EB5 INVESTORS M AGAZINE
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Earnings of
“
a non-resident from
a U.S. partnership
are subject to U.S. tax
withholding rules.
DETERMINING U.S. TAX RESIDENCY STATUS
In general terms, to determine whether an individual
is a U.S. resident for tax purposes, there are three
questions that need to be asked.
1. Is the individual a U.S. citizen or resident alien
because they have a U.S. green card?
2. Does the individual stay in the U.S. 183 days or
more during the current year?
3. Does he or she meet the substantial presence
test for the calendar year (Jan. 1 to Dec. 31)?
If the answer to any of these questions is “yes,” then
the individual is a U.S. resident for tax purposes.
cause withholding on the investor’s income and the
requirement to file a U.S. tax return.
Often EB-5 applicants spend a significant amount of
time in the U.S. on non-immigrant visa status. This
time spent in the U.S. — even if as a tourist, investor
and other type of visa — can cause the investor to
become U.S. residents for tax purposes. In order to
avoid it, EB-5 applicants need to methodically limit
and track their time on U.S. soil to ensure that they do
not meet the substantial presence test criteria, which
might cause them to become U.S. residents prior to
even receiving their green card. While this test applies
to any foreign individual, it is especially relevant for
EB-5 investors, as they usually have significant income
and assets in their home country or other places.
Once an individual becomes a U.S. tax resident, the
person is subject to reporting and paying taxes in
the U.S. on worldwide income; estate tax and gift tax
obligations; complying with reporting requirements
of the Foreign Account Tax Compliance Act (FATCA)
such as FBAR, 8938, 5471; and other documents.
It is because of these requirements that becoming
a U.S. ta x resident, unintentionally and w ithout
proper tax planning, can lead to significant taxes
and penalties.
THE SUBSTANTIAL PRESENCE TEST
The Internal Revenue Service has clear guidelines
on the substantial presence test. Investors will be
considered a United States resident for tax purposes if
you meet the substantial presence test for the calendar
year. To meet this test, you must be physically present
in the United States in at least:
1. 31 days during the current year, and
2. 183 days during the three-year period that
includes the current year and the two years
immediately before that, adding:
• All the days you were present in the
current year, and
• 1/3 of the days you were present in the
first year before the current year, and
• 1/6 of the days you were present in the
second year before the current year.
TAXATION OF EB-5 INVESTMENTS
FOR NON-RESIDENT TAXPAYERS
Most EB-5 projects are structured as a partnership where
the partners pay taxes associated to their projects’ gains
or losses. At the end of every tax year, after the individual
has invested in an EB-5 project, the investor will receive a
Schedule K-1, a form that indicates the earnings (or losses)