EB-5 visa to the USA: investments, taxes, new rules

EB-5 visa to the USA: what an investor needs to know and what is important to know

Like most developed countries, the USA in the early 90s of the last century managed to use the situation with the growing number of migrants from other countries in its own interests. The country's migration policy was aimed at attracting foreign capital in exchange for an EB-5 visa.

In 1992, Congress passed a law on the creation of Regional Centers - commercial enterprises, intermediaries between the investor and the state for the effective distribution of capital. The program was of a pilot nature, but with some amendments it has been regulating the work of RCs for almost 30 years. Regional Centers have been licensed to operate by Citizenship and Immigration Services.

History of the visa and its essence

EB-5 was developed by immigration authorities and approved by Congress back in 1990. Thus, it has a history of about 30 years. This visa is an immigration visa in its essence; it opens a direct path to obtaining a Green Card and further citizenship.

When deciding to launch EB-5, the U.S. authorities sought to boost the country's economy through the inflow of foreign investment. Initially, it was assumed that they would be directed primarily at revitalizing the backward, regressive regions of the country, and foreign citizens, as a reward for considerable financial injections, would be given the opportunity to become U.S. citizens.

Have the officials achieved their goals? Probably yes, considering how many foreigners have used the visa over the years and how much money they have brought into the country.

Regional Centers - an important detail in the EB-5 mechanism of operation

When talking about the mechanism of EB-5 operation, it is impossible to omit the so-called Regional Centers (RC). The point is that under the terms of the visa, an investor can invest his capital both directly into certain companies and through specially created structures - Regional Centers. In essence, each RC is a commercial enterprise. It receives money from the investor and then, independently, disposes of it.

Practice has shown that the overwhelming majority of investors participate in the EB-5 program through RCs. There are several reasons for this, but there are only two main reasons that determine the investor:

the size of investments using the RC is significantly smaller than investments “directly”; using the services of the Center, the investor is freed from the need to personally monitor his business. He is free to act, while the fate of his investments is handled by other professionals. 

So, we are close to the next question.

What is the minimum investment size?

To begin with, one peculiarity of this visa should be noted. Being an old-timer on the American investment market, it has always been considered... temporary! Every time, for decades, it has been extended for a year or two. In recent years, especially during the Trump administration, the extension time has been literally months and sometimes weeks.

At the same time (which is also surprising) - almost no change in the basic requirements for investors, including the amount of capital investment. And only last year, 2019, during the next renewal, the options were radically changed in the direction of increasing the minimum investment amount. Now, starting November 21, 2019, an investor executing an EB-5 must meet one of three possible conditions.

Invest directly in a newly established commercial enterprise in the U.S. in the amount of $1.8 million or more. Additional condition - the enterprise must create at least 10 jobs, exclusively for U.S. citizens or persons with permanent residence status (Green Card holders).

Invest from $900 thousand in a problem enterprise in an economically disadvantaged region. The list of such regions is made by the authorities of each state. The condition of 10 new jobs remains in force!

Invest the same amount ($900 thousand) through the Regional Center. As already reported, this option is much more common than others, accounting for about 90% of all investments.

The main advantages of the EB-5 visa:

The prospect of obtaining a Green Card, and after 5 years, full citizenship in the US. (EB-5 itself is already considered a “conditional Green Card”), and after two years in this status you can apply for a real Green Card.

The investor receiving EB-5 may also apply for it for his/her spouse and their common children under the age of 21;

the investor and all registered members of his/her family have access to the American health care and education system on the same basis as citizens of the country;

the entire family enjoys full freedom of movement within the U.S. and can enter and leave the country without restrictions;

after the Green Card is issued, the investor has the right to withdraw from the business and return the invested funds;

if the investment was made through the RC, you can freely work and do business anywhere in the United States.

What conditions do applicants meet that lead to a visa?

The instrument for obtaining EB-5 visa is investment. Therefore, the applicant must adhere to the conditions on the size of the financial investment and provide proof of the legitimacy of the origin of the capital. Additional requirements (e.g. language skills, age, socialization, etc.) the program does not provide.

It is worth noting that family members of the main applicant can also apply for this type of visa: spouse and children under 21 years of age who are unmarried and dependent.

Is it allowed to invest loan funds under the EB-5 program?

The question often arises as to whether loan proceeds can be used for investment. There are no restrictions in this regard. The money can be of any legal origin: gift, sale of assets, inheritance, etc.

What is the number of EB-5 visas issued by the U.S. each year? 

The U.S. issues 10,000 EB-5 visas each year, with the number for each state being 7% of the total. Petitions of citizens of those countries where the demand exceeds the quota are considered first.

