GUEST ARTICLE: Visa Pains - Creating A US Taxable Estate By Accident

Jay C Judas Crown Global Insurance Group Managing Director Partner 21 April 2016


The US EB-5 Visa Program is an example of a "golden visa" regime, which a number of countries operate to attract investment. There are tax traps to consider, however, as this article explains.

The US, along with many other jurisdictions, has a visa programme aimed at attracting high net worth individuals, although these schemes are sometimes changed or suspended because of political or other considerations. The US programme is discussed here by Jay Judas, managing director and partner for Crown Global Insurance Group, a provider of investment-enhancement strategies and products for institutional investors, investment managers and ultra-high net worth individuals. The views expressed are those of the author and not necessarily endorsed by the editors of this publication, but we are delighted to share such insights. We are publishing this item here as it has global relevance.

In 2015, the US issued 9,764 EB-5 visas, with just over 83 per cent of the recipients being born in mainland China. Consistently, mainland Chinese have made up the majority of applicants and recipients for this popular visa programme. The next largest jurisdiction was Vietnam, with recipients receiving just 2.9 per cent of the visas.  

Why is the EB-5 Visa Program so attractive to the Chinese and what are the personal financial pitfalls to be considered?

In September 2014, a Barclays Wealth report revealed that 45 per cent of Chinese with at least $1 million planned to emigrate from China within the next five years. The most common destinations are the US and Canada, which have stable currencies, access to strong financial markets and a high quality of life in terms of healthcare and schools.   

In addition, the implementation of the Common Reporting Standard will mean that offshore wealth held by Chinese will become transparent to their government. This will most certainly lead to worldwide taxation as well as the enforcement of an estate tax. The concern is that the scope and level of taxation is uncertain, motivating the wealthy to seek residency elsewhere.

In the spirit of inviting immigrants to its shores as long as they are productive members of society and not a drain on resources, the US, in 1992, created a pilot version of the EB-5 Visa Program. If a foreign person wished to be fast-tracked to receiving a US Green Card, he or she could make an investment into the US that created jobs.

Today, the programme targets 10,000 EB-5 visa recipients a year who must make an investment into a new commercial enterprise which creates at least 10 full-time jobs. This investment can consist of either $1 million or $500,000 into a "targeted employment area" (TEA). 

A TEA is usually a depressed urban area or a rural community. Due to the lower investment requirement, more than 98 per cent of EB-5 visa investments in 2015 were made into TEAs.  

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