Tax Implications for EB-5 Investors

Updated: June 23, 2024

WRITTEN BY

EB-5 Insider Team

A group of professionals with years of experience helping people immigrate to the US

Note: This article is for informational purposes only. We are not providing legal advice or selling securities. The articles and content on this site are of a general informational nature only and should not be relied upon for individual circumstances.

Tax implications are an aspect of the EB-5 Immigrant Investor Visa Program that is often overlooked. Investors should consider the tax implications of their successful EB-5 application and start planning for their tax filing as early as possible. The U.S. taxation system will account for their international assets and income, requiring residents to pay income tax on all their U.S. earnings and estate tax on their international holdings.

Many countries where EB-5 investors originate exclude foreign earnings or may tax citizens based on residency. Gaining your green card through investment may leave you navigating an entirely new taxation system. Proper planning is essential to ensure EB-5 investors comply with U.S. taxation requirements.

When a foreign national is in the United States on an EB-5 visa, they are considered to have temporary status. However, they may still be subject to U.S. tax on their income and must report their foreign assets and accounts to the Internal Revenue Service (IRS). EB-5 investors may face the same tax rules as U.S. citizens and legal permanent residents.

We’re discussing the tax implications for EB-5 investors and how to implement strategies to avoid unexpected tax bills.

Overview of Tax Considerations

An EB-5 immigrant must note the start date of their residence in the United States to help them determine when they’ll be subjected to U.S. tax laws. EB-5 investors can be subjected to two types of taxes: income and estate tax.

If an EB-5 immigrant has an investor green card, they will be considered a U.S. tax resident for income tax purposes. Alternatively, they will be subject to income tax if they pass SPT.

The ‘Substantial Presence Test’ (SPT) determines whether an EB-5 visa holder is subject to the U.S. taxation system. It will determine how many days the person has resided in the United States in the previous three years. If the EB-5 visa holder has a substantial presence, they are subject to U.S. tax on their international income and must disclose all accounts, assets, and investments unless exclusions apply.

  • The investor must be present in the United States for at least 31 days, including at least 183 days of the current calendar year, one-third of the days from the preceding calendar year, and one-sixth from the second preceding calendar year.

SPT takes precedence over the start date on your green card. If an investor obtains their EB-5 visa during a year where they would also meet the substantial presence test, their residence start date will be the 1st of January of that year. It will not be the date that their green card was granted.

Investors can stay in the United States for 183 days without becoming tax residents by meeting SPT. However, spending significant amounts of time outside of the United States might pose questions for your EB-5 application and your intentions from USCIS.

An EB-5 investor is considered a U.S. tax resident for estate tax from when they intend to remain in the United States. This date is determined based on evidence from the EB-5 visa application and family connections in the United States. It’s common for the date of arrival in the United States to be considered the start date for U.S. tax residency for estate tax.

U.S. Tax Obligations for Investors

As a non-US citizen and non-US green card holder, you’re typically only required to pay tax on the money you earn while working in the United States. It is known as “U.S. Effectively Connected Income”. However, if you qualify under SPT, you’ll be taxed by the IRS on your worldwide income.

Before an EB-5 investor becomes a U.S. tax resident, they are considered living as a non-resident alien (NRA). They will be subject to U.S. tax law, including any treaty agreements the U.S. has with other countries. Certain treaties may reduce tax rates, but NRAs pay a flat 30% tax on their income from U.S. sources unrelated to a U.S. company. This amount is paid directly to the IRS, meaning most payments from U.S. sources to NRAS will be subjected to 30% tax. However, an NRA is not typically taxed on any capital gains.

Income from an ‘effectively connected’ U.S. trade or business that provides products, services, or maintains a corporate office in the U.S. is taxed in line with regular income tax rates.

Although NRAs are subject to the same 40% estate tax as normal U.S. taxpayers, their exemption is limited to only $60,000. However, EB-5 investors from countries where the U.S. has an estate tax treaty may benefit from a larger exemption. NRAs are also subject to gift taxes on tangible property in the United States. Similarly, U.S. citizens and residents must report any gifts they receive over $100,000 from an NRA.

Strategies for Tax Planning

Although obtaining an EB-5 visa is a prolonged process, it provides investors with crucial time to start planning how to navigate the United States tax system. There are active steps you can take to prepare for the tax implications of an EB-5 visa. Working with an immigration attorney and financial advisor can help you utilize the best strategies to meet your tax requirements.