What are the deadlines for obtaining a green card for EB-5 visa holders?

The EB-5 visa entitles its holder to apply for a green card. As for the terms, unfortunately, there are no exact figures. Approximately the procedure takes from 2.5 to 4 years. It takes even longer to consider petitions from citizens of some countries, such as China, Vietnam and India. People from these countries are the leaders in the number of applications.

Is the investment repayable?

There are no guarantees on the return of investments in the United States. Everything will depend on the efficiency and profitability of the business.

How does investing through RCs affect the effectiveness of the program?

As mentioned above, the Regional Centers operate in the country. Many years of experience have given them the opportunity, based on statistical data, to make forecasts for each of their projects. In this case, the investor's risks are much lower than when starting their own business. It also greatly simplifies the mechanism for the applicant, since it does not require personal participation in the work of the commercial enterprise.

Where to turn for help in finding the necessary information about the work of RC USA?

Of course, it is quite difficult to sort out all the information on your own. It is almost impossible to get lists of Regional Centers without the help of intermediaries.

GARANT.in company provides services to accompany the client at all stages of EB-5 visa processing in the USA. The most up-to-date information with assessment of the degree of reliability of investment projects makes it possible to minimize the investor's risks.

Changes in the visa program and its problems

We have already mentioned that EB-5 underwent significant changes last year. In particular, the minimum contributions have increased (for many years they were much smaller). In addition, a decision was made at the level of Congress - to adjust these amounts depending on inflation every 5 years.

Immigration officials also see a big problem in the work of RCs. It is noted that many of them gradually turned into primitive commercial organizations for laundering “gray” investor funds. The number of frauds and legal proceedings related to the activities of RCs has increased exponentially.

 In connection with this development of events, it was decided to check the work of such centers more strictly and closely, and to reduce their number several times.

Interesting! As of May 2020, there are 728 approved RCs operating in the U.S., although there were about 1,120 as recently as the end of 2018.

Other painful issues include the veritable glut of Chinese nationals, who have been picking up to 90% of all quotas. The fact is that there have always been annual quotas at EB-5, they were equal to 10 thousand applicants. Now for some countries (especially China and Vietnam) there are restrictions on the number of potential investors. These measures have led to a certain leveling of the structure of applicants.

Interesting! In recent years, the number of applications from potential investors has significantly exceeded the declared quotas. For this reason, many foreigners have to wait 2-4 years in a kind of “queue” until their case is considered.

On the prospects of EB-5

Responsible U.S. officials are confident that the adopted changes will not change the interest of investors in the EB-5 visa, but will make it more predictable and transparent for inspections. In addition, the money brought by this program will work exactly there and exactly as it was originally planned.

And that money is not insignificant. It is estimated that for all the years of work under the EB-5 program, the United States received about 30 billion in direct investments, and the number of newly created jobs is counted in the tens of thousands.

Market analysts expect that after the rise in visa prices, the number of those wishing to apply will decrease, although quotas will still be selected. Only the queues for consideration will shrink. It is expected that some potential investors will look at the E-2 visa, which will become a partial alternative to EB-5.

Is immigration to the United States on the horizon?

Properly prepare your meeting with the tax system of this country. Our article will be useful for those who will become immigrants to the United States in the near future. And it does not matter what paths will lead you there. Perhaps you are a wealthy investor and have obtained one of the business visas that allow you to apply for a Green Card. Or maybe your status as a top manager or a high-level specialist will allow you to stay in the country. There may be many options. But in any case, you are sure to encounter the U.S. tax services, with their tax laws. And they are, and it is worth knowing this in advance, one of the most complex and rigid in the world.

Will you become a US tax resident?

Right away, it is worthwhile to understand one important rule. According to American tax laws, any citizen of the country, as well as the owner of a Green Card, is a tax resident of the States. In addition to these categories, foreigners who live in the United States from 183 days a year and longer automatically become residents. And here it does not matter for what reason you lived here. It can even be an illegal border crossing.

Important! Exceptions to this rule are people staying in the U.S. on an official student visa, diplomats, and foreigners who are patients of medical institutions.

When you become a U.S. tax resident, you must pay taxes to this country on all of your income, regardless of where you actually live or where you earn income. This applies to all of your income, including inheritances.

Peculiarities of American taxation

We have already mentioned that it is incredibly confusing and complex. The tax competitiveness index of this country is one of the lowest in the world. The situation is further complicated by the fact that tax policy varies significantly, depending on the state where you live. There are different levels of taxes: federal, then state taxes, followed by others, such as city taxes.

In addition to this division, there is a gradation by tax type.

