US EB-5 investor visas: what you need to know
Investments / 2019.11.08

US EB-5 investor visas: what you need to know

Reginald Labuschagne Head of Product and Strategy

From 21 November 2019, the required investment for South Africans seeking permanent residency in the US via the popular EB-5 investment visa programme will increase from US$500 000 to US$900 000. This significant escalation aside, however, investors looking at securing ‘green cards’ via the programme need to be aware of the not inconsiderable pitfalls of going this route – or they could put their entire investment at risk as well as fail to obtain a green card.

The US EB-5 visa programme – run by the US Citizenship and Immigration Services (USCIS) – enables would-be emigrants to the US to become permanent residents by investing in an enterprise in what’s known as a ‘targeted employment area’ in that country. The investment needs to create or preserve at least 10 permanent full-time jobs for US workers.

The EB-5 programme was established in 1990 by Congress with the aim of stimulating the US economy through job creation and capital investment by foreign investors. Most EB-5 projects involve commercial real estate developments. Investors can either consider the projects of individual property developers, or invest through regional centres designated by the USCIS. Schemes operated via these centres are often still backed by single-asset developers, however. Another option is therefore to opt for a diversified model that invests in a portfolio of property assets instead of a single project.

Earlier this year, the USCIS introduced new regulations increasing the minimum amount to be invested in a targeted employment area from US$500 000 to US$900 000. Effective from 21 November 2019, the sharp hike in the investment level will reduce the number of South Africans able to make use of this option to obtain US permanent residency.

Besides the looming investment increase, South Africans aiming to go this route to secure a green card need to consider these crucial factors:

  • There’s no guarantee that invested capital will be returned. Projects involving individual property developers carry the real risk of non-delivery. If the developer goes bankrupt or fails to sell the project on completion – to a hotel group or property fund, for example – you could lose your entire investment or be stuck in a bad investment for a considerable period of time.
  • In addition, if the project in question doesn’t deliver the number of jobs required, or fails to meet other EB-5 requirements, you may not be granted a visa.
  • You’re unlikely to see any growth on your investment. Technically, it’s not an ‘investment’ in the usual sense of the word – you’re essentially transferring the funds in order to obtain a green card.
  • Schemes offering fund diversification models offer better protection against risk, and you may even be offered some potential upside or return on your investment. However, you’ll still need to do your homework and scrutinise their track record. What is their success rate? How long have they been in operation? How diversified is the portfolio? Do they have the necessary regulatory approval?
  • Be aware that the US EB-5 visa programme is not for people looking for a ‘back-up plan’ in terms of foreign residency – if you’re granted a visa, you’ll actually need to move to the US. Two or three years after the initial investment, you may be given a conditional green card, after which you and your family will have to physically relocate to the US within a period of six months. It could take a further two to three years before you’re granted permanent residency, and five years before you have the option of becoming a US citizen.
  • The tax consequences of applying for and enrolling on the US EB-5 visa programme could be significant, not to mention highly complex – timeous, independent, expert tax advice is essential.

In a nutshell, if you’re considering the US EB-5 visa programme, you should approach it in the same way you would an investment: be clear on the objective (in this case, obtaining a green card) and scrutinise the risks associated with it.

If you’re going the single-asset route, ensure you conduct a thorough due diligence on the project, including the financial situation of the developer. If you need further protection against loss of capital, however, then select appropriate diversified models or schemes run by reputable persons to mitigate the risks. The best option is to seek advice from a professional to provide guidance on the process.

If you’d like further information on the potential tax consequences of investing in the US EB-5 visa programme, please contact Anton Maskowitz at antonm@privatewealth.sanlam.co.za or 011 778 6641.

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