It’s not unusual for nonprofits registered in the USA to help people, causes and communities in other countries. There are a few key factors to be mindful of if your nonprofit is looking to work overseas, so we’ll cover some of the most common scenarios we see in this article. This resource is by no means an exhaustive or prescriptive list, so let us know if you’re looking to form a nonprofit or launch a program that will serve in foreign nations.
Supporting Foreign Charities: “Friends of” Organizations
“Friends of” organizations are nonprofits formed in the USA to raise funds for existing charitable groups most commonly located in other countries.
For example, imagine a group from the US travels to Mexico to build a playground for a charity that helps children from underprivileged communities. The charity is called Thrive Mexico, and during their time there, they fall in love with their mission. The US group discovers that the charity’s greatest need is for financial support instead of work projects, and when they return home, they are inspired to support Thrive Mexico’s mission long-term. They decide to start a 501c3 organization called “”Friends of” Thrive Mexico,” so US donors can show their support for their charitable programs while still getting a tax deduction for their gift.
In this instance, the purpose of the organization isn’t to initiate charitable programs overseas, since Thrive Mexico is already doing the work. There are several advantages to this type of arrangement:
- The US group is not looking to live and serve in Mexico full-time, but they want to help support their programming. The “Friends of” Thrive Mexico group is not carrying out the day-to-day operations of supporting children in Mexico, but they are still able to make a difference. Quick note—”Friends of” organizations aren’t required to have “Friends of” in their name, but it is a popular choice to give donors a mental image of how your organizations relate to one another.
- Thrive Mexico is an impactful charity but does not have the administrative capacity to start a 501c3 in the US and keep track of filings like 990s or Charitable Solicitation Registration (CSR). They certainly do not have time to fundraise outside of their own country. By linking arms with a 501c3 in the States, they are able to focus on their mission while enjoying financial support from “Friends of” Thrive Mexico.
- US donors may want to empower Thrive Mexico to do more good, but they don’t want to go through the hassle of converting currency to make a donation to them, which can be a complex and time-consuming process. This barrier is removed when they donate to “Friends of” Thrive Mexico, since this organization is based in the US. These donors will also receive donation acknowledgements and tax deductions from their gift, which they wouldn’t have received if donating directly to Thrive Mexico.
When forming a “Friends of” organization, it’s essential to remember your organization is still responsible for the IRS’ requirements like any other 501c3 nonprofit. This means that the foreign charity you’re looking to support must still have a charitable class/charitable programs. If Thrive Mexico wasn’t a charity that helped children, and instead was a company that provides tour guides, the IRS would not approve raising funds for this group since it is a for-profit venture. When in doubt, look into whether the group you’d like to fund serves a charitable class.
This also means that your “Friends of” organization is responsible for keeping track of how those US funds are being spent. The key to making sure that the foreign organization is complying with the IRS’ standards for permissible purposes is by having a grant agreement in place. This agreement between your organization and the foreign charitable group establishes expectations for:
- How and when the funds are granted
- What they can be used for
- How records of expenditures must be kept
To ensure the international organization is in compliance with the grant agreement, most “Friends of” organizations require the international organization to provide a grant report. This report often includes information about how charitable funds were spent, usually broken down into a narrative report along with a financial report. Grant reports also promote regular communication, transparency, and ensure the “Friends of” nonprofit can provide information to donors or any regulatory body when needed. If you’d like us to create a grant agreement for your organization, let us know and we’d be happy to help.
Nonprofits Based in the US but Operating Overseas
There are countless nonprofit organizations that are started in the US but are specifically formed to launch programs in foreign countries. Some 501c3 organizations have one specific country in mind to focus on, while others do work in multiple countries across the globe. We often see humanitarian aid, disaster relief, and anti-trafficking organizations with these types of models.
If these 501c3 nonprofits intend to grant money to people and charities overseas, then they are held to the same standards as the “Friends of” organizations and should have a grant agreement in place to ensure compliance with the IRS. However, there are a few other items you’ll want to have in place to protect your nonprofit from liability if your organization is providing direct service in other countries.
One document we commonly assist with is an OFAC Compliance Policy. OFAC stands for Office of Foreign Assets and Control, and it’s the US government’s way of making sure that any US agencies operating internationally are following similar guidelines. For example, this policy obligates organizations to keep an eye on the SDN list (Specially Designated Nationals and Blocked Persons List) to make sure the individuals they are serving are not “blocked” by the US. This list has the names of people—terrorists, spies, etc.—who US organizations cannot do business with, even as a charity.
In addition to the SDN list, there is another list of organizations the US keeps of sanctioned countries and regions. For both for-profits and nonprofits, the areas on this list are “no-go” zones. The nations on this list are either completely blocked off to US organizations or you’ll need special exemptions to go around these restrictions. North Korea and Iran are two examples.
Lastly, when working overseas, it’s not a bad idea to work with an attorney who is local to that country to work out some details specific to that country. If you plan on employing locals, laws for employment or contracting vendors most likely differ from laws in the US. If you want to start the organization in the States and also register it in the country it will operate in, this would also be a separate process.
If you’re starting a nonprofit in the US for the first time, check out our article Everything You Need to Know About Starting A Nonprofit.
Final Considerations for Nonprofits Working Internationally
If you’re reading this, we’re assuming you’re a globally-minded person looking to unite people around the world to do good. With that in mind, it’s never a fun thought exercise to consider the way things can go wrong.
That being said, here are a few final items to consider when planning to work overseas:
- If you’ll be working with vulnerable populations, such as orphans, trafficking victims, etc. then check out our article outlining documents and policies we’d recommend you adopt.
- As attorneys, we’re trained to advise on risk management. It’s worth looking into insurance for your nonprofit to avoid liability, especially when working with volunteers, locals, or potentially dangerous situations. You can read more about limiting board liability specifically here.
- Even if your focus is primarily overseas, if you’re looking to fundraise in several states in the US, be sure to make sure your CSR filings are up to date! Don’t forget that many states consider a mailer, a donate button online, or even a newsletter with donation language as a solicitation of funds.
While Charitable Allies does not assist with international law, we’d be happy to help set your nonprofit up for success in the States. We also offer help with OFAC compliance policies and grant agreements for organizations providing funding or services internationally. Whether you’re looking to start a nonprofit from the ground up or are already experienced and looking to expand, reach out for a consultation to further discuss your needs.