Understanding EB-5 Visa Tax Implications

EB-5 Visa Tax Implications

The EB-5 Immigrant Investor Visa Program was created to encourage investment in the US. However, recent changes to the required investment thresholds may impede smaller investors from obtaining this visa. Find out what you need to know about the ways these changes could affect EB-5 visa tax requirements!

What Is the EB-5 Visa Immigrant Investor Program?

In the early 1990s, the US introduced the EB-5 visa program, which allows an immigrant investor a fast track to obtaining a Green Card. To qualify, the entrepreneur would need to make an investment in the US that would create at least ten US jobs. Previously, the required amount of the investment ranged from 500,000 USD to 1,000,000 USD, dependent on location. For high unemployment rural areas, the minimum investment was 500,000 USD. All other areas were at the 1,000,000 USD threshold. The 1,000,000 investment could also be made to a government-approved firm, known as a regional center, which would manage funds for immigrants. However, as of November 2019, the required investments have jumped to 900,000 USD and 1,800,000 USD, respectively. This visa will cover the immigrant, their spouse, and their unmarried children under the age of 21.

Which EB-5 Visa Tax Requirements Could Be Triggered?

The EB-5 visa tax implications can be far-reaching, depending on your financial situation. EB-5 visa holders are permanent residents of the US, and they pay tax worldwide like any other US person. Also, they are subject to financial asset reporting on the FBAR (Foreign Bank Account Report) to disclose the existence of accounts held in a foreign financial institution if they reach the threshold of $10,000 in all foreign accounts. The provisions of FATCA apply to those whose assets exceed the thresholds, which unfortunately makes it harder own financial accounts abroad and may necessitate filing Form 8938 in certain cases. For entrepreneurs that hold an interest in foreign limited liability companies, international partnerships, foreign corporations, or trusts, there are additional forms that may be required. Each of these forms carries a penalty beginning at 10,000 USD for not filing it or preparing it incorrectly. These penalties add up quickly and can now result in the loss of your passport if the tax bill owed (including penalties and interest!) is over $52,000, which is the amount that the IRS has deemed “seriously delinquent tax debt.”

What Other Tax Implications May Apply?

Once the visa holder integrates into the US system, they are taxed on the sale of assets held before obtaining the visa. So, for example, a stock purchased 20 years before being a visa holder for 1,000 USD that is worth 10,000 USD when sold would result in a 9,000 USD gain. For entrepreneurs with considerable wealth held in assets, this could result in a significant tax bill.

It is critical for any person considering an EB-5 visa to plan out their entry to the US carefully. Taking an inventory of assets held to determine what special reporting requirements the assets may trigger and what type of tax burden they will face once the asset is sold is vital to avoiding surprises during tax season. Often enough, harsh tax treatment can be avoided by selling, gifting, or transferring assets and receiving income before holding the visa. For those visiting or living in the US while waiting for the visa, special care needs to be taken to avoid triggering worldwide taxation.

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