Should we register new highly effective charities in France?

In this document, we explain:

Initial motivation

What this would entail

Potential benefits, drawbacks, and uncertainties

Acknowledgments

Initial motivation

Programs and/or charities that are currently recommended as highly effective are overwhelmingly registered in the USA. The idea we explore in this document is whether it may be cost-effective for highly effective NGOs incubators (such as Ambitious Impact) or other charity founders to fund charities in France in the future.

What this would entail

The idea would be for funders of likely highly effective charities to register in France, rather than USA or UK. The creation itself involves:

1. Choosing the legal structure: The most common choice is an association (Association loi 1901), which is similar to a 501(c)(3) organization in the USA or a registered charity in the UK. With an endowment of 15k€, which can be used, one can instead create an endowment fund. The most unlikely option is a foundation, because of the complexity of creation in addition to the large initial endowment required.
2. Drafting a governing document (statutes) that defines the organization’s purpose, how it will operate, and the responsibilities of its members.
3. Registering the organization, which is done through a deposit with the prefecture, which performs checks. In case of acceptance, the creation is published in the French Official Journal of Associations.
4. Creating a bank account is then possible. Other procedures are also necessary depending on activities (e.g. public fundraising).
5. Organizations typically must write an annual activity and financial report, which is depositied with the authorities.

Note that the procedure for declaring the organization as "of general interest" (reconnue d’utilité publique) is not mandatory. An organization with réconnue d’utilité publique status can access more funding sources and has higher credibility, although it is more regulated. Becoming recognized is such a lengthy and complicated process that most organizations do not follow it. They can nonetheless claim tax-deductibility, in which case they may be audited, and face some risks in the future. They can protect themselves from it by seeking legal advice from a firm, who can confirm the conceptual eligibility of the proposed activities. (For more information, see this post)

As to activities, there is great latitude, provided it serves one of the following purposes: "philanthropic, educational, scientific, social, humanitarian, sporting, family, cultural or contributing to equality between women and men, the enhancement of artistic heritage, the protection of the natural environment or the dissemination of French culture, language and scientific knowledge." The programs can also take happen in other countries (e.g., Africa), in which case it is important to show that the charity fully controls the program, e.g. being able to stop if they so desire; for example, we cannot direct funds to Africa for a vaccination program in which French funds represent only 10% of the vaccination budget. Also, the organization should also be able to keep track of how money is used particularly when funds that leave the European Economic Area. In the vaccination case mentioned above, for example, it would not be possible to simply transfer a lump sum to an organization in Africa that then carries out and oversees the vaccination campaign, because this opens the possibility of some funds being incorrectly used locally.

Potential benefits, drawbacks, and uncertainties

Given that the USA doesn't have a bilateral agreement with France, this means that it is legally impossible to claim tax deductibility for donations to American organizations for French tax payers. French charitable giving amounts to approximately 8 billion euros annually, and French tax-payers benefit from considerable advantages:

• Individuals can deduct 66% of the donation amount from their income tax
• Very wealthy individuals can deduct 75% of their donation amount, up to €50,000 per year, from their specific tax (a tax on real estate assets exceeding €1.3 million)
• Companies can deduct 60% of the donation amount from their corporate income tax
• In the case of donations from companies made in favor of NGOs that do research, some of it also can be tax deductible (Crédit Impot Recherche).

Registering in France would enable effective NGOs to benefit from the French donation market with the tax advantages it brings. For example, given the 66% deduction rate, in certain situations a French tax payer can effectively triple their donations. However, a crucial uncertainty is whether this would be a net-positive operation (i.e., global amount of donations received from French tax payers may be smaller than that the organization would have received if registered in USA).

According to ChatGPT,  registering an association in France is relatively inexpensive and straightforward compared to the USA, where 501(c)(3) status can involve higher costs and more complex paperwork, saliently annual reports (Form 990) and requirements to meet more stringent governance requirements. We do not know the extent to which auditing is more or less complicated, but the requirement that funds are tracked all the way down to the charity beneficiaries sounds rather constraining and should be born in mind.

Ambitious Impact and other EA actors are used to American regulations, and probably have already set up a system to support new organizations with legal and banking advice and contacts. However, there is a small EA-related community who may be able to provide useful legal and banking advice to newcomers (e.g., Altruisme Efficace France, Mieux Donner). A good potential option is to become "abritée", hosted, by e.g. Fondation de France, in which case legal and reporting support is provided at a relatively small cost.

It is possible that being based in France could facilitate collaborations with other European NGOs, governments, and institutions, benefiting from European Union grants and networks, although this may only be useful in certain cases.

Acknowledgments

We are grateful to the many people who have provided feedback on Don Efficace and our legal strategy, including: Mata'i Souchon, Jeremy Saada, Corentin Biteau, Thomas Beuchot, Guillaume Vorreaux, Romain Barbe, and Florent Berthet. They bear no responsibility over the content of the present post.