AREAA NY Metro EB-5 Seminar

Article by Eder Guzman

The EB-5 Panel for the AREAA was held this past February 12. 2015. The Board directors of AREAA (Asian Real Estate Association of America) Angie Lee and Jonathan Lee invited special guest David Paterson, former Governor of New York State to join the panel discussion. This event was moderated by Cassandra Cho, President, AREAA New York Metro.

Mona Shah of Mona Shah and Associates were gracious enough to answer and demystify some questions investors and real estate agents may have regarding EB-5. Ms. Shah runs a full service Immigration firm with an advanced EB-5 practice, and are internationally licensed to practice law in the US, UK and China. The EB-5 visa program, created by the Immigration act of 1990, provides a fast track to a U.S. green card for foreign investors who promise to create jobs for U.S workers.

The program has potential to be a win for both the investor who wants U.S residency, for the U.S. worker, and thus the economy. Participation in this program may be difficult, and those inexperienced may be taxed excessively and run into issues with compliance. Alexander X. Wang, a Partner in the Tax Practice at Marks Paneth LLP, is a special guest who provides tax consultation for high- worth individuals and multinational corporations, and has come to break down the most important aspects and guide us through the benefits and pitfalls of the EB-5 program.

He explains that there was huge success, especially in New York City, when the EB-5 program went into effect. In modern times, the EB-5 projects that have gone into effect have been transportation projects, such as finding investors to provide capital for more disabled accessible taxis. It was the case that taxi drivers would lose money whenever they would pick up disabled people due to the time it took to bring them in the taxi. Now those taxis are the ones that make more money picking up disabled people than those not, because of the incentive that EB-5 money provided. Google and Amazon and Uber are now also in the mix, trying to find ways into the transportation industry, since it is a service that benefits all involved, since no matter who you are, everyone needs to get someplace quickly. Real Estate projects that have been prominent examples of EB-5 are the Barclay’s Center, which received about $250 million from EB-5, and Hudson Yards.

According to the 1990 Immigration act, the EB-5 program states that foreign nationals must invest at least $500,000 in the U.S either directly or in government or regional centers. Though some may question why it is better to become a US investor with US citizenship if foreign nationals can make just as much business without, visas are temporary and may be taken away at the provider’s discretion. Mr. Wang explains that it is wiser to have something more table and permanent in place if one wishes to invest in the US.

People entering the program are not aware that foreign assets must be declared, and depending on their tax situation, EB-5 investors may be required to file specific US tax returns. Form 8938 is “Statement of Specific Foreign Financial assets”, From 352 has one list foreign gifts receive in excess of $100,000 from an individual or estate, or Form 5471, Information Return of U.S Persons with Respect to Certain Foreign Corporations.

Pre-immigration tax planning is what one should keep in mind before proceeding with the program. If an investor really wants to keep certain foreign assets, they can always sell it before receiving their green card, then buy it back afterwards. They must also keep in mind to establish offshore irrevocable trusts prior to becoming a resident.

Congress passed the Foreign Account Tax Compliance Act, or FATCA, in March 2010. This makes investment funds, private equity funds and all forms of financial intermediaries report assets held by U.S. clients to the IRS. If Foreign Financial Institutions fail to meet disclosure obligations, the IRS can impose a 30% withholding tax on certain payments made to the Institution. This is to protect the U.S. institutions from any questionable dealings that do not comply with national or international law.

Though other countries like Hong Kong and Canada had similar programs, they are both shut down, with Hong Kong shutting down arbitrarily 3 weeks ago. Not only does the U.S have a more favorable program than those, but also people aspire to have their kids attain an education in the United States. The actual investment is putting their kids in the American education system, aside from capital investments. The seminar was enlightening in many respects, and made the investors present much more aware of how tricky it can be to navigate the American Tax and Immigration system.

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