Individual Income Tax. Some states, such as Texas or Florida, do not levy it at all, while others do not tax wages.

Corporate tax is also absent in some states, although most do levy it. It averages close to 5%, although Iowa, for example, has 12%, the highest in the country.

The personal income tax on income also varies widely. It ranges from 13.3% in California to 2.9% in North Dakota.

Even these few examples demonstrate how motley the tax picture is in the States.

Meet with the U.S. tax professionals. Prepare for it in advance!

The local tax service (IRS) in its work is focused on the consciousness of citizens. Here it is accepted that taxpayers themselves calculate the necessary payments, and themselves contribute money to the state budget.

But this system is built not only on consciousness. If you are found in bad faith approach to paying taxes, the punishment will be really cruel. Of course, IRS officials are not interested in citizens with a hundred or two dollars in their bank accounts. But if you have solid savings, a good business, declared property, the fiscal officers will check your tax history with all due diligence, if only it causes them suspicion.

Indulgences and exceptions are not made to anyone - it is worth learning this at once. The country is full of examples, and they are easy to find in the media, when huge, million-dollar fines, and even prison terms, were subjected to famous, respected people in the country: popular show business stars, Olympic champions, Hollywood stars. Many of them after such “meetings” with tax officials lost their authority in the eyes of fans, and their financial status was significantly undermined.

Therefore, preparing for immigration to the U.S., you should worry about important tax points in advance. This should be done a few months before the actual receipt of residency, because almost any of your assets IRS can tax. For example:

Your share of mutual fund holdings in investment funds outside the United States; companies you own in your home country;

your capital gains of various kinds, etc.

About choosing a tax advisor

To avoid unexpected expenses and to properly prepare for immigration planning, it is important to work closely with a tax law advisor. Without the help of such an expert, especially if you are a wealthy person and own a variety of assets, it will be extremely difficult to understand.

Keep in mind that you will have to entrust a lot of your financial secrets to this person, which places special demands on him. Usually in the United States, such people belong to one of three groups of tax advisors.

Professionals who have received the appropriate training and are registered agents. Accountants who have the necessary certification. These are essentially the same as registered agents, but they are licensed by the state in which they practice. Professional tax advisors. They are engaged in tax optimization, know all the subtleties of financial legislation, monitor the slightest changes in the laws.

It will be a huge advantage if your advisor knows not only the U.S. tax requirements, but is also well versed in the tax nuances of your home country.

It should also be stipulated that pre-residency tax planning services, given all of the above, cannot be cheap. As a rule, they will cost you at least $10 thousand. At the same time, in complex, non-standard cases, when you have to involve several experienced lawyers, this amount can grow by an order of magnitude.

Specific steps to optimize your tax assets before moving to the US

So, what do you need to do before trying on the status of a resident in the States? It is clear that it is impossible to cover all the nuances in one article, however, let us outline at least the most important milestones.

Prepare a financial report, in which you should list all your assets: stocks, bank deposits, registered companies, etc. By analyzing this list, your consultant will be able to tell you which of your assets will be subject to tax and to what extent.

Using your consultant's knowledge, sell assets with large unrealized gains. Keep in mind that gains on the sale of assets that have been in your possession for more than a year will be treated as long-term and less than a year as short-term. In the first case, the tax on it will be between 0 and 20% (depending on your income level). And in the second, it will be equal to your income tax rate (10 to 37%).

Selling assets with high unrealized gains is not profitable. To avoid this, you can take possession of them in your own, specially created company, with an increase in the base value. Then, as a U.S. resident, you can sell them, paying taxes only on the gain realized since the transfer to the company.

For your existing companies, choose the appropriate form of organization to bring them under low tax treatment. This will also require the expertise of your advisor.

Assets can also be placed under the management of an offshore trust. In doing so, you partially lose control over them, which many people view with great distrust.

Some specifics of U.S. tax reporting

When preparing to become a tax resident in the States, it is useful to study the reporting requirements in advance. Thus, you will have to report to the fiscal authorities about all your bank accounts in any country of the world, if their amount exceeds $ 10 thousand. Also, taxes will be deducted from your pension income, if they are not state.

But the inheritance worth up to $ 11 million is not taxed here, as well as gifts from non-US citizens, with a price not exceeding $ 100 thousand (although they must be entered in the declaration).

Let us also point out the important fact that the U.S. has its own internal “offshore states”: Wyoming for small and medium-sized businesses, Delaware - for large corporations. They have the most favorable conditions for doing business. Concluding our review, we would like to add that when terminating your residency in the USA for one reason or another, in many cases you will have to pay a special exit tax. Its existence depends on how long you have lived in the country as a resident.