Nonprofits Working Internationally

Nonprofits Working Internationally

A nonprofit working internationally runs into much more complicated legal and tax issues than a purely domestic nonprofit.  The board of directors should be aware not only of applicable U.S. laws, but also the laws of the foreign countries in which the organization operates.  In some cases, international law, through treaties or customary international law, may apply as well.  Here are a few thoughts to keep in mind when starting up overseas activities:

Tax-exempt status:  The Internal Revenue Service has long held that an organization may qualify for tax-exempt status based on charitable activities carried out in part, or even in whole, overseas.  In fact, entities organized as nonprofits under foreign laws may apply and qualify for tax-exempt status in the United States.  However, a U.S.-based 501(c)(3) organization cannot function as a mere “conduit” for funds to overseas groups without jeopardizing its tax-exempt status.

Structure:  A nonprofit organization has a menu of options for structuring overseas operations each with different legal ramifications.  The organization may wish to continue all management functions in the United States with direct employees carrying on activities overseas.  Or it may independently contract with a separate legal entity overseas to conduct the activities while maintaining ownership of any ultimate product produced by the overseas entity.  Some organizations set up subsidiaries in foreign countries that the domestic nonprofits controls through the board of the foreign group.  And others help develop overseas affiliates that share the name and mission of the U.S. organization but ultimately are independent entities that grow to be locally sustainable.

Local laws:  Regardless of the structure chosen, one of the most important prophylactic measures a nonprofit can take in setting up overseas activities is a good local attorney familiar with local foreign laws.  The foreign legal framework can be complicated.  The country may have registration requirements for organizations “doing business” within their territory, may have independent tax-exempt structures worth pursuing, and will certainly have applicable employment and intellectual property laws to consider.  If finding a good local attorney proves difficult, one option is to check with the U.S. Citizen Services office of the U.S. Embassy or consulate.  They generally keep a list of local attorneys that speak English.

Intellectual property:  Often a nonprofit’s most valuable assets are its name and trademark, publications and mailing list.  Foreign laws on protecting intellectual property often differ significantly from those of the United States.  Before launching major overseas activities under a nonprofit’s name and distributing its publications, it is wise to ensure that another organization cannot easily trade off of that good will to its own benefit, and potentially harm the nonprofit’s reputation and ability to effectively advance its mission.

Employment:  What employment issues to identify will depend heavily on how the nonprofits overseas activities are structured.  Both foreign and U.S. laws on employment tax, basic fair labor standards and immigration status may apply.  For example, nonprofit organizations employing U.S. citizens overseas must engage in tax withholding on salaries just as for domestic employees. And foreign employment laws may not allow for “employment at will” as is the standard in the United States.

Liabilities:  Again depending on the chosen structure, a domestic organization may have more or less exposure to liability for activities overseas.  Good practices include carefully chosing an appropriate structure to balance the organization’s interest in control over overseas activities with its tolerance level for liability risk, and checking its insurance to determine whether it covers overseas activities or liability under foreign laws.  It is also important to be aware of US criminal laws relevant to overseas activities including the Foreign Corrupt Practices Act and terrorist financing laws.

This represents just a smattering of issues that arise when a U.S. nonprofit group seeks to conduct overseas activities.  Getting a structure and policies in place to be on a sound legal and tax footing is extremely important to the sustainability of the organization and the growth of its global activities.

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Written by Cameron Holland.