Since the creation of the Investor Program (also known as EB 5 visa program), the United States’ fifth preference category for employment-based immigration, China has taken advantage of every opportunity the immigrant visa category has to offer. More than 80 percent of the approximately 10,000 visa numbers allocated annually to EB-5 investors go to Chinese citizens. This is due to the unprecedented economic growth of China and the creation of many independently wealthy individuals there. Following China closely in the pack are India, Canada, Singapore and Vietnam. With the recent growth of individuals with high net worth in Africa, the region is poised to play a more active role in the Investor Program and reap the benefits that the program offers.
The EB 5 Visa Program
There are two forms of investment under the EB 5 visa program: the Individual Investment program and the Regional Center Investment option. The Individual Investment program supports a standalone investment in a single entity, while the Regional Center program creates larger projects for funding by multiple investors. Investors have more control in individual projects, so due diligence is important in selecting a Regional Center to ensure that its projects will meet investors’ expectations.
How much do you invest?
The United States Citizens and Immigration Service grants investment visas to applicants who meet one of two conditions: investment of $500,000 in a targeted employment area (TEA), or investment of $1 million in an urban and non-TEA approved region. The investment must be made in full within two years of receipt of conditional residence permit. There is a proposal to increase the investment amount to $1.3 million and $1.8 million respectively.
While $500,000 or $1 million is a lot of money for immigrant visas for an entire family, there are certainly considerable advantages to the investment. With Africa maintaining an average growth rate of about 4 percent, compared to 3 percent for the global economy, Africa is poised to become the next frontier for EB-5 investors. Furthermore, the EB-5 investment package is attractive to Africans, and especially Nigerians, because affluent parents like sending their children to study abroad.
In addition to profits derived by an equity investor or interest paid to a non-equity investor, the savings on four-year university tuition for three children—at some of the best universities in the world—is itself sufficient incentive to invest in the EB 5 visa program. Also, as U.S. citizens, children can work or live in the United States without dealing with the headaches of residence or work permits. With 200 girls kidnapped recently in Nigeria, many parents will find comfort in knowing that their children are in a safe location as their homeland transitions through its current challenges.
Compared to other countries
Many countries offer investment immigration schemes that compete with the EB 5 visa program. For example, Portugal, Ireland and Macedonia offer foreign investor residency programs. Cyprus and Austria offer full citizenship in exchange for an appropriate investment. The island nations of St. Kitts and Nevis, Antigua, Barbados, and Dominica all “sell” citizenships to foreign investors. Notable EB-5 competitors are the programs of Canada, Australia, Britain and New Zealand. Required investment amounts for these four programs range, respectively, from approximately US $750,000 to over $4.5 million. All of these exceed the $500,000 minimum for an EB-5 program located in a TEA.
Why, then, are wealthy Africans not as keen to emigrate to the United States?
Apparently, some enjoy a standard of luxury and status in their home country that far outweighs what they might be able to afford in the United States. There may also be a generalized reluctance to deal with the U.S. tax system. Even so, these concerns are surmountable, particularly since the United States is the most desired education destination for wealthy African children. Upon graduation from university, students can remain in the United States to gain work experience and perhaps become residents, an option more difficult to obtain in Britain and other host countries.
Also, for U.S.–educated international students, the EB 5 visa program can be a positive alternative to H-1B visas. If wealthy African parents “gift” EB-5 funds to their children prior to sending them to college, the students not only pay lower tuition as U.S. residents, but also avoid concerns after graduation. And in these circumstances, only the children are subject to the U.S. tax system.
Many investors, especially those from China, have used the EB-5 platform to transfer technology to their home countries. EB-5 practitioners are some of the best minds in the United States, and the platform enables investors to incubate innovative businesses and transfer technology and resources when needed. While most EB-5 investments are traditional ventures, such as real estate development and construction, some innovative areas give investors a competitive advantage in emerging markets, such as hydroponics in agriculture, chemical development and human resources for the oil and gas industry, and the specialized manufacturing sector. Beyond obtaining the green card, investors must know where their investments go in order to gain maximum benefit from the program.
Documenting sources of funds
Once interested, the EB-5 investor from Africa needs the right team to tackle the issue of documentation. Most EB-5 practitioners are not familiar enough with the market to properly document funding on their own. The main obstacle for African investors in the United States is the “white paper” vs. “black paper” issue. EB-5 investors from countries such as Nigeria must overcome the fact that wealth is not normally properly documented because of the prevalence of black money in the region.
Tax regimes in most African countries are weak, so the investor’s source and path of investment funds must be carefully documented to meet U.S. requirements. This obstacle will not deter the growth of the market, however, because there are plenty of senior and mid-level oil and gas, telecommunications, banking and other high-flying industry workers who can document their source and path of investment funds. Potential investors must therefore work with their EB-5 representatives to discern best practices for documentation.
Escrow account necessary for investors’ comfort
An escrow account is a key component of the EB-5 process. While it is not a legal requirement, most investors prefer to submit their investment into an escrow account, and this step is highly recommended because it ensures that funds will be released into the EB-5 project upon I-526 petition approval, or refunded if the I-526 petition is denied. However, the processing fee is not normally put in escrow account, and it is generally non-refundable. Investors are advised to ascertain the domiciliation of funds during the process.
Other investment visa options
For those who cannot afford the minimum EB-5 investment threshold there are other investment visa options, such as EB-1C (for every country in Africa) or E-1/2 (specifically for treaty countries such as Cameroon, Egypt, Ethiopia, Liberia, Morocco, Senegal and Togo). These allow a national of a treaty country (a country with which the United States maintains a treaty of commerce and navigation) to be admitted to the United States when a certain amount of capital (usually between $200,000 and $300,000) is invested in a U.S. business. While the visas obtained through this process do not necessarily start with immigrant visas, they are stepping stones toward ultimately achieving immigrant visa status.
In sum, investors must consider their situation, needs and desired outcomes before participating in the U.S. EB 5 visa program. The looming Chinese quota regression is predicted to take effect in the coming fiscal year. There are also doubts regarding the sustainability of real estate boom in China, a major source of EB-5 investment funds. While it is clear that the African share of the EB-5 market will increase, it has the capacity to jump up to 20 percent of the U.S. EB-5 market share in the next few years. Potential investors should stand ready to take advantage.
Dr. Martins I. Imudia is an attorney at law and a director in the Center for U.S. Immigration Services based in the United States of America. He currently represents foreign investors under the EB-5 visa program. Prior to joining the Center, he worked as a management consultant to the World Bank on several projects. Dr. Imudia maintains an ad hoc consulting role on select projects. He can be reached via email at firstname.lastname@example.org or by telephone at +1-813-298-7222.