Tax implications for EB-5 investors

The tax for EB-5 investors is complex and requires careful navigation. The whitepaper on the Crossroads of EB-5 Investment, U.S. Tax Compliance, and Proper Tax Planning emphasizes that, “Because most foreigner investors are typically not familiar with the complexity of the U.S. income and estate tax regimes, it is crucial that each investor consults with a licensed CPA or tax attorney, in order to ensure that the most advantageous tax positions for the foreign investor have been taken.”

Tax considerations include:

1. The Internal Revenue Service (IRS) has specific regulations for foreign investors. As the whitepaper notes, “The Internal Revenue Service (IRS) has passed regulations requiring U.S. entities taxed as partnerships to withhold taxes on income allocable to foreign partners.” Typically, this involves a 30% withholding on certain types of income, which may be reduced through tax treaty agreements.
2. Investors face critical important transitions. The whitepaper highlights that “Once an investor becomes a U.S. tax resident by meeting the ‘green card’ or ‘substantial presence’ test, the investor will be taxed on his or her worldwide income.” 
3. Test Investors must track their time in the United States. The IRS applies a specific test:

• Be present for at least 31 days in the current year
• Be present for 183 days over a three-year period, calculated as:
  • All days in the current year
  • 1/3 of days in the first preceding year
  • 1/6 of days in the second preceding year

1. The whitepaper recommends that “It is crucial that foreign investors begin income and estate tax planning during the preliminary stages of the EB-5 process.” This includes preparing for potential estate tax implications, as investors may be “subject to U.S. estate tax (death tax) on their worldwide assets.”
2. Filing Requirements Depending on their status, investors may need to file:

• Form 1040NR (U.S. Nonresident Alien Income Tax Return)
• Form 1040 (U.S. Individual Income Tax Return)

“These requirements are burdensome and need to be considered as part of the overall budget of the NCE. In addition, the investor needs to become familiar with the tax and related compliance implications of obtaining a green card, and the associated timing considerations to ensure adequate tax planning,” explains the whitepaper

Work with trusted experts

Managing EB-5 investments is complex, but you don’t have to do it by yourself. Dealing with experienced professionals—immigration attorneys, financial advisors, and registered regional centers—can make it a reassuring experience and reduce the possibility of costly mistakes.

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Whether you’re new to EB-5 or down to your last few project possibilities, we’re here to help. Call to schedule a consultation or visit our EB-5 website pages for more information.