Nonprofit organizations with missions and activities that connect them with an international community should consider whether pursuing international donors is a viable strategy in their annual fundraising plans.
To build a successful international fundraising program, establishing an internal infrastructure and developing systems to qualify, cultivate, solicit, and steward international donors is critical. This article lays out four key areas for nonprofits to consider before launching a comprehensive international fundraising program.
1) Internal Infrastructure
Before developing a strategy for international donors, your organization should first evaluate its internal capabilities and whether it is equipped to effectively accept, track, and steward international funds.
Specific considerations include:
- Does our staffing structure support the effective management of international donors?
- Does our gift processing system accept multiple currencies and track international activity?
The most effective way to connect with international donors is to have a local staff who can understand and appropriately match local philanthropic cultures. For some nonprofits, establishing a local organization in a foreign country is a productive strategy. Doing so enables your nonprofit to build meaningful relationships with local prospects and allows donors to take advantage of local tax rules.
Establishing such structures is often a substantial lift operationally, requiring clear reporting structures, transfer agreements, and processes to move and allocate funding. Further, many countries do not allow this “pass-through” agreement and require specific registration to redirect contributions abroad. This means that unless your nonprofit is conducting business in the identified country, it may not make sense to set up the infrastructure for an intermediary organization.
If building an intermediary organization is not realistic for your organization, consider which of your staff members have the bandwidth to engage international donors and the ability to travel as needed. When making this determination, consider whether there are high concentrations of prospects in any one region that a staff member can be assigned to and periodically travel to. Refer to U.S. income tax treaties to determine whether international donors may claim tax deductibility for their gift.
Before cultivating donors, it is similarly critical to consider if your nonprofit has strong gift acceptance policies and CRM processes that enable tracking necessary donor activity and information.
With the system itself in place, your organization should then outline a process that determines how to recognize fluctuations in currencies. For example, pledges are often recognized at the USD equivalency at the time of making a gift, not at each pledge payment period. There are several businesses that work with nonprofits to help set up currency converting systems, including Western Union Business and PayPal.
Having each of these internal pieces in place will allow your organization to move forward with cultivation with confidence.
2) Developing a Prospect List
Prospect research is an essential step in building your fundraising plan, as it unveils the opportunities that exist in your community of supporters. There are several helpful tools that can assist with research and information gathering on international donors:
- Banks and wealth management services, including BNP Paribas, Barclays, Knight Frank, and Coutts, provide useful resources that offer an overview of topics such as a country’s approach to philanthropy and wealth trends.
- Charity registers, similar to GuideStar in the U.S., provide important information about specific nonprofits and their revenue streams, staff sizes, and boards. Researching nonprofits with aligned missions can help to uncover whether a base of support exists in the countries from which your organization is considering prospects. Useful charity registers include The Charity Commission (United Kingdom), Australian Charities and Not-for-profits Commission (Australia), Department of Internal Affairs Charities Services (New Zealand), Charities Regulator (Ireland), and China Charity Information Platform (China).
- Business registers allow you to obtain more information about a specific business or company, including a company’s owner(s) and ownership structure, total compensation of the highest-paid director, and company balance sheets. A worldwide list of company registration sites can be found on the European Business Registration Association.
One important factor to note while undertaking research for donors in the European Union and the United Kingdom: legislation known as the GDPR, which is widely recognized as the strongest donor privacy law in the world. It imposes strict obligations on organizations globally if they collect data on E.U. and U.K. citizens, including:
- Inform donors on what data is being collected, how it will be used and stored, and gain their permission.
- Upon request, provide donors a record of their personal data within 28 days.
- Allow for the “right to be forgotten.”
- Hold data securely and for a defined period. A data storage policy is mandatory and data may not be held indefinitely. Policies must be concise, transparent, and provided to donors.
The GDPR legislation is complex and your nonprofit may want to seek counsel from an advisor with deep knowledge of the legislation before undertaking prospect research. Furthermore, creating opportunities for donors to consent to receive communications from your nonprofit is an important first step in your engagement plan.
3) Engaging Prospects
As your organization ramps up its engagement with international prospects, it is imperative to create a cultivation plan that connects these individuals with an organization’s mission, programmatic activities, and impact.
In developing this plan, gain awareness of the philanthropic culture of the donor’s home country and region. Many countries have unique philanthropic cultures and individual donors may hold varying expectations for how an organization will engage with them. Possessing a strong understanding of the distinct cultural groups within a country or region is also critical.
Moreover, consider whether the U.S. has a positive relationship with the home country of the international donor. If not, this may have implications on how your organization engages with the donor in a public fashion and how your organization might recognize a gift.
After researching a country or region’s philanthropic culture and traditions, it is important to consider the following questions as you develop an engagement plan:
- Has the individual demonstrated an alignment with the mission through their philanthropic support of other organizations?
- Do they want to be kept apprised of programmatic activities?
- Do they like attending events? If so, are any events accessible to them?
- Do they want access to members of your board or corporate partners?
- Do they want public recognition of their gift?
These questions are not dissimilar from those your organization would consider for a local donor, but the culture of philanthropy in an international donor’s home country or region may dictate different answers to these questions and lead to the creation of a unique engagement plan.
Finally, once organizations begin to plan for in-person gatherings again, consider including a virtual option to engage with international donors who cannot travel to visit an organization in person.
4) Tax Laws and Regulations
In the U.S., specific tax structures exist to incentivize philanthropic giving from individuals and corporations. However, this is not always the case for donors residing outside of the U.S. It is important for your organization to consult with tax lawyers to understand when a donor might be eligible to claim a tax deduction when making a gift. Below, we have outlined a generalized framework for assessing eligibility.
Donors Who Are Eligible for Tax Deductibility: To claim a tax deduction in the U.S. for charitable giving, an individual must file their income taxes in the United States through an IRS form 1040. This includes individuals who are not living in the U.S. but who have U.S.-sourced income, whether that includes compensation, sold inventory, or dividends from a U.S. corporation.
Donors Who Might Be Eligible for Tax Deductibility: There are several examples of tax treaties that enable international donors to offset local taxes by making gifts to U.S. organizations. It is worthwhile to examine whether there is a tax treaty between your organization and your donor’s home country and whether this reveals opportunities in nuanced tax rules.
Donors Ineligible for Tax Deductibility: If a donor does not own a residence in the U.S., does not pay U.S. income tax, and does not live in a country with a tax treaty with the U.S., that donor will typically be unable to claim a tax benefit for their gift to a U.S. organization. For this donor, consider whether they are open to supporting your organization without a tax incentive or whether their gift can be made through an intermediary organization in the local country.
When making an ask to a foreign donor, there are two key considerations to keep in mind:
- Advise the donor to consult their own tax professionals or local tax law. Be sure that all acknowledgments or tax letters have clear language stating that these gifts are or are not tax deductible in the United States.
- Focus the solicitation on your organization’s mission and the impact of their gift over any incentives or tax benefits.
Building a supportive infrastructure, conducting research, creating personalized engagement plans, and understanding local customs, practices, laws, and regulations are all critical steps an organization should take before launching an international fundraising program. If your organization is developing a fundraising strategy for international donors, or considering your donor engagement strategy more generally, CCS Fundraising offers a suite of services that can help. For more information, contact CCS today.
This piece has been prepared for informational purposes only and is not to be construed as legal or tax advice. Individuals should consult their lawyer, accountant, or tax advisor with regard to such matters.