Taking Your U.S. Nonprofit International
A U.S. nonprofit raises donations from supporters in Texas. Those funds are then used to support a feeding program in Guatemala, drill a well in East Africa, or provide education programs in Southeast Asia.
The mission behind this work is clear. The legal structure behind it is often less obvious.
As ministries and nonprofits grow, many begin exploring opportunities to serve communities outside the United States. Expanding internationally can greatly increase an organization’s reach and impact, but operating across borders also introduces legal, financial, and governance issues that organizations do not always anticipate.
Organizations considering international expansion often benefit from experienced legal guidance to help evaluate structure, governance, and reporting obligations. In practice, most compliance issues arise not from bad intentions but from organizations expanding faster than their governance structures. If you have questions about international nonprofit compliance, charitable structuring, or foreign grantmaking, our team is available to help.
How U.S. Nonprofits Structure International Work
There is no single model for operating internationally. The right approach depends on the organization’s goals, the scale of its programs, and the country where the work will take place.
Some nonprofits begin by partnering with an established local organization. Others eventually develop their own operational presence overseas. Each approach carries different legal and compliance considerations.
For organizations just beginning international work, collaborating with a local partner can provide valuable cultural knowledge and existing infrastructure. Local organizations often understand the community, regulatory environment, and operational realities far better than an outside organization entering the country for the first time.
On the other hand, nonprofits planning long-term programs or direct operations may eventually explore establishing a branch office or locally registered entity. This type of structure can allow organizations to hire staff, manage programs directly, and operate more independently within the country.
The appropriate structure often depends on the level of operational control the nonprofit wants to maintain and the regulatory requirements of the country where it intends to operate.
Partnering With Foreign Organizations
Many U.S. nonprofits carry out international work through partnerships with existing organizations abroad. These collaborations can provide valuable local expertise and operational support.
However, one common misunderstanding is that U.S. charities can simply transfer funds to a foreign organization and allow the local partner to manage the program independently. In reality, the Treasury Department expects U.S. nonprofits to maintain oversight of funds used for charitable purposes. In practice, this usually means the U.S. nonprofit must document how the funds will be used and maintain some level of monitoring over the program. Written grant agreements, periodic reporting from the foreign partner, and documentation showing how funds are spent are commonly used to demonstrate this oversight.
Organizations involved in international partnerships should ensure that appropriate compliance procedures are in place before funds are distributed.
For additional guidance on international nonprofit compliance, see our article on International Nonprofit Operations: Compliance Answers for Nonprofits.
Establishing a Branch Office or Local Entity
Some nonprofits choose to establish a legal presence in the countries where they operate. This may involve registering a branch office, forming a locally incorporated nonprofit entity, or obtaining recognition as a non-governmental organization under local law.
Creating a local entity can allow nonprofits to operate programs more directly. It may also allow the organization to hire staff locally and comply with regulatory requirements in the country where the work takes place.
However, establishing a legal presence abroad also introduces additional responsibilities. Each country has its own nonprofit registration procedures, financial reporting requirements, and rules governing foreign funding.
Because these rules vary significantly from one jurisdiction to another, organizations should carefully review local regulations before establishing an entity overseas.
Some organizations exploring international expansion also consider related structures such as Friends-Of organizations or U.S. branch offices designed to support international work.
IRS Rules for International Grantmaking
When a U.S. nonprofit funds charitable work overseas, it must still comply with the rules governing the use of charitable funds. This is where many nonprofits are surprised. The fact that funds are used internationally does not remove the nonprofit’s responsibility to ensure those funds are used for legitimate charitable purposes.
U.S. nonprofits are required to maintain oversight and accountability when providing grants to foreign organizations. This requirement exists to ensure that charitable funds remain under the control of the U.S. nonprofit and are used in ways that further its charitable mission.
For a more detailed overview of these compliance rules, including reporting obligations and common risk areas, see our article on Funding International Programs: IRS and Compliance Rules for U.S. Nonprofits.
Two common approaches are used when U.S. nonprofits provide grants to foreign organizations.
Expenditure Responsibility
Expenditure responsibility is a set of procedures used when a U.S. nonprofit provides grants to a foreign organization that is not recognized as a U.S. public charity.
Under this approach, the nonprofit must take specific steps to ensure that funds are used for charitable purposes. This typically includes a written grant agreement, reporting requirements for the recipient organization, and ongoing monitoring of how funds are used.
These procedures allow the nonprofit to demonstrate that it retains oversight and control of its international grantmaking.
Additional guidance on expenditure responsibility can be found on the IRS website.
Equivalency Determination
Another approach is known as an equivalency determination. In this process, a foreign organization is evaluated to determine whether it operates in a manner similar to a U.S. public charity.
If the foreign organization is determined to be equivalent to a U.S. public charity, the administrative requirements for making grants may be less burdensome than those required under expenditure responsibility.
Because equivalency determinations require careful review of an organization’s governing documents, finances, and operations, nonprofits often seek professional guidance when using this method.
Hiring Employees or Contractors Abroad
As international programs grow, nonprofits often need personnel in the countries where their work takes place. This may involve hiring local employees, engaging independent contractors, or assigning U.S.-based staff to manage programs overseas.
Each of these options carries different legal and tax implications.
Organizations must consider local labor laws, proper classification of workers, immigration requirements for foreign staff, and payroll obligations that may apply under local regulations. Employment rules vary widely from country to country, and requirements that apply in one jurisdiction may be very different in another.
Because of these differences, nonprofits should evaluate employment structures carefully before hiring staff or contractors abroad.
Governance and Oversight of International Programs
International operations can add another layer of complexity to nonprofit governance. Board members have a fiduciary duty to ensure that the organization’s resources are used appropriately and that its activities remain aligned with its charitable mission.
When programs operate in multiple countries, maintaining clear oversight becomes even more important. Boards should ensure that appropriate policies, reporting systems, and internal controls are in place to monitor international activities.
Effective oversight often includes careful due diligence when selecting foreign partners, clear procedures for approving international grants, and documentation showing how charitable funds are used.
Strong governance practices help nonprofits remain accountable to regulators, donors, and the communities they serve.
Planning International Expansion
Expanding internationally allows nonprofits to extend their mission far beyond U.S. borders. But organizations that address structure, oversight, and compliance early tend to avoid many of the problems that can arise once international programs begin to grow. Careful planning at the start makes it far easier to sustain global work over the long term.
If your organization needs legal support with international nonprofit compliance, charitable structuring, or foreign grantmaking, our team is available to help guide you through the process.
The information provided in this article does not, and is not intended to, constitute legal advice or investment advice; instead, all information, content, and materials available in this article are for general informational purposes only. The information contained in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites. Such links are only for the convenience of the reader, user, or browser; the author does not recommend or endorse the contents of the third-party sites.
Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter.
Anthony & Sparkman, PLLC is a law firm with attorneys located in both Dallas/Fort Worth and Kalispell, Montana, that provides legal counsel to both churches and nonprofits around the world. John Anthony & Michele Sparkman have spent over a decade providing general counsel to churches and nonprofits on issues ranging from incorporation, governance, employment, policies and procedures, taxes, succession planning, real estate development, and much more. For more information, visit our website at www.thenonprofitteam.com.
