In tax planning with private clients, citizenship and residency strategy is an inevitable part of any serious discussion.
We have previously discussed this in general in another article –
http://www.mooresrowland.tax/2018/10/economic-migration-programs.html
The U.S. continues to be a popular destination for anyone with means. The EB5 program however, needs to be approached with caution –
http://www.mooresrowland.tax/2018/03/the-need-for-caution-around-eb-5.html
There has never been a time in history when all of the nations in the world were safe and free from political, personal, financial, commercial or other risks. Today is no different.
After all, what use is wealth if it is subject to usurious tax regimes, if one’s business is at the mercy of unpredictable and corrupt governments, if one’s health is threatened by pollution and effects of climate change, and one’s children must travel to school in an armored car?
It is estimated that by 2022, there will be more than 500,000 individuals with a net worth of more than $50 million—these are the high-net-worth individuals (HNWIs) we reference. Thousands of these people are demi-billionaires, with a net worth of more than $500 million, and billionaires. While a significant number of them will be concentrated in high-risk countries like Asia, the Middle East, Latin America, Africa and Russia/CIS, where the risks seems to be clear, those in more developed countries like the United States, United Kingdom (Brexit, anyone?) and EU are not without risks; while perhaps less obvious they are nonetheless very frightening and real.
What do the wealthy do when facing these risks? They can build walls, drive in bulletproof cars and have security. That is protection, not risk management. To manage risk, they establish residence or citizenship in a country where there is much less risk. To meet the demand of these families, an ever-lengthening list of capital-friendly countries have been offering opportunities to gain residence or citizenship through investment and are now part of a $20 billion global industry.
It is estimated that there are over 100 countries that allow the wealthy refuge through carefully crafted programs. The trend to offer citizenship began with St. Kitts & Nevis in 1984 and has gone on to include several other Caribbean nations, a few European countries and some in Asia. Add to this residence programs like the U.S.’ EB-5 (1990), U.K.’s Tier 1 Investor Visa (2008) and various European “Golden Visas,” the list goes on and on.
For clients from China, the EB5 is really not attractive as they need to wait 15-20 years – the line is long. The EB5 is increasing in cost on November 18th from US$500,000 to US$900,000. Investments that meet high due diligence standards are usually hotel projects. They can expect to get their investment back 7 – 8 years after acceptance.
One way manage the long wait time for the EB5 is by seeking Grenada citizenship. By becoming a Grenada citizen, the Chinese national can then seek an E-2 Treaty Investor visa (based on a treaty between Grenada and the U.S.) that allows the investor to invest $150,000 into the USA (this is a recommended minimum amount, but not set by law) into any business in which they have at least 50% ownership.
Each of these categories are quite complex, so it is difficult to summarize in a short document like this.
For Grenada, the total investment is approximately $300,000, including costs/fees. The current investment is an interest in the Six Senses Hotel in Grenada.
Grenada / E2:
The Grenada Citizenship-by-Investment Program was launched in August 2013, when the Grenadian Parliament passed the Grenada Citizenship by Investment Act, 2013 (Act No. 15 of 2013). It has a number of key advantages for international private clients:
- The Grenada passport allows visa-free or visa-on-arrival access to 142 countries around the world, including, among many others:
- the United Kingdom and Europe’s Schengen area
- in Asia: Bangladesh, Cambodia, Hong Kong, Indonesia, South Korea, Laos PDR, Malaysia, Maldives, Nepal, Philippines, Singapore and Sri Lanka
- Grenada is the only Caribbean citizenship program with visa-free access to China
- Grenada is the only country offering a citizenship-by-investment program which holds an E-2 Investor Visa treaty with the US, allowing successful applicants and their families the right to enter, live, work and study in the US
- Full citizenship and passport is granted to the successful applicant and included family members
Program Requirements
The program requires a person to either make a significant economic contribution to the country, or invest in a government-approved real estate project. In exchange, and subject to a stringent vetting and due diligence process, including thorough background checks, successful applicants and their families are granted citizenship. To qualify for citizenship, the main applicant must be over 18 years of age, meet the application requirements and satisfy one of the following qualifying options:
1. A purchase of at least USD 350,000 (sole ownership) or USD 220,000 (co-ownership) from a government-approved project (real estate). Property purchased under the program can be disposed of after just three years and the next investor can also be eligible to obtain citizenship in accordance will all applicable regulatory requirements;
OR
2. A minimum non-refundable contribution (donation) to the National Transformation Fund (NTF) of USD 150,000 for a single applicant and USD 200,000 for a family of up to four.
