Supporting causes outside of the United States can be an important part of advancing a nonprofit’s charitable mission, but international grantmaking can also bring added legal and compliance considerations. Taking a thoughtful approach at the outset can help nonprofits make effective grants outside of the United States while protecting charitable assets and avoiding unnecessary complications.

Why is the Charitable Purpose of the Grant Important?

Before making an international grant, a nonprofit should consider whether the proposed activities clearly further its charitable purposes and are consistent with its governing documents such as its formation document and its bylaws. A well-drafted grant agreement can help by describing the project, setting out how the funds may be used, and establishing appropriate reporting and oversight requirements.

Why is Understanding the United States’ Tax Rules Important for International Grants?

The rules governing international grants depend in part on the type of nonprofit making the grant. Private foundations, for example, generally must follow specific procedures when making grants to foreign organizations, including requirements relating to “expenditure responsibility” or, where available, a determination that the foreign organization is the equivalent of a U.S. public charity, otherwise known as an “equivalency determination.” Public charities have different requirements, but they should still maintain appropriate documentation and oversight of international grants.

What Diligence Should a Nonprofit Conduct Before Making International Grants?

Sending charitable funds overseas can create risks that may not arise with a domestic grant. Nonprofits should consider who will receive the funds, how they will be used, and whether the grantee or other parties involved raise sanctions, anti-terrorism, or other compliance concerns. The appropriate level of diligence will depend on factors such as the country, the grantee, the size of the grant, and the nature of the proposed activities.

Why is Local Law Important When Sending Funds Overseas?

The recipient country’s rules can be just as important as U.S. requirements. Some countries regulate foreign funding of nonprofits or impose registration, reporting, currency-control, or other requirements. For grants involving higher-risk jurisdictions or more complicated arrangements, consulting local counsel alongside U.S. counsel can be an important part of the process.

What Oversight Should Nonprofits Build Into Grant Relationships?

International grantmaking does not have to mean creating layers of unnecessary hurdles and red tape. Still, nonprofits should have a clear way to understand how grant funds are being used and whether the funded activities are progressing as expected. A combination of pre-grant diligence in inquiring about grantees, a written grant agreement, reasonable reporting, and risk-based monitoring can provide meaningful oversight without becoming burdensome for either the grantmaker or the grantee.

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