While most EB-5 Visa or Investor Visa Program Applicants Aim for U.S. Citizenship, Some Investors Focus Primarily on the EB-5 Tax Benefits.
The structuring of the initial EB-5 investment plays a crucial role. A non-resident alien could be subject to U.S. taxation. That could cause withholding on that investor’s income and require filing a U.S. tax return.
Moreover, the amount of time spent in the U.S. could cause an investor to be taxed as if a U.S. resident. Time spent could be as a tourist as well as a participant in the EB-5 investor program for Indians.
Consequently, determining the amount of time spent in the U.S. in advance is of the utmost importance. Consider that EB-5 investors tend to have significant income and/or assets in their home country. Some may have assets in other countries.
If an investor was to become a U.S. tax resident (by spending too many days), they could be subject to reporting and paying taxes on worldwide income. Any estate tax and gift tax obligations would also apply, per the Foreign Account Tax Compliance Act (FATCA).
Avoid unnecessary taxes and penalties.
Accordingly, avoiding significant taxes and penalties should be part of the overall planning process. A qualified financial professional or attorney can advise and make sure that an applicant does not unintentionally become subject to such tax constraints. This is not legal or financial advice.
Length of time in the U.S. during a calendar year is important. If an applicant stays in the U.S. for 183 days or more, he/she is considered a resident for tax purposes. Same for an individual that is a U.S. citizen or alien resident because they have a green card.
The Substantial Presence Test And EB-5 Investor.
Meanwhile, the “Substantial Presence Test” is also a factor. The Internal Revenue Service has solid guidelines. A visa or investor visa program applicant would be considered a U.S. resident for tax purposes if not met.
Maximum guidelines include being physically present in the U.S. for 31 days during the current calendar year. This is part of a three year total of 183 days to also include the two years immediately following. A financial advisor or attorney can advise on additional regulations for dividing the days over the three year period.
Meeting these requirements to avoid additional tax consequences does not, however, eliminate tax consequences. The majority of EB-5 projects are structured as a partnership. As a result, partners are subject to taxes associated with the appropriate annual gains (or losses).
Earnings of a non-resident are subject to U.S. tax withholding rules for a U.S. partnership. The partnership is required to withhold tax by the IRS. (The rate is approximately 37% as of 2019, which is considered the maximum tax rate.)
A non-resident taxpayer is not required to file a U.S. non-resident return. They may, however, prepare a non-resident tax return to request a refund of an excess tax payment.
The visa or investor visa program applicant needs to keep this in mind within the overall Business Plan. Such taxes could impact the overall return on investment because of the tax rate. Obviously, having no taxes due or a 30% tax rate on a project will impact the immediate success of the investment. Not doing anything else to increase the taxation rate is a crucial step.