Who can apply?
In their application, main applicants may include their spouse, unmarried dependent children under the age of 30, dependent parents or grandparents above the age of 55 as well as unmarried siblings. Any dependent child, regardless of age, who is physically or mentally challenged, living with and fully supported by the main applicant, may also be included in the application. Siblings of the main applicant (and the spouse of the main applicant) who are not married and do not have any children may now also be included as a dependent.
About U.S. E-2 visa
The U.S. E-2 visa is a non-immigrant (or temporary) visa type reserved for foreign investors who have already invested in, or are in the process of investing in, a new or existing U.S. business. Unlike most non-immigrant visas that are universally available to all foreign nationals, the E-2 is only available to persons who are citizens of one of the designated “Treaty Countries” having an existing investment agreement in place with the United States, as delineated by the Department of State. However, for persons who qualify, the E-2’s flexible investment amounts and less stringent job creation requirements make it very attractive.
Becoming a citizen of a Treaty Country
For citizens of countries that have no investment treaty with US, the very first step is to acquire citizenship in a country that has such a treaty with the US. One example is Grenada, which has a citizenship–by–investment program, which can enable you to acquire Grenadian citizenship within three months with no requirements to travel to or reside in Grenada. Once investors from a non-Treaty Country successfully obtain citizenship in a Treaty Country, they become eligible to pursue an E-2 visa in the United States based on their new nationality.
Understanding the E-2 requirements
- Nationality: The treaty investor must possess the nationality of the qualifying Treaty Country. And must own at least 50% of the investment business in the U.S. Alternatively, a company owned by a Treaty Country nationals can own at least 50% of the investment business.
- Intent to depart: The foreign national may not have the intent to remain in the U.S. permanently at the time of applying for the visa and seeking admission at a port of entry. E-2 applicants must satisfy a U.S. consular officer of their intent to depart and intent to apply for permanent residence, if at all, at a U.S. Consulate outside of the U.S.
- Invested in OR in the Process of Investing in a New or Existing U.S. Business: This requirement applies to the type of investment as much as it does to the process of investing. Much like the “at-risk” requirement for EB-5 visas, the E-2 mandates that applicants’ funds or those of the investing business be irrevocably committed and subject to partial or total loss. Applicants can demonstrate that investment funds have already been spent by submitting proof of paid expenses, like rent toward a commercial lease; or alternatively, applicants can place investment funds in escrow, with release conditioned on approval of the E-2 visa. The investment can be in a new business or for the purchase of an existing business.
- U.S. Enterprise must be Real and Active: The business in which the applicant invests must be engaged in the provision of goods or services for profit.
- Investment must be Substantial: There is no minimum investment amount for E-2 visas; the amount invested must simply be sufficient to create or develop the type of enterprise in question. In order to determine whether an investment is substantial, adjudicators apply a “proportionality test,” which compares the amount invested to the total amount required to the cost of establishing the same or similar business.
- U.S. Enterprise must be more than Marginal: While there is no minimum job creation requirement, the business must be able to create and sustain jobs for persons other than the investor and his or her family.
- Investor will Develop and Direct the U.S. Enterprise: In simple terms, this means the investor must own at least 50% of the U.S. enterprise. However, passive ownership is not enough. The investor must play an active role in the business’s future development. In instances where no single individual owns 50% of the enterprise, foreign nationals from the Treaty Country must demonstrate a controlling interest in the business and an ability, collectively, to develop and direct it. Note, however, that E-2 visas are also available to persons who will serve in an executive or supervisory capacity or as essential employees for an E-2 employer, and these individuals are not under a requirement to invest, nor to show that they will develop and direct the enterprise, as long as Treaty Country nationals have made a substantial investment.
Benefits of E-2 visa
Work legally in the U.S. for a U.S. company that is the subject of the investment (benchmark investment is approximately USD200,000)
Travel freely in and out of the U.S. while on a valid E-2 visa
Stay on a prolonged basis with unlimited two-year extensions as long as you maintain valid E-2 status
Bring the dependents (spouse and unmarried children under the age of 21) to live in the U.S.
