Giving Thoughts

Are Donations in Other Countries Tax-Deductible?

By Ann Canela, Vice President, Partner Solutions, Global Impact

Although tax deductions for charitable contributions are permitted for both individuals and corporations in most countries, there are some in which this benefit does not exist. Most countries require charitable contributions to be made to local entities, but often, funds may be used by local charities for global philanthropy projects. These findings come from a new study from Global Impact that sought to identify the registration, fiduciary, and legal requirements and availability of tax deductions for charitable contributions in more than 40 countries, entitled “Donations in Other Countries—Are They Tax-Deductible?”

The research, which Global Impact commissioned from professional services firm KPMG, found nearly 90 percent of countries’ local tax codes allow tax deductions for charitable contributions, while 9 percent do not, and approximately 2 percent do not barring some exceptions.

Within those countries that do allow for deductions, 68 percent must be made to a local entity (see chart below). In the European Union, deductions are available for contributions made to entities based outside the country, provided they are based within another EU member state or EEA country. Again, exceptions apply. For example, in Romania donations and sponsorships can only be granted/received based on an agreement. The agreement should include the amount and the scope of the donation/sponsorship. If the funds received are used for any purposes other than what is specified in the agreement, the donation and/or sponsorship may not qualify for exemption, and could result in a breach of the agreement.

Just under 40 percent of countries allow tax-deductible contributions given to a local entity to be distributed either locally or globally (for example, to a U.S. charity operating either locally or globally). Some examples have specific rules regarding funds that are distributed globally. In Canada, for example, the local charity must demonstrate oversight and supervision on amounts disbursed to foreign charities. A local charity cannot just be a fundraising entity.

Options for receiving and distributing funds
In light of some of the exceptions and specific rules outlined above, we recommend U.S. donors use any of the following three institutions to receive or distribute funds to grantees based either in-country or out of country in order to ensure tax deductibility (the feasibility of each will differ depending on the country):

• A U.S.-based fiscal agent
• A global fiduciary agent with a charitable purpose
• A local entity such as a bank, nongovernmental organization or association, where it may be required.

You can download the full study for free here.

About the author:

Ann Canela is the Vice President, Partner Solutions, where she leads business development and client solution contracts for both nonprofit and corporate clients. Previously, she was a Director, Marketing & Communications at Global Impact. With more than 15 years of management and marketing experience, she holds responsibility for account management in Global Impact’s consulting services and strategic alliances. Additionally, she leads all partner marketing activities, bringing her deep fundraising and marketing experience to the Global Impact partnerships and strategic alliance team. For more information about the study or how Global Impact can help your organization achieve its philanthropic goals, please contact me at [email protected] or 703-717-5224.