Israel’s Proposed 80% Tax on Foreign Donations to NGOs

On May 5, 2025, a heated debate began in Israel’s Knesset over a controversial bill that proposes an 80% tax on non-governmental organizations (NGOs) receiving most of their funding from foreign entities. The bill is part of Israel’s ongoing struggle to balance democratic principles with national sovereignty, especially in a politically charged environment where some see foreign influence as a threat to the nation’s identity and policies.

The proposed law would impose an 80% tax on NGOs that rely predominantly on foreign donations, claiming this would reduce foreign influence on Israel’s internal matters, particularly its judicial system, media, and international relations. However, specific organizations – those funded by the state or with an annual turnover below 100,000 shekels (roughly $27,600) – would be exempt. While proponents argue the bill is necessary to preserve the Jewish state and democratic regime, critics view it as an infringement on civil rights, threatening the balance of democracy by stifling dissent.

At the core of this debate is a deep political divide. The government claims that foreign funding is often used to influence policy decisions, especially in ways that challenge Israel’s security, foreign policy, or approach to human rights issues. Between 2012 and 2024, over 1.3 billion shekels were transferred to Israeli NGOs from abroad, which critics argue often drives agendas not aligned with the views of Israeli citizens. Proponents of the bill, such as Ariel Kallner, its sponsor, believe this is part of a broader effort to shield Israel from unwanted foreign influence. The bill’s supporters emphasize the need for sovereignty and local control over political and social narratives.

However, the opposition sees this as a thinly veiled attempt to suppress dissent. Human rights organizations argue that limiting foreign funding, especially for NGOs that operate within the social and judicial spheres, would have chilling effects on free speech, democracy, and the rule of law in Israel. Their concerns lie in the bill’s potential to curtail the voices of those critical of the government, including Arab minorities and opposition groups who rely on foreign funding to challenge policies they consider unjust.

For Israel, this law could set a precedent for regulating foreign influence in civil society. Historically, Israel has been fiercely protective of its sovereignty, especially in the face of global pressure over issues like its treatment of Palestinians and the ongoing occupation of the West Bank. However, imposing punitive taxes on foreign donations could put Israel at odds with international allies, particularly Western countries that often fund Israeli NGOs involved in human rights and peacebuilding efforts. These countries might view the tax as an infringement on freedom of expression and an unacceptable move toward authoritarianism.

For NGOs, particularly those focused on human rights or foreign policy, the law could severely limit their operations and funding. Given that Israel’s civil society is vibrant yet often marginalized by political actors, this law could reduce the ability of NGOs to access global financial support, putting them in a perilous position. The result could be a significant contraction in the space for advocacy and independent activism.

While Israel’s move is unprecedented, it is not isolated. Countries like Hungary and Russia have used similar tactics to stifle foreign influence by taxing or criminalizing foreign-funded NGOs. In these cases, the government claims that foreign donations are often aimed at destabilizing national values or interfering with domestic policy. The challenge for Israel is to find a balance between its desire for sovereignty and the potential harm such a law could cause to its democratic institutions, especially regarding judicial independence, freedom of expression, and political pluralism.

As the debate continues, there will be key risks to monitor. If it passes, the first will be this proposal’s legal and political fallout. The bill would likely face a legal challenge from civil rights groups, potentially bringing Israel’s judiciary into direct conflict with the legislature. This could be especially controversial, given that the law prohibits NGOs that benefit from foreign funding from petitioning Israeli courts, including the Supreme Court.

Additionally, Israel’s relationship with international donors could be strained. Countries that have been major funders of Israeli NGOs, such as the U.S., Germany, and Sweden, may respond with sanctions or pull their funding altogether. Israel will have to weigh the long-term diplomatic consequences of such a move.

This is a time to diversify funding sources for NGOs operating in Israel. Relying too heavily on foreign donations could expose an organization to the risk of being taxed or silenced by this law. Engaging in proactive dialogue with international stakeholders and building alliances to provide a buffer if the law is enacted might be wise. NGOs may also need to explore alternative strategies for funding, including local fundraising, that are less reliant on foreign sources.

For businesses and regulators, understanding the full implications of this bill on corporate social responsibility (CSR) programs is critical. Suppose the law restricts foreign donations to NGOs that play a role in policy, media, or human rights. In that case, it may affect the ability of companies in Israel to support these causes, particularly those with international interests. Businesses should be prepared for potential scrutiny of their funding strategies in Israel and consider aligning their efforts with more transparent or locally grounded initiatives to mitigate risks.

For further details, clarification, contributions, or any concerns regarding this article, please get in touch with us at editorial@tax.news. We value your feedback and are committed to providing accurate and timely information. Please note that our privacy policy will handle all inquiries.