Association and Accountant — A Guide to Annual Reporting and Obligations

What is an Association Report and Who is it Relevant To?

An association is a non-profit organization dedicated to social, cultural, sports, or other activities. Under Israeli law, an association must maintain accounting records and submit annual reports to the tax authority and national insurance, even if it does not pay income tax on the activity itself.

The association's annual report includes a balance sheet and an activity report, and must be submitted within several months of the end of the reporting year. Additionally, if the association has employees, it is obligated to report salaries and mandatory deductions to national insurance.

Our target audience includes association managers, chairpersons, treasurers, and organizations seeking clarification on obligations and procedures. If you manage an association in Petah Tikva, Ramat Gan, or anywhere in Israel, this guide is for you.

How the Association Reporting Process Works — Step by Step

The reporting process for an association is partly similar to that of a business, but there are significant differences. Here are the main steps:

1. Daily Bookkeeping Management — All income, expenses, and debts must be documented. This includes donations, revenue from activities, operating expenses, and more.
2. Closing the Reporting Year — At the end of the year (usually in December), all transactions are organized and verified to ensure the books are balanced.
3. Preparation of Annual Report — A balance sheet must be prepared (assets, liabilities, equity), an activity report, and all information required according to the association's bylaws.
4. Report Approval by Management — The association's management must approve the report before submission.
5. Submission to Tax Authority — The report is submitted to the tax authority within the prescribed deadline (usually within 90 days from the end of the reporting year).
6. Employee and Deduction Reporting — If there are employees, it is mandatory to report salaries and statutory deductions for national insurance in periodic reports.
7. Document Retention — All documents (invoices, receipts, proof of expenses) must be retained for several years.

In short, this is a process that requires diligence and organization. If you are uncertain about any step, it is advisable to use the assistance of an accountant experienced with associations.

What You Need to Know About Taxes, Reporting, and Association Obligations

A properly registered association is generally exempt from income tax on revenues from its activities, but this does not mean it has no reporting obligations. In fact, the opposite is true.

Reporting to the Tax Authority: An association must submit an annual report detailing all income and expenses. Even if the association is exempt from income tax, it must still report. This is not only to maintain the exemption, but also to demonstrate financial transparency.

VAT: If the association engages in activities considered a "business" (for example, selling goods or services), you may need to register for VAT and report it. This depends on the scope and nature of the activities.

Employee Reporting: If the association has employees, it is required to report wages and social security deductions in periodic reports (monthly or quarterly, as required). This includes reporting income tax withheld at the source.

Capital Declarations and Donations: Associations that receive large donations must report them. Additionally, if the association has significant assets, there may be a requirement to file a capital declaration.

One point that is not always clear: exemption from income tax does not mean you can operate the association with complete freedom. There are strict reporting obligations, and failure to comply can result in an audit or even loss of the exemption. The Tax Authority takes this seriously.

Common Mistakes Associations Make — and How to Avoid Them

In our work with associations, we have seen certain mistakes that repeat themselves over and over again. Here they are:

• Failure to maintain proper books from the start — Many associations begin with "simple" management (perhaps just an Excel spreadsheet) and only at the end of the year realize it is not sufficient. Maintain proper books from day one.
• Confusion between personal funds and association funds — If the treasurer uses a personal account for the association, it creates confusion and audit problems. Open a separate bank account for the association.
• Failure to report employees properly — Associations that employ people sometimes "forget" to report or report inaccurately. This can lead to penalties and debt to the state.
• Delay in submitting the annual report — Deadlines are strict. If you delay, you may face fines or even lose your registration.
• Failure to retain documents — If the Tax Authority or an external auditor asks to see invoices or proof of expenses and you do not retain them, that is a major problem.
• Failure to report large donations — If you received a substantial donation, you must report it. Failure to report could be considered an offense.
• Confusion between income tax exemption and "no reporting required" — Income tax exemption does not mean you are exempt from reporting. You are still required to submit an annual report.
• Failure to update information with the Tax Authority — If the association manager or treasurer changes, you must update the Tax Authority. Failure to update can lead to communication problems.

The best way to avoid these mistakes is to work with an accountant who is familiar with associations. This not only saves time — it also provides peace of mind.

When Should You Consult an Accountant for Your Association

If you manage an association, you are probably wondering: Do I really need an accountant? The answer is: it depends.

You likely need an accountant if:

• The association has significant income (donations, activity revenues, etc.).
• The association has permanent or even temporary employees.
• You are uncertain about reporting obligations or the annual report process.
• You want to ensure the association complies with all legal requirements.
• You want peace of mind and time to focus on the association's core activities.
• The previous annual report was rejected or you received comments from the Tax Authority.
• You are facing an audit or inspection.

You may be able to manage on your own if:

• The association is very small, with minimal financial transactions.
• You have no employees and all transactions are basic and clear.
• You have solid accounting knowledge and time to dedicate to the matter.

In any case, even if you manage on your own, it is advisable to consult with an accountant at least once a year to ensure you are on the right track.

Three Points to Remember

1. Reporting is not optional — whether the organization is profitable or not, whether it has employees or not, reporting is mandatory. This is not only to maintain income tax exemption, but also to demonstrate transparency and accountability to the public and the Israel Tax Authority.

2. Documentation is everything — if you don't keep invoices, receipts, and proof of expenses, you're in trouble. The Tax Authority can request to see them at any time, and if you cannot produce them, it is considered evidence that the transaction did not occur.

3. Help is available — if you feel overwhelmed or uncertain, you are not alone. Many organizations work with accountants, which makes the process simple and clear. Ben Or Kook provides professional advisory services to organizations in Petach Tikva, Ramat Gan and the center, with a digital and accessible approach.