I’m sometimes asked if it’s legal for a domestic (US based) nonprofit organization (NPO) to conduct business and operations in a foreign county. The short answer is yes. That said, like most items relating to compliance and nonprofits, there are exceptions along with several important concepts and issues that need to be kept in mind. Read on to find out if your operations fit the definition of foreign and, if so, are up to snuff.
A domestic NPO formally recognized by the IRS as exempt can conduct all (or most of) the same exempt activities in a foreign country as they would here in the US. Many of the same issues and concerns apply – the activities must support the exempt purpose of the organization, unrelated business income must be reported, none of the net assets can inure to the benefit of any one person, potential conflicts of interest must be disclosed, etc.
A domestic NPO’s foreign operations can broadly be categorized into two areas, direct activities and charitable giving. Some or all of a NPO’s programs and services operated physically in another country are direct activities. Charitable giving is using the domestic NPO’s funds to support other (foreign) charitable organizations. Believe it or not, this financial support of a foreign charitable organization is more heavily scrutinized by the IRS than direct activities. This is due to a lack of direct fiduciary responsibility for the expenditures and the NPO’s ability to ensure the funds are being used for the exempt purpose.
What is most tricky with foreign operations is compliance the US’s anti terrorist efforts and the ever changing landscape of international laws and relations. The US Treasury’s Office of Foreign Assets Control (OFAC) maintains a list of countries and activities that US persons cannot do business with. OFAC determines where you can and cannot go and who you can and cannot deal with. If the NPO maintains authority over a foreign bank account or other assets, it must comply with FBAR reporting. And on the 990, disclosure of the foreign operations on Schedule F is required. Finally, the domestic NPO must content with local laws and culture. Among other things, the foreign community may not be as receptive to the NPO’s efforts as one might think.
These are the main points of foreign operations. Many other items and details may apply. feel free to contact me if you would like to talk about your particular situation.