Mar 28, 2017 @ 10:06 PM
With its years-long waiting list, possible minimum investment hike and an increasing number of fraud cases, the controversial EB-5 program is losing its appeal among Chinese investors.
Instead, wealthy Chinese looking for an extended stay in the U.S. are turning to visas, such as the L-1, which allows companies to transfer key personnel or founders to manage the business for up to seven years.
Juwai.com, the largest international real estate portal in China, hosts three or four visa-related events a month in China. Charles Pittar, CEO of Juwai.com, noted that recently “when immigration experts begin explaining the L-1 visa to them, as much as one third of EB-5 applicants that we work with will likely prefer it. What they want is the least uncertainty, the shortest timeframe and the lowest cost possible.”
Uncertain Outlook For EB-5
Since its introduction in 1990, the EB-5 program, which rewards wealthy “alien entrepreneurs” with U.S. green cards, has attracted billions in investment. The USCIS estimates that since 2012, the program has attracted $8.7 billion in investment and created 35,150 jobs. Real estate developers like the EB-5 program as an easy source of funding.
The program’s popularity has attracted its share of problems. For one there’s now a long waitlist. The EB-5 program issues up to 10,000 green cards a year and is subject to quotas by country. Because 90% of EB-5 applicants come from China, the waitlist for Chinese applicants is now eight years.
The program has also been facing some regulatory uncertainty. For the past two years, lawmakers have been extending the program through temporary extensions amid discussions to raise the minimum investment amount. In January, the Department of Homeland Security proposed increasing the investment amount to $1.3 million in high unemployment areas, up from $500,000 right now, and $1.8 million elsewhere, up from $1 million. While it’s uncertain when and if these changes will come (Congress has been busy on other issues and EB-5 is not on the top of the list of priorities) that uncertainty has been an overhang on the program.
On top of all that, requirements regarding proof of funds are yet another deterrent. The paperwork for U.S. visa programs is not nearly as strict as for EB-5 and the outcome can be faster and more predictable.
Wealthy Have Lots of Choices
All these factors are making the EB-5 less attractive to wealthy Chinese.
In China, “the feeling on EB-5 right now is kind of negative. It’s partly because of the uncertainty of what will happen to the program. There’s no real certainty or security and some projects have failed. Some have been outright fraud, ” said David Enterline, a U.S. immigration lawyer based in Taipei, Taiwan.
The L-1 visa is much more attractive, he said, noting that there is no language or education requirement or quota and can be obtained within four to six months. Though the L1 visa limits the stay to seven years, immigrants who expand their business enough can apply for another visa, such as the EB1-C, which enables them to get residency.
Also, green cards aren’t always desirable to wealthy Chinese.
“Green cards are expensive and most billionaires don’t want to expose themselves to estate taxes and worldwide income,” said Reaz Jafri, partner at Withers, a wealth management firm.
The U.S. is one of the few countries to tax its citizens on worldwide income. Nomad Capitalist recently ranked 199 countries on their “value of citizenship,” which calculated factors such as visa-free travel options, taxes levied on citizens who live abroad, ability to hold multiple passports and more. The U.S. ranked at 35, tied with Slovenia, in large part because of its worldwide taxation.
Besides the L-1 visa, wealthy Chinese sometimes pursue the EB-1 visa, given to people with “extraordinary ability.” A millionaire or billionaire who has launched a company and brought it public can qualify for such a visa based on their success, Jafri explained.
Though the EB-5 program has lost some of its luster, the U.S. remains an attractive destination for now. For certain types of people, the U.S. is still seen as a bargain “a place where you can acquire hard assets and make investments with no risk of appropriation by the government. They’re pretty comfortable bringing money over,” said Jafri.