personal area" (Azor Ishi) of each taxpayer to help facilitate claiming the tax break later, on annual tax returns etc.
How does a charity connect to the ITA digital system?
First, register. Second, start using approved software on the Israeli market that connects up to the ITA system. Third, the software issues digital donation receipts with the special ITA number on them. Fourth, the charity can view online all the digital receipts i.e. how much they netted.
How do donors claim their tax breaks?
Freelancers (self-employed): When filing their annual tax returns, they can view their digital donations over the year concerned online and "accept all."
Employees: They need to go into the tax coordination (Tium Mas) facility on the ITA website, view their digital donations over the year concerned, and "accept all".
Government and other employees: Government employees can receive their charity tax break via their monthly paycheck. The ITA is "working" on extending the possibility of this monthly paycheck to non-government employees. No timeframe is indicated.
How can donors be sure their digital donation is in the system?
If a charitable donation has been logged on the ITA system, the digital donation receipt will show the special donation number and say: "The Donation Has Been Reported To The Israeli Tax Authority". Make sure you provide your identity number when making the donation. Comment: It is not yet clear whether donors who are not Israeli citizens can benefit from the new system.
Comment – US olim
The US-Israel tax treaty lets Israeli residents receive both the above 35% Israeli tax credit and a deduction under US law if they are also US taxpayers. This applies to charitable contributions to a charitable organization for US tax purposes which support Israeli causes i.e. US Section 501(c )(3) "Friends of" Israel organizations. The tax break is limited to contributions not exceeding 25% of taxable income from US sources.
Unfortunately, it is not clear whether US Olim donating to US Friends Of Israel charities can avail themselves of the new Israeli digital donation system.
As always, consult experienced professional advisors in each country concerned at an early stage in specific cases.
leon@hcat.co
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax.