There has been a recent increase in problems arising during the transferring of investment funds for EB-5 immigrant investors. Several countries, including China, Vietnam, and Ethiopia, have instituted regulations regarding how much currency they will allow to be changed into U.S. dollars and have imposed stringent requirements regarding the transfer of investment funds to the United States. In addition, United States Citizenship and Immigration Services (USCIS) has imposed additional requirements regarding how investment funds are sourced, making it difficult to use traditional methods of transferring international funds to meet the investment requirement. Several similar changes in local currency laws have also contributed to the difficulties.

As just one example, China created regulations at the beginning of 2017 that mandated discovery of the reason for the requested currency exchange and proof that it is not for immigration or on behalf of another individual. Several months later, additional regulations instituted a maximum transfer amount of RMB 50,000 each day per person, which is equivalent to $7,500, when transferring funds out of China. At the same time, USCIS now requires any third parties assisting investors in exchanging currency to provide proof of legitimate fund sources. This further complicates the process of transferring funds.

With all these barriers to investment fund transfers, what solution is there to be able to move forward?

One Possible Solution: Digital Currency

Digital currency allows individuals to send funds electronically without using a bank or other financial institution. Its value is based on supply and demand rather than individual exchange rates of various currencies. Also known as cryptocurrency, this type of currency is entirely electronic.

How Does It Work?

Digital currency transactions are recorded on a ledger of sorts, referred to as a “block chain” ledger. The ledger is maintained by companies commonly known as “mining companies.” Any changes to recorded transactions can only be completed by the stipulation of all involved parties.

As payment for maintaining the ledger, mining companies receive digital currency, which they will frequently turn around and sell to specialized brokers, who will then sell the currency to individual buyers through a cryptocurrency exchange market.

The most popular digital currency in today’s market is bitcoin.

Bitcoin as an Example

In order to use bitcoin, an individual must first set up an online bitcoin wallet that will allow for an exchange with the currency used in the individual’s country of origin. He or she can then use the local currency to purchase the bitcoin and store it in the wallet. The mining companies record the transaction onto a public ledger. The ledger, while recording details about the transactions, does not record information regarding the names of the parties involved, so these parties can maintain anonymity.
After depositing bitcoin into his or her wallet, an individual is then able to transfer it as a form of payment to other bitcoin users or exchange it through a cryptocurrency exchange. In the case of EB-5 investments, investors would need to use a cryptocurrency exchange in the United States and then exchange the bitcoin for the correct amount of U.S. dollars based on the current market rate. This method bypasses using a bank or other financial institution that may otherwise have limits on amounts or types of transactions. Once the foreign investor has successfully purchased U.S. dollars with bitcoin, he or she can then invest the money into a selected EB-5 project to begin the EB-5 immigration process.

Using a cryptocurrency exchange is not always necessary for the transfer of bitcoin. Individuals can sell or transfer bitcoin and other forms of digital currency directly by self-publishing the transaction on the publicly accessible block chain ledger.

Difficulties Associated with the Use of Digital Currency

While the use of digital currency to exchange or transfer funds seems relatively simple, changes in government regulations in some countries are complicating its use. China, for example, recently passed a regulation banning the use of digital currency to exchange funds. Bitcoin and other forms of digital currency may still be used in China for purchases by those who already “own” the currency, but the use of cryptocurrency exchanges has been prohibited. While the decision was made in an apparent effort to protect China’s economy, it creates difficulties for EB-5 immigrant investors trying to transfer investment funds from China to the United States.

Despite these regulations, the digital currency market attempted to remain afloat through the increase of direct transactions that did not require the use of cryptocurrency exchanges. It was successful in its efforts to circumvent the regulations imposed by the Chinese government. As a result, the Chinese government has recently suggested that it has plans to permit the use of cryptocurrency exchanges in the future but with added restrictions. Plans include the development of a licensing program so that the government will still be able to oversee the digital currency market. At this point in time, it is unknown what type of effect government oversight will have on the digital currency market. However, the digital currency market has proven its resilience by continuing to grow despite efforts by various countries to restrict its use.

Government regulations in select countries are not the only concern regarding the use of digital currencies. There are several other factors that may create difficulties for EB-5 immigrant investors who wish to use digital currency to be able to transfer funds for their investments. Three of these factors are listed as follows:

The Ever-Changing Exchange Value of Cryptocurrencies
The exchange values of digital currencies, unfortunately, are not stable. Since they are based on a constantly fluctuating market value, the potential for a drastic decrease in value after an EB-5 investor has purchased the currency and before he or she is able to exchange it for U.S. dollars is very real. If this occurs, the investor will no longer have the required funds for an EB-5 investment, resulting in a delay in the process while the investor obtains additional needed funds.

Additional Costs Related to Government Regulations
As exchange rates for some currencies are controlled by local governments (such as the Chinese RMB/Yuan), an investor may be confronted with additional costs due to inequivalent exchange rates. Digital currency exchange rates are controlled solely by the supply and demand of the market; thus, they may differ substantially from individual country exchanges rates.

Restrictions on How Much Digital Currency Can Be Purchased at a Time
Most digital currency exchanges have placed limits on the amount of digital currency an individual can purchase at one time. Limits may cover the purchases in a day, a week, a month, or more. Even the most popular exchanges in the United States impose such limits. For example, in the state of New York, an individual cannot purchase more than $8,000 bitcoin in a single week, which is approximately 21 bitcoins at the current exchange rate. These limits may pose a challenge to investors, as they make it difficult for investors to exchange the needed amount of funds in a timely manner.

Where Digital Currencies are Headed

The use of digital currency as a means of transferring funds is expected to continue to grow globally. While it is currently only one way to transfer funds, its use has increased rapidly over the years as well-known companies have begun to permit its use. Microsoft and PayPal are among those, as they now accept bitcoin as an appropriate form of payment.

However, digital currencies are still relatively new and, as such, carry with them unknown variables and have not yet gained the trust of investors. There is not a lot of detailed information available to potential investors about the process of digital currency transactions, and many are concerned about the fluctuating market value of the currency and the lack of global acceptance of its use. However, as more difficulties arise in the process of exchanging currencies through traditional methods, digital currencies are expected to rise in popularity. Countries may continue to attempt to regulate the use of digital currency, much like China already has. However, ways have been found to circumvent regulations in a way that is impossible to do with direct exchanges of local currencies. Due to this, it is expected that digital forms of currency will be in greater demand by EB-5 immigrant investors who are located in countries that have rigid regulations regarding the exchange of local currency in an effort to protect their economy.

While the EB-5 program offers a way to achieve resident status in the United States more rapidly than other immigration options, one downside is the taxes that investors become subject to. Relevant taxes include both income tax and transfer tax. It is important for investors to be aware of what these taxes entail prior to beginning the EB-5 program so they can take appropriate steps to reduce the amount of taxes they will need to pay.

Income Tax for U.S. Permanent Residents
In most cases, a U.S. permanent resident, i.e., someone who has obtained their “green card,” must pay income taxes like any U.S. citizen. Not only do they have to pay this on income received from within the United States, but taxes can also be assessed on income received from other countries (unless there is a tax treaty in place that prohibits this). In contrast, most other countries only assess taxes on income obtained within the country’s borders.

In addition to income tax on earned income, EB-5 investors who have obtained green cards also have to pay taxes on any gains from worldwide assets. For example, if an investor has a business in his or her country of origin and sells that business after receiving his or her green card, both federal and state capital gain taxes will be assessed on the total amount received in the sale.

If the investor cannot provide evidence of the purchase price of the asset, then taxes are assessed on the entire proceeds from the sale of the asset. The investor is required to provide documentation of what was originally paid for the asset if he or she wishes to deduct that amount from the total gains. Keep in mind that this only applies to assets sold after the green card has been received, but it does apply to all gain obtained outside the United States after a green card has been issued.

Preparation for Immigration
In order to reduce or eliminate the amount of taxes that end up being assessed, there are several steps that EB-5 investors can implement prior to beginning the EB-5 process. First, EB-5 investors should get rid of assets and monetary gain prior to applying for permanent resident status. One way this can be done is through gifts deposited in trust accounts. It is important to keep in mind that if trusts are foreign and the beneficiary applies for permanent resident status within five years of the trust’s formation, he or she will be taxed on the trust upon receiving resident status. To avoid taxation, trust assets can be deposited in an investment that is either non-taxable (like insurance policies) or minimally taxable (like certain tax-efficient investments).

Transfer Tax Assessment
If no tax treaty to the contrary has been established between the United States and the investor’s country of origin, any transfer of property that is located in the United States but owned by an individual who is not a U.S. citizen is subject to a transfer tax, i.e., gift tax, equal to 40% of the transfer amount if the total transfers are greater than $15,000 and transferred to someone who is not a spouse and $152,000 if the transfer is to a spouse who is not a U.S. citizen. Amounts above $60,000 that are still owned at death are again subject to a 40% estate tax.

In contrast to the tax requirements imposed on immigrants, U.S. citizens and legal residents are permitted through a unified credit to transfer up to $5 million to another individual without being taxed on it. In addition, gifts up to $14,000 each year are exempt from gift taxes. Once that $14,000 is surpassed, the unified credit kicks in. This also applies to assets located outside the United States.

To complicate things further, the definition of “residency” for tax purposes is different for transfer tax and income tax. For transfer tax, a “resident” is an individual living in the United States who has no intention of leaving at the time of transfer or death. Since EB-5 investors are required to declare their intent to stay in the United States, they are considered to be U.S. residents for the purpose of assessing transfer tax as soon as they begin residing in the United States.

If the immigrant investor has not yet qualified as a resident under transfer tax regulations, steps can be taken prior to moving to the United States to reduce or eliminate future transfer tax with the help of a tax professional. If assets are purchased through the correct structure, usually using a trust, that will eliminate any transfer taxes. However, the trust needs to be used from the initial purchase in order to qualify for this exception. Any property purchased in the investor’s name (other than the EB-5 investment, which is always in the investor’s own name) is much more likely to be subject to transfer tax assessment.

EB-5 immigrant investors come from many different countries and backgrounds, and their situations vary. While there isn’t any single best way to minimize or eliminate U.S. taxes for investors, it is important to plan ahead of time with the help of a tax professional who knows the ins and outs of U.S. tax laws. It is also important to be very clear about what the investor’s primary goals are regarding the ownership of assets.

As an example, if the investor intends on keeping the property or assets purchased, a trust structure like the above mentioned one would be the ideal way to eliminate any transfer taxes. If, however, the investor plans to sell the assets in the near future, income tax should also be taken into careful consideration. Again, the use of a trust would come into play, but the investor may also want to place ownership of the assets with a partnership or LLC through the trust.

Carefully planning must take place before EB-5 investors enter the EB-5 process and become residents of the United States for tax purposes. A qualified tax professional can assist with this process and help immigrant investors know what steps to take in order to eliminate or at the very least reduce U.S. taxes.

Making decisions involving large amounts of money is never a simple process. For immigrant investors interested in participating in the EB-5 program, this process usually involves researching hundreds of available projects and investment options. One consideration for investors is whether to put their money into a regional center project or to invest directly into an EB-5 project, perhaps their own project.

While there are many project options for you to investment, the low predicted return might be a deterrent. You might also want to have more control over the project. If your thinking starts heading in that direction, you will inevitably toy with the idea of creating your own project to invest in, either by using a direct investment model or a regional center investment model.

If you’re giving it some thought, there are a few things you should take into consideration before branching out on your own. Direct investments and regional center investments each have their own set of benefits and risks. Regardless of the type of project you select, you will benefit from the help of an experienced team of professionals who can help you with structuring your project model and associated documents and giving you valuable advice along the way.

Direct Investment or Regional Center: Pros and Cons
Investment Expectations
Currently, a minimum investment of $500,000 is required for EB-5 investments in projects that are located in targeted employment areas (TEAs). However, if you choose to invest directly into a project that you develop yourself, be aware that you will likely end up contributing far more than the $500,000 as well as many hours of your time. You will need to keep extensive documentation and ensure that all aspects of the project remain compliant with various federal, state, and local laws.

