Proposed 20% Tax on Outbound Funds Transfers from India for EB-5 Investment

India’s proposal to impose a 20% tax on outbound funds transfers, including EB-5 investment funds, is an interesting development that has attracted a lot of attention.

What is the EB-5 Immigrant Investor Program?

The EB-5 Immigrant Investor Program, or EB-5 visa program, is a popular way for foreign investors to obtain a green card in the United States.

To participate in the EB-5 program, an individual must make a minimum of $1,050,000 investment in a new commercial enterprise (NCE), or $800,000 if the enterprise is located in a designated targeted employment area (TEA), due to the area’s high unemployment rate or rural location. The capital investment must also help create at least 10 full-time jobs for U.S. workers.

Regional centers are entities that are approved by United States Citizenship and Immigration Services (USCIS) to promote economic growth in a specific geographic area. Regional centers pool EB-5 capital investments from multiple investors to finance real estate, infrastructure, and other types of development projects. They serve as intermediaries between EB-5 investors and project developers. Their primary function is to manage and oversee the investment process, ensuring that the investment complies with the requirements of the EB-5 program.

The advantages of investing through the regional center program include the ability to count indirect job creation towards the minimum job creation requirement.

The EB-5 program is ultimately intended to attract foreign investment into the United States and promote job creation for U.S. workers.

What is India’s New Outbound Tax Proposal?

In the Union Budget for 2023, the Indian Central government proposed an income tax on all outbound funds transfers. For EB-5 investments, this tax would amount to a 20% tax-collected-at-source (TCS), and is expected to be implemented from July 1, 2023, subject to parliamentary approval. This represents a substantial increase from the current TCS rate of 5%.

India is not only one of the world’s largest and fastest-growing economies but also ranks among the biggest markets for the EB-5 Immigrant Investor Program. Therefore, the proposal has sparked a lot of debate among experts and stakeholders, with some supporting it as a necessary measure to raise local Indian revenue, and others opposing it as a deterrent to investment and immigration.

What Are the Possible Advantages Of This Proposal?

Significant Future Revenue

The Indian government’s proposal to tax foreign investors’ EB-5 fund transfers is seen as an attempt to generate revenue from wealthy Indians who are looking to immigrate to the United States.

One somewhat obvious argument in favor of the tax is that it could generate truly significant revenue for the Indian government. The EB-5 program is a popular avenue for wealthy Indians seeking to immigrate to the United States, so this tax could apply to a substantial amount of money.

Not a Hidden Fee

With this proposed 20% tax, a minimum $800,000 investment would technically require $1,000,000 upfront. Yet, a specific advantage to note is that the tax can be claimed back on tax returns.

It is also important to note that this tax will only be imposed on funds transferred from the accounts of legal residents of India. TCS will not impact fund transfers initiated from non-resident bank accounts.

Supporters of the EB-5 program and its positive effects on the U.S. economy and job creation are also quick to point out that India-based investors may very well view the potential new tax simply as a hike in EB-5 investment minimums, and not as an unwelcome additional fee.

What Are the Disadvantages?

Discourage Foreign Investment

This tax proposal could potentially discourage foreign investment and immigration. The EB-5 program is a popular way for foreign nationals to obtain a green card in the United States, and the proposed tax could make the program less attractive. Potential investors may decide to invest their money elsewhere or look for alternative routes to immigrate to the United States.

Further Complications

There are questions about whether this proposed tax could be difficult to enforce. The EB-5 program involves a complex process of investment and immigration, and the transfer of funds can involve multiple entities and jurisdictions. It may be difficult for the Indian government to track and tax all the relevant transfers.

Short On Time

These proposed increases have a deadline of July 1, 2023. If foreign investors initiate a transfer of capital investment before that date, the increase will not apply.

However, as this date is fast approaching, this rush to invest before July could create a bottleneck effect for EB-5 visa applicants.

Next Steps

Overall, the proposal to impose a 20% tax on EB-5 investors’ fund transfers is a complex issue with no clear answer. While the tax could generate significant revenue for the Indian government, it could also discourage EB-5 immigration.

In the meantime, if you are considering making an EB-5 investment, it could be to your benefit to act fast. Researching established regional centers, consulting with an experienced immigration attorney, and initiating your investment transfer before July 2023 don’t have to be intimidating.

If you’d like to explore your options we offer consulting services to investors, regional centers, and project developers. To learn more, schedule a free consultation with EB5AN today.