A spouse may seek employment by applying for an employment authorization document
Validation of E-2 visa
An E-2 visa is presently usually issued for a period of two years, although it can be granted for up to five years. The visa can, however, be extended indefinitely, each time for a further two to five years. The E-2 visa can never lead to Permanent Residency (“Green Card”) but by upgrading to EB1C- immigrant visa type and permanent residency classification is possible.
INTRA.COMPANY TRANSFER (L-1)
The L-1 non immigrant classification enables a U.S. employer to transfer an executive, manager or
“specialized knowledge” employee from one of its affiliated foreign offices to one of its offices in the United States. This classification also enables a foreign company, which does not yet have an affiliated U.S. office to send an executive or manager to the United States with the purpose of establishing one.
Only those companies that exactly meet the USCIS definitions of a parent, branch, subsidiary or affiliate quality to petition for an L-1 intra-company transferee visa.
An intracompany transferee is a person who worked for a company abroad in an executive (L-lA),
managerial (L-lA), or “specialized- knowledge” (L-1 B) capacity (USCIS has specific definitions for each of these terms) for at least one continuous year within the three years prior to coming to the U.S. and is coming to the U.S. to work for a related (parent, subsidiary, affiliate, or branch) company in one of those three types of positions. The maximum stay is seven years for managers and executives and five years for specialized-knowledge employees.
As noted above, there are two options: The LlA is reserved for managerial or executive intracompany
transferees, while the Ll B is reserved for ·specialized-knowledge” intracompany transferees.
Managers actively manage the organization, or a part thereof, or they manage a “function.” Managers either oversee the work of other supervisors, managers, or professionals, OR they manage essential functions of the organization. They have discretion over day-to-day operations.
Executives are responsible for directing the management of the organization or of a major component or function. They set policies and goals and have broad latitude to make important business decisions. They operate with only minimal supervision.
Specialized-knowledge employees have a detailed understanding of the company’s products/ services
and the international markets for those products/ services, OR they have advanced knowledge of
company processes and procedures. It must be knowledge that can be obtained only through experience with that employer, such as experience with proprietary software or methodologies unique to the company, which is also important to the competitiveness of the company.
The regulations make special provision for adjudication of L-1 petitions on behalf of overseas organizations that are just starting to do business in the United States. Additional evidence is required with the initial L petition under these circumstances. New office L petitions are approved for an initial period of one year. At the conclusion of that year, the petitioner must file an extension request documenting that the qualifying organization still exists and has been doing business in the United States.
L-1ATO EB-1 (GREEN CARD)
Of special importance: Individuals working in the U.S. with an L-lA visa may seek to become lawful
permanent residents (Green Card holders) via the Employment-Based, first preference (EB-1) immigrant visa. This category is for multinational managers or executives who have been employed outside of the United States under L-lA status for more than 12 months.
PERIOD OF STAY
Qualified employees entering the United States to establish a new office will be allowed a maximum initial stay of one year. All other qualified employees will be allowed a maximum initial stay of three years. For all L-lA employees, requests for extension of stay may be granted in increments of up to an additional two years, until the employee has reached the maximum limit of seven years. For all L-1 B employees, requests for extension of stay may be granted in increments of up to an additional two years, until the employee has reached the maximum limit of five years.
PROCESS FOR L-1
An L-1 visa petition (Form 1-129 and l-129L Supplement) must be filed, along with relevant evidence and the filing fee. Upon approval of the petition, a Form 1-797 Notice of Action is sent by USCIS to the petitioner or counsel. The petitioner or counsel must then submit the 1-797 to the consulate to apply for a visa, along with the DS-160 and any other documents required by the consulate.
By statute, L-1 petitions are supposed to be decided within 30 days. A realistic timeframe, from start to finish, is 2 months (unless premium processing is selected).
The principal L-l’s spouse and children under age 21 may be issued dependent (L-2) visas. Spouses in L-2 status can obtain work authorization by filing an 1-765 Application for Employment Authorization with a USCIS service center, along with a copy of the applicant’s 1-94, a copy of the marriage certificate, the filing fee, and photos.