Total Investment Amounts
While a direct investment, especially in your own project, will give you more control over the project, it is also important to consider the extra costs that may be involved. Direct investments may give you a higher return on investment (ROI), but those costs may offset that. If you are running your own project, you will be required to not only invest your minimum $500,000 but also obtain the remainder of the needed capital for construction and operation of your new enterprise. Investors should also consider regulations that govern what jobs can be included in the job creation requirement of the EB-5 program. Direct investments require the creation of 10 full-time direct jobs for each investor. While some investors may wish to have their own project as a way to start a “family business,” family members who are employed may not be counted toward the 10 full-time jobs. It is also important to take into consideration the amount of minimum wage in the area and how much capital will be needed to pay for 10 full-time employees.

Documentation Requirements
The job creation requirements for the EB-5 program are stringent and add to the difficulty of complying with various local, state, and federal regulations that govern the new commercial enterprise (NCE).

As an example, if the NCE is a restaurant, you must turn a profit (or at least avoid losses) and maintain customers like for any other restaurant, but you must also document all jobs created directly from the NCE and maintain detailed documentation showing that the jobs were not only created but maintained for a full two years. That information needs to be included with the I-829 Petition to prove that EB-5 Program job creation requirements have been met.

While this is certainly a time-consuming and stressful process for an investor who has chosen to invest directly in his or her own project, investing through a regional center can cut out some of that. Regional center investments allow for more job types to be counted, including indirect and induced jobs. The process is thus much simpler and less nerve-wracking, since there is a much greater job cushion. In addition, the investor is no longer solely responsible for ensuring job creation for every single investor; the regional center takes over that responsibility.

Why Retain a Team of EB-5 Professionals?
The EB-5 immigrant investor process is one process you shouldn’t attempt to do on your own. The success of the process is the sole determinant of your ability to become a permanent U.S. resident through the program. It is important to surround yourself with a competent team to provide you with guidance throughout the process. You will need a qualified immigration attorney, an experienced business plan drafter, and additional financial and legal advisors regardless of the type of investment you make.

The Role of the Business Plan Writer Even if you have developed your own business model and have obtained all the needed documents to support your plan, an EB-5 business plan writer will take that one step further and turn your model into a detailed plan that complies with all of the USCIS regulations that govern the EB-5 program. Full compliance is necessary to ensure the success of the investment process and immigration.

EB-5 business plans must be “Matter of Ho” compliant. Matter of Ho refers to a decision in 1998 that established precedence for determining the standards of an EB-5 business plan. Your plan will be measured against this precedent, and your business plan writer will make sure that your plan is fully compliant with those standards. A business plan writer can also help you with your business model and other aspects of your plan, but if there isn’t enough documentation to back up your proposal, you may want to consider investing through a regional center to increase the likelihood of successful immigration.

Both direct investment business plans and regional center business plans require a business plan writer to prepare an EB-5 compliant business plan. An economic analysis for the EB-5 project or a job creation study may provide added benefits. For regional center projects, all direct, indirect, and induced jobs created as result of the project can be included to meet the job creation requirement. Many of these jobs come from construction. Certain construction costs, such as expenditures for materials, furnishings, etc., can be used to count jobs beyond direct employees. This provides a greater chance of petition approval, as it is easier to count estimated jobs based on expenditures than it is to provide documentation of ten full-time direct employees for each investor at the time of petition filing.

Other than construction-related jobs, the rest of the qualifying jobs usually will come from the operations of the project once it is completed. For example, staff employed by a hotel after it has been completed would be included in this category. Direct employees of the enterprise can be used for all types of projects, and regional center projects can also count indirect and induced jobs associated with the operations of the enterprise.

While direct jobs can be proven with documentation such as payroll stubs and W-2s, they can also be calculated (along with indirect and induced jobs) with the help of economic models. These models use revenues to estimate job creation, and thus it is easier to prove that job creation requirements have been met since you simply need to produce financial statements that have been audited to show that the desired revenues have been achieved. An experienced economist can aid in the use of economic models. If using an economic model, however, it is important to have realistic revenue goals that you are sure you will be able to achieve.

The Need for Offering Documents

Offering documents describe the terms of the investment in detail. Contrary to the common belief that offering documents are only required for large numbers of investors or substantial offering amounts (several million dollars or more), offering documents are required in most EB-5 investment situations. It also improves a project’s marketability and decreases securities liability.