Here are examples of strategies you can implement in your taxation planning as an EB-5 investor:

Receive Any Non-U.S. Income Before the Residence Start Date

You can reduce your tax liabilities by realizing any non-U.S. income before your residence start date. You’ll want to speak to a financial advisor for a tailored plan, but choosing to take your foreign pension early or cash in any dividends may be worth any early withdrawal penalties to avoid paying tax on them under the U.S. system. You can also distribute earnings and profits from any foreign assets you control before the residence start date. After the start date, these dividends and earnings will be taxed under the U.S. system.

Consider Transferring Asset Ownership

Any capital gains should be recognized before you immigrate. Any capital asset sales after your residence start date will be taxed on the difference between the sale price and acquisition cost. If an asset is passed down or inherited, it’s assumed to have a low acquisition cost, resulting in a higher tax to be paid. An EB-5 investor can plan and transfer ownership of their assets at the market value before immigrating to reduce the difference between the sale and acquisition cost.

Defer Losses and Expenses Until the Residency Start Date

Offset your income and capital gains by deferring expenses and losses until your residency start date. If you have depreciated assets, sell them once you become a U.S. tax resident to utilize the losses to offset your income taxes. Alternatively, you can defer business and personal expense payments until after your residency start date to deduct them from your income tax.

Establish a Foreign Trust

A foreign trust established before your residency will not be considered a U.S. asset and, therefore, cannot be taxed. Gifts from a non-U.S. trust are not taxed for NRAs, allowing EB-5 investors to remove assets from a foreign trust without paying tax before their start date.

Several factors must be considered when developing this specific strategy. Any distributions from a foreign trust are subject to the ‘throwback rule,’ meaning the interest earned may be subject to taxation. U.S. beneficiaries must report distributions from a foreign trust as a source of income.

Undistributed capital gains earned by a trust are also subject to regular income tax. Crucially, trusts funded within five years of residency are taxed as grantor trusts. While any income or deduction will be taxed with the EB-5 investor, it avoids the throwback rule and the need to report beneficiaries. Distributions from the trust will be taxed as income and not estate tax.

Working with Tax Professionals

Throughout your EB-5 visa journey, you should work with experienced professionals to navigate the EB-5 investment process and the tax implications for EB-5 investors. The tax laws in your country of origin may also complicate the tax implications of your EB-5 visa. A special financial advisor or tax attorney is best placed to identify suitable strategies and tailored solutions to reduce your tax burden.

Foreign nationals who want to achieve permanent residency through investment should start their tax planning before immigration to reduce the income and estate taxes they’ll pay once they arrive in the U.S. Engaging a tax attorney or financial advisor will allow you to plan how to navigate the U.S. tax system effectively.

While the EB-5 visa is one of the easiest ways to obtain permanent residency with a path to U.S. citizenship, potential investors must consider the tax liabilities they’ll be subject to when they enter the United States and become permanent residents when they receive their green card.

High-net-worth individuals will want to pay particular attention to the tax implications of the EB-5 investor program, particularly on their worldwide assets and income. Once you become a U.S. tax resident, you must report your worldwide assets, real estate, and income to the IRS. You may be left dealing with double taxation or high tax liabilities if you fail to plan properly.

Being proactive with your tax planning and working with a tax attorney or financial advisor early in your EB-5 journey can significantly reduce your U.S. tax liabilities. We recommend consulting with international and U.S. taxation specialists before you make your EB-5 investment. 

Access U.S. Permanent Residency Through Investment

An EB-5 visa is the most efficient way to achieve permanent residency and U.S. citizenship with just a $800,000 investment.

The EB-5 Immigrant Investor Visa Program streamlines the process of getting a green card and has a significantly shorter processing time than other visa programs. However, you’ll want to consider the tax implications of becoming an EB-5 investor and put a strategy in place before making your initial investment.

At EB-5 Insider, we work to simplify your path to U.S. residency and citizenship through investment by streamlining each step of the application process. We’ll help you obtain a permanent U.S. green card for yourself, your spouse, and any unmarried children under 21 for an investment of $800,000.

Start applying for an EB-5 visa today, or contact our team for more information.

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