Tax Consequences of the EB-5 Program

In 1990, Congress created the EB-5 program to stimulate the U.S. economy through job creation and capital investment by foreign investors.  The EB-5 program grants green cards to immigrants who make a capital investment of at least $1,000,000 into a commercial enterprise and create or preserve at least 10 full-time jobs for qualifying U.S. workers.  For investors willing to invest in Targeted Employment Areas (areas that either have a high unemployment rate or are rural), the capital investment requirement is lowered to a minimum $500,000.

The EB-5 program was vastly underutilized until the burst of the United States housing bubble in the middle of 2008.  The EB-5 program only allows for 10,000 visas a year, however, the number of applications submitted has continued to rise with 6,554 applications submitted in 2013, 11,744 in 2014 and 17,691 in 2015.  The surge in applications was due in part to the fact that the program was originally set to expire on December 16, 2015.  However, on December 15, 2015, the EB-5 program was extended an additional 10 months and is now set to expire on September 30, 2016.

Those investors who arrive in the United States via the EB-5 program and are granted green cards should be aware of the tax ramifications and obligations they will face as U.S. tax residents.  The biggest consequence, of course, is that as a U.S. tax resident, you are taxed on your worldwide income, rather than exclusively on your U.S. effectively connected income as a nonresident would be.  Additionally, there are complex laws and treaties that surround estate tax.  When you die as a U.S. tax resident, your foreign property and assets may be subject to U.S. taxation as well therefore it is important to plan accordingly when considering the EB-5 program.  A final important consideration for those considering the program is the disclosure requirements of foreign financial assets as required by the Foreign Bank and Financial Accounts (“FBAR”), Form 8938 Statement of Specified Foreign Financial Assets, Form 5471 Information Return of U.S. Persons With Respect To Certain Foreign Corporations and Form 3520 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.  Failure to file these informational forms can result in criminal penalties and steep civil penalties.