According to U.S. securities laws, securities offerings must be registered with the U.S. Securities and Exchange Commission (SEC). All investments are considered securities unless they are in one of the exempted categories. Most EB-5 investments fall under the Regulation D exemption.

Even though most EB-5 investments are exempt from the required securities offerings registration, anti-fraud regulations still apply. These regulations provide protection to parties by placing legal responsibility on those who state incorrect information or omit material contents on offering documents or any point during the sale of securities. Both entities and any individuals involved with the issuer can be held accountable for misrepresentations regardless of the extent of the involvement. Thus, it is important to include accurate and complete information in offering documents.

Preparing offering documents for an EB-5 project requires due diligence on the part of the document preparer. Preparers should exercise caution to ensure that all material information that investors may need is included within the documents and is an accurate representation of the investment details. Not doing this can lead to fraud claims and offering rescission and may lead to fines imposed on the parties involved.

The SEC has become increasingly involved in overseeing EB-5 projects and investigating fraud and similar issues. The risk of liability due to violation of anti-fraud regulations is very real, and a securities attorney can help reduce the risk by making you aware of any applicable regulations and instruct you as to how to remain compliant.

While careful preparation of offering documents can be a time-consuming and costly process, the cost of facing fraud charges for omissions or misrepresentation is far greater for all key players involved with the issuer.

Before deciding on which type of EB-5 project to go with, investors should carefully consider the risks and benefits involved with each project. Attorneys and other professionals can be valuable consultants during this process, as well as keeping in mind the primary goal of the investment—to obtain a green card.

Risk is unavoidable in any business venture, but because of inherent risks in the immigration process, care should be taken to minimize the risks associated with the investment. Implementing your own direct EB-5 project can complicate the process and increase the risks you may face. If you choose to use a regional center model for your own project, be mindful of timeframes. A regional center must be approved before investors can begin filing their initial petitions.

In the end, it’s your decision as an investor, but it is important to keep in mind the many factors involved. You may get a higher return with a project you direct yourself, but that also comes with a greater risk to you and your ultimate goal of obtaining permanent resident status.

The bottleneck created by EB-5 retrogression has prompted prospective Chinese investors to seek another path to US investment and citizenship. As the sole possessor of both a citizenship-by-investment program and a bilateral investment treaty with the US, the tiny island nation of Grenada provides another option for these investors in the form of the E-2 investment visa.

How Does It Work?

Grenada’s citizenship-by-investment (CBI) program designates two ways for investors to gain citizenship: The first option allows individual investors to donate $150K, or investors with families to donate $200K, directly to the National Transformation Fund (NTF). For the second option, they can choose to invest a total of $400K in a government-approved project that’s beneficial to Grenada’s economy.

The simplicity of this program makes it possible for investors to become Grenadian citizens, eligible to apply for E-2 visas as well as travel to 121 countries visa-free, without ever setting foot in Grenada.

The NTF option is the more popular of the two. It’s also the option recommended by EB5AN, whose examination of the available development projects reveals that many are high risk at best and traps at worst. Commonly, properties are priced above market value, lack a history of profitability to assure investors of success, or are planned but never built. Investors are also required to maintain ownership of the property for at least three years after citizenship is granted.

Besides the advantage of a shorter waiting period to get into the United States, the E-2 doesn’t carry minimums for the amount that must be invested or the number of jobs that must be created. It does, however, require the investor to play an active role in business operations. It also doesn’t lead to permanent citizenship, but can be renewed or extended endlessly as long as its qualifications are met.

How Long Does It Take?

Investors can secure Grenadian citizenship within two to three months, and an E-2 visa within two to three months more. This total of six months is a far cry from the six to ten years a Chinese investor can expect to wait for an EB-5 visa during retrogression.

Can an E-2 be converted to an EB-5?

There are multiple ways to get from point E-2 to point EB-5, such as investing more money, investing in an EB-5 regional center project, or being sponsored by an employer or family member.

Punctilious planning makes all the difference. As soon as the investor has established E-2 status in the US, he or she should aim to fulfill the requirements of the EB-5 program, understanding that careful documentation is crucial.

Still, have questions? We’re here to help. Contact EB5AN today to learn more about Grenadian citizenship, EB-5 investing, and the E-2 route through Grenada.