Norton - How to Be a Global Nonprofit: Legal and Practical Guidance for Internationa

Copyright 2012 by Lisa Norton. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Norton, Lisa, 1956

How to be a global nonprofit: legal and practical guidance for international activities/Lisa Norton.

p. cm.

Includes index.

ISBN 978-1-118-45222-6 (cloth/website); 978-1-118-53467-0 (ebk); 978-1-118-53468-7 (ebk); 978-1-118-53472-4 (ebk) 1. Nonprofit organizationsLaw and legislationUnited States. 2. Nonprofit organizationsLaw and legislation. I. Title.

KF1388.N68 2013

346.73064dc23

2012037488

To Harvey, my husband of 20 years, who has been my
greatest cheerleader throughout this project,
and to my four children,
Wendy, Nat, Naomi, and Ruby,
who suffered through innumerable discussions of this topic.

List of Case Studies

Preface

It was not very many years ago that international philanthropy was the province of large organizations like the Red Cross, UNICEF, and Save the Children. Americans who wanted to help people overseas gave to those organizations and others like them. For donors who wanted a more personal connection, some organizations offered individual child sponsorship, which allowed donors to see the direct impact of their giving.

In recent years, while large global organizations have continued to attract funding, there has been a new groundswell of small and medium-sized organizations, formed by growing numbers of individuals who want to do more than write a check or even sponsor a child. This phenomenon was described by Nicholas Kristof in a New York Times Magazine article in which he coined the term Do-It-Yourself Foreign Aid, to identify a revolution that starts with the proposition that it's not only presidents and United Nations officials who chip away at global challenges.

Kristof noted that the young idealists he was describing are sometimes naive about what it takes to solve social problems, and don't always appreciate the need to work collaboratively with the local populations they intend to serve. This book focuses on another set of issues not readily apparent to the passionate leaders of the Do-It-Yourself Foreign-Aid Revolution: the myriad and diverse legal considerations that must be taken into account in planning and operating any nonprofit organization with cross-border activity.

A new army of international philanthropists is boldly forging ahead, creating nonprofit organizations, raising funds in the United States and sometimes abroad, traveling overseas, building relationships with foreign individuals, organizations, and governments, and even hiring local employees. The new international nonprofits they create often have all, and sometimes more, of the passion and commitment found in their larger counterparts. What they often lack are the resources to engage staff and consultants to ensure that they comply with U.S. and foreign laws while keeping their eyes on the mission.

While it is widely recognized that the Internet and social media have eliminated jurisdictional boundaries in so many ways, legal boundaries are alive and well. Individual countries enact and enforce their own laws and work hard to protect their tax revenues. In fact, as we will see throughout this book, legal and tax barriers imposed by individual countries impede the cross-border activities of nonprofits to a far greater degree than they affect international trade.

The operations of nonprofit organizations, in the United States and abroad, are shaped by a variety of laws: notably, those addressing legal structure and governance (such as formation of nonprofit corporations); taxation (including income, estate, sales, excise, property, import duties, and more); anti-terrorism; exports; currency; corruption; immigration; and labor. In some countries, restrictions on the freedom of association preclude or hamper nonprofit organizations. When an organization operates across borders, whether by making grants or directly operating programs, the interaction among legal requirements of two or more countries quickly becomes highly complex.

This book is intended primarily for nonprofit organizations that qualify for U.S. federal tax-exempt status, as so-called 501(c)(3) organizations, and operate and/or fund non-U.S. programs. While there are many categories of U.S. tax-exempt organizations, the 501(c)(3) is the only one (with narrow exceptions) that can attract tax-deductible funds in the United States. While this type of organization may directly operate or fund foreign programs, those foreign programs must also serve 501(c)(3) purposes. A broad range of organizations falls into the 501(c)(3) category, including, among others, those that are engaged in traditional charitable activities such as humanitarian aid, disaster relief, development, global health, the environment, and scientific research.

We will see in this book that any particular foreign country may or may not afford tax-exempt status to an activity that would qualify for it in the United States. Moreover, if in addition to operating foreign programs, an organization is raising funds in one or more foreign countries, it will need to deal with yet another set of rules and restrictions on the use of those funds.