Favourability of Legal Environment for Community Foundations
The legal environment is reasonably favorable across the world, but much more sympathetic to community foundations in North America than elsewhere. In other regions, the picture is patchy.
Legal Environment in Regions of the World
(By types of support)
Explanation of chart
People were asked about whether their legal environment was favorable or not, and their responses were scored on a four-point scale: 'very favorable' (4), 'quite favorable' (3), 'not very favorable' (2), and 'not at all favorable' (1).
The chart shows the mean scores from respondents in different regions of the world. In general, the environment is reasonably favorable. It is clear that North America has, by far and away the most favorable environment. As the Council on Foundations points out:
"Community foundations in the United States have enjoyed a very favorable legislative environment for many years. Congressional members and their staffs have a good understanding of the importance of community foundations and the added value that they bring to communities across the country. Therefore, this positive reception of the field has lead to bi-partisan support of legislative proposals promoting philanthropic giving in communities."
What is perhaps a little surprising about the chart is that Europe is rated less favorably than Latin America and the Caribbean. However, close examination reveals that the picture is more mixed than might be expected. There were some positive examples. In Germany, the legal form of foundations was said to have been 'much improved lately' so that it is 'much easier and more effective to become a donor and to save taxes via donations'. Similarly, in the UK, the government that held power from 1997 to 2010 refreshed charity legislation with a new Charities Act in 2006, and made considerable strides to support giving of all kinds.
However, in Italy there are many obstacles for community foundations to become the equivalent of the US 501(C) 3). Moreover, there is no incentive to build an endowment. The maximum amount the donor can deduct is the equivalent of $85.000 a year. Again, in Belgium registered gifts to foundations are subjected to a registration tax of 6.6 per cent to 7 per cent (depending the region). Legacies to Foundations are subjected to death tax of 6.6 per cent to 8 per cent (again depending the region).
In Asia and Africa, the legal and fiscal environments tend to be unfavorable. In India, for example, the government is planning to change the existing income tax act with a direct tax code. This revised code has more stringent tax compliance requirements and will prevent the accumulation of funds for NGOs. Moreover, if an organization wants to receive foreign funds, it will need to get registered to do so. In Thailand, the 2007 constitution provided for 2 per cent tax relief for gifts to charities, but this has not been implemented yet. In Kenya, there are no tax incentives for individuals. In theory, there are incentives for companies under the regulations but these regulations have not been implemented.
Importance of legal and fiscal environment
There were strong and statistically significant correlations between the legal and fiscal environment and (a) the number of different types of fund operated by a community foundation and (b) the number of different types of donors that the foundation had. It is clear that assessments of the favorability of the legal and fiscal environment matter because they translate into the behavior of donors.
We explore the topic of donors to community foundations on the next page.