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TAX IMPLICATIONS OF EB5 INVESTING

Participating in the EB5 investor program for Indians brings about tax considerations. It is highly recommended that specific advice come from a U.S. tax or financial professional and/or legal expert. This is general information and is not intended as legal or financial advice.

However, there are some general guidelines to keep in mind.

One area of focus is when the EB-5 process completes and the project developer returns the initial investment. This refers to the $1,000,000 or $500,000 invested at the start.

Initial Investment Returns

The return of this initial investment capital is typically not considered to be a taxable event. (This is an important consideration when in the initial planning process.) Please note that this refers to an investment in a project through the Regional Center and not necessarily when creating or starting a new business directly.

Consequently, the exact return of the initial funds may also be transferred back to India if desired by the original capital investor.

It bears repeating that this non-taxable condition only applies to when a project developer returns the initial capital investment.

Conversely, the income tax liability for the EB-5 investor program for Indians begins immediately. This is regardless of where the investor lives, since it is income from a U.S. based business.

Distributions from either a project through the Regional Center OR resulting from an investment in a new commercial enterprise are subject to withholding tax. This is until the investor becomes a permanent U.S. resident, whether by processing of the immigrant visa abroad or through an adjustment of status to become a permanent resident.

Accordingly, if the investor is in the U.S., he or she may be subject to income tax on distribution funds.

Upon becoming permanent U.S. residents, EB-5 visa or investor visa program participants may be subject to federal income tax. This could include worldwide income. In that event, foreign tax credit may be available for income taxed outside of the U.S.. (This would be when the U.S. has an income tax treaty with an investor’s home country.)
FEDERAL AND STATE TAX CONCERNS FOR EB-5 INVESTORS

Moreover, investors are also subject to other federal taxes. These may include gift, estate, and transfer taxes.

Participants must also keep in mind that state taxes, including income tax, may also apply. There are some states which do not presently have a state income tax.

State tax regulations could play a role in determining the most ideal location for an investment venture. Facing lower or no state taxes over the years on a multi-million dollar venture could be significant.

These are the most important reasons for a visa or investor visa program participant to explore these avenues and consequences. This is also why a tax or financial professional should be consulted prior to or during the decision process.