Whenever an individual applies for a visa (regardless of type), there will be unique circumstances which will affect the outcome of the application. This rule holds particularly true when discussing the EB-5 visa. More commonly referred to as the “investor” visa, the EB-5 holds some enticing benefits for individuals who satisfy EB-5 qualifying criteria.
However, sometimes foreign investors may be surprised by the tax implications that their new status as a U.S. permanent resident or citizen carries. In other cases, foreign investors may require a visa on a more expedited process.
L1-A as Alternative to EB-5, When Applicable
If there is an acceptable business plan in effect, the L1-A visa may serve as a viable short-term alternative to the EB-5. The L1 visa process is quicker and much less costly. The L1-A visa affords a foreign enterprise to send a foreign executive or manager to the United States for the purpose of managing a new or existing U.S. subsidiary.
Although the L1-A visa will not provide permanent resident status, the L1-A will provide individuals with a more financially flexible lawful status. Should an individual still wish to pursue permanent resident status, the L1-A visa is “dual intent”, meaning that individuals maintaining L1 status may apply for permanent residency under EB1C category without jeopardizing their current status.
Taxes and U.S. Residency
In the United States, both citizens and residents are required to pay taxes on their worldwide income. Taking this idea a step further, a wealthy permanent resident/taxpayer’s assets will be subject to federal gift and estate taxation. When applied, state income and estate taxes create another layer of taxation that must be upheld by the foreign investor.
Understanding Tax Compliance
Once the foreign investor becomes a U.S. taxpayer, they will have to adhere to several tax requirements that focus on offshore income and assets. Foreign investors will be required to adhere to annual FBAR reporting, reporting on Form 8938, as well as a disclosure on Schedule B of Form 1040. Beneficiaries of offshore trusts are required by law to report any and all offshore distributions on Form 3520 and Form 3520-A.
“Exit” Tax for Relinquishing U.S. Residency or Citizenship
Although it may come as a surprise, individuals who decide to relinquish U.S. permanent residency or citizenship will be required to pay an “exit” tax. This is done by taxing gains which are taxed at the capital gains rate (without any exclusions that are available for a principal residence).
For individuals electing to relinquish status in 2016, the tax is only applied if the amount of gain is in excess of $690,000.00 in 2015. Depending on the circumstances surrounding the decision, expatriation rules may also apply. As this is a high-level view of both the exit tax and expatriation, individuals who are considering relinquishing status are strongly advised to seek qualified legal counsel. We at KPPB Law do provide international tax counseling specific to these cross-border transaction scenarios.
A Summary of the L1-A Visa
The L1-A visa application has several requirements. One of the most important requirements is to demonstrate that the petitioner company filing the L1-A visa has a qualifying relationship with the entity that is located abroad. The new U.S. office must show a corporate relationship with the foreign entity abroad where the L1-A recipient has been employed as either a manager, executive or worker with specialized knowledge. The new U.S. office must be either a parent, affiliate, subsidiary or branch of the foreign entity and; that both the U.S. office and foreign entity share in ownership and control.
Demonstrating a Qualifying Relationship
A U.S. subsidiary of a foreign company can effectively demonstrate a qualifying corporate relationship to the company by providing the following:
- Articles of incorporation which show a common ownership of the U.S. and foreign entities.
- Business licenses or other documentation that demonstrate common ownership of the U.S. entity.
- Annual and semi-annual reports that outline corporate structure.
- Any and all contracts and/or documentation that details affiliate relationship.
- Corporate filings in the United States and/or abroad which help to describe the corporate relationship.
- Additional evidence that demonstrates ownership and control over U.S. and foreign entities (stock purchase agreements, capitalization table, term sheet, etc.).
Apart from documentation that demonstrates the relationship between the U.S. and foreign entities, the foreign executive must also demonstrate employment with the foreign company. The individual who is to receive the L1 visa must show that they have been employed with the foreign entity in a managerial or executive capacity for at least one out of the last three years. This can be done through an organizational chart and/or a job description amongst other detailed evidence.
Physical Space Requirements for U.S. Office
The second requirement for the L1 visa focuses on the actual acquisition of physical space for the new U.S. office. Companies must demonstrate that a sufficient amount of physical space for the new office has been acquired or is in the process of being acquired. The amount of space that is required is determined by the nature of the business. Beneficial evidence for satisfying this requirement may include a signed lease or mortgage. Additional evidence may include marketing materials or a business plan that connects the business to the actual physical space that has been acquired.
Evidence That U.S. Office is Doing Business
Companies who wish to pursue an L1 visa for a foreign manager or executive must satisfy additional requirements and show that a U.S. office is doing, or will be doing business during the duration of the beneficiary’s stay. This means that simply having a U.S. presence is not sufficient. Evidence that may be applicable in proving that the office is preparing to do business or is actively doing business may include:
- Hiring additional employees.
- Fulfillment of contract orders.
- Proof of revenue stream.
- Holding inventory.
- Additional items.
These elements of the L-1 petition can be particularly challenging which is another reason why it is essential to have the assistance of a licensed and experienced legal professional when crafting the initial application.
Final Considerations
Although the L1-A visa does not provide permanent residency, it does provide lawful status on a quicker timeline and at significantly lower cost. Additionally, the L1-A visa will still allow for a pathway to permanent residency (should the foreign-born individual still wish to pursue it) via the Adjustment of Status process. While maintaining L1-A status, a foreign investor will not subject himself or herself to the tax burdens that accompany U.S. residency.
Schedule a Consultation Today!
For assistance in determining your eligibility for either an EB-5 or L1-A visa, call us directly or contact KPPB Law online. Our experienced immigration attorneys and cross-border focused attorneys (ie. Tax, Corporate Structure, etc) can help you weigh your options and guide you through whichever process you decide to pursue.
