What to do if you’re on the EB-5 waitlist

First, let’s answer the question: What is an EB-5? It is a visa program that provides a way for foreign nationals to obtain a green card by investing their money in U.S. enterprises or creating jobs for U.S. workers. The program was created in 1990 “to stimulate the US economy through job creation and capital investment.” The following description of EB-5 is provided by the U.S. Citizens and Immigration Services:

Under this program, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they:

  • Make the necessary investment in a new commercial enterprise in the United States; and
  • Plan to create or preserve 10 permanent full-time jobs for qualified U.S. workers.

In order to qualify for an EB-5 visa, individuals must invest at least $1 million in a new enterprise (or — in high unemployment and rural “targeted employment areas” — that number drops down to $500,000). The investment can also be made to a “troubled business,” which is an enterprise that has been in existence for at least two years and has incurred a net loss equal to at least 20% of its net worth prior to the loss. Please note that there is talk of changing the minimum investment amount to $1.3 million (or $800k for targeted areas) in the not so distant future.

EB-5 backlog

In 2007, there were only 700 EB-5 visas issued, showing that the infancy of the program was not widely popularized. However, the program quickly gained steam as many foreigners started to realize that if they had the funds available, the EB-5 presented a far lower barrier to entry than trying to find an employer or family member to act as a sponsor.

National origin of 2014 EB-5 recipients:

  • India – 96
  • Vietnam – 121
  • Mexico – 129
  • South Korea – 225
  • China 9,128

That’s right, China is responsible for over 90% of EB-5 applicants.

There is a yearly max of 10,000 visas available (making room for approximately 3,000-4,000 investors in addition to their family members). On the matter of the EB-5 backlog, we’ve found a couple of conflicting reports; the first states that in both 2014 and 2015, the program reached its maximum capacity for distributed visas. However, other reports state that the backlog only affects Chinese nationals. The EB-5 investors website states:

The reason that this will only apply to Chinese nationals is because of a per country quota limitation which will kick in for Chinese nationals and likely result in a backlog for them somewhere around the middle of the fiscal year (approximately Spring 2014). Because Chinese nationals comprise 75 to 80 percent of all EB-5 visa issuances, when the per country limitations are applied to China there should be plenty of EB-5 visas remaining for the rest of the world.

Things to think about if you’re considering the EB-5 program

  • An EB-5 investor is known as a non-resident alien (NRA) for federal income tax purposes and generally will remain a NRA until they obtain their permanent residence status;
  • An EB-5 visa holder files non-resident alien tax returns until the applicant is granted a green card, unless he/she meets the substantial presence test, then he/she is required to file a resident alien tax return;
  • Once a green card holder, your worldwide income is now taxable. Welcome to the US… don’t forget to file your FBAR!;
  • EB-5 investors are also subject to other types of taxes, such as estate, gift, generation-skipping transfer taxes, and state taxes; and
  • If you do not have a plan to lower your U.S. taxes once you become an EB-5 holder, right now is a great time to talk to a tax attorney. Coming up with a comprehensive tax strategy can help you save big; millions of dollars are at stake.

We saved the best for last

We had an EB-5 client come to us for help a few years back. He couldn’t understand why — when he went to sell some stocks from his portfolio — his basis (which determines your capital gains) was being determined by the date of original sale. When he had bought the stocks, he wasn’t a U.S. citizen!

We thought that sounded fishy, even for the IRS, so we started doing some research. Unfortunately for him, we found that the information being provided was correct; the IRS determines the basis by date of sale, not the date of U.S. citizenship.

So, what does this mean if you are considering applying for the EB-5 program? It means that it may be advantageous for you to sell your stocks, real estate, and other assets only to re-buy them when the time is right. For those who have a large number of investments, this could potentially save you millions of dollars.

Every situation is unique, and it’s incredibly important that you surround yourself with a team of advisers that can help you as you make this amazing journey to the land of the free (and highly taxed). If you find yourself overwhelmed, take a deep breath. There are ways to proceed that will help you get the visa that you’re wanting and will allow you to save substantially on your tax bill. Help is always available, so don’t hesitate to contact us.