Since its creation in 1990, the EB-5 Immigrant Investor Program has helped thousands of foreign nationals achieve their dream of permanently relocating to the United States. The program functions to stimulate the U.S. economy by attracting foreign investment capital. Simultaneously, EB-5 investors become eligible to receive U.S. green cards for themselves and any eligible family members in exchange for a qualifying investment in an EB-5 project. The program has continued to gain popularity in countries all over the world, and since 2017, the program has seen a significant rise in popularity in South Africa.
The number of South African EB-5 investors has grown by 226% in just two years. Additionally, there has been a significant increase in investor applications from South Africa throughout 2020, which suggests that South Africa is a growing EB-5 market. Improving the situation for South African investors is the visa availability processing approach for I-526 petitions introduced by United States Citizenship and Immigration Services (USCIS) in April 2020, replacing the previous first-in, first-out method. Although this may increase wait times for countries with high EB-5 demand, such as China, Vietnam, and India, it could simultaneously lead to even more growth in underrepresented countries.
South Africans Are Intelligent Investors
Following the 2008 financial collapse, there was a rise in foreign direct investment (FDI) in the southern hemisphere, which, paired with the economic boom throughout multiple countries in Africa, has led to a large number of wealthy investors in countries like South Africa. However, a look at the data shows that these investors are not just wealthy but also sophisticated, as South African EB-5 investors boast a 92% petition approval rate.
South Africans who choose to make an EB-5 investment typically fall into one of two categories. Some of the investors have acquired their wealth through highly successful entrepreneurial pursuits, while others’ wealth has accumulated over two or three generations of being passed down in their family. Both groups are comprised of astute investors and entrepreneurs who expect a solid return on investment to justify getting involved with the program. For this reason, many question the benefits of the EB-5 program, given that it does not always generate significant monetary returns.
Benefits of EB-5 Visas for South Africans
EB5 investments are quite expensive, with the minimum required investment amount standing at $1.8 million, or $900,000 if the project is located in a targeted employment area (TEA). Additionally, the majority of EB-5 investors only see returns of 5% or less after their investment period. However, financial gain is not the only reason to invest in the EB-5 program: in fact, the several other benefits are likely what led many South African investors to begin the EB-5 process.
Portfolio Diversification and Stability
One reason that many South Africans are pursuing an EB5 investment is to diversify their portfolio. In the midst of the COVID-19 pandemic, many investments lack security and stability. However, the U.S. economy is still more stable than South Africa will be post-pandemic. Investing in a United States business can help an investor diversify their portfolio and offers some extra security.
Top-tier Education Opportunities
The main reason why South African investors choose to pursue an EB-5 investment is that it provides a way for them and their eligible family members to permanently relocate to the United States. Obtaining permanent resident status in the United States comes with many benefits, including superb educational opportunities. An EB-5 investment can help an investor offer their children excellent educational and employment opportunities.
It is possible for foreign nationals and their children to attend school in the United States without permanent resident status, but it is much more difficult. International students face a much more competitive admission process and higher tuition fees. Also, domestic students are eligible for a large number of scholarships unavailable to international students.
Shorter Wait Times and Readily Available Visas
The uncertain and unstable climate of South Africa is pushing many South Africans to search for new places to reside with their family and build their business. While many other visa programs exist, the EB-5 program is still considered one of the fastest and easiest ways to obtain permanent resident status in the United States.
Other employment-based visa programs generally require an employer to sponsor the visa applicant, which can be a lengthy process and significantly limits the applicant’s employment opportunities. Other programs also may not have as many readily available visas as the EB-5 program, meaning that even if approved, an applicant may have to wait an unreasonable amount of time before receiving their visa. Thanks to the COVID-19 pandemic, the number of allotted visas for the EB-5 program has nearly doubled for FY2021, making visas readily available for South Africans who choose to make an EB5 investment.
These are only a few of the benefits that inspire South Africans to participate in the EB-5 program. The program offers the fastest route to a better and brighter future for investors and their family. However, there are also some obstacles that South African investors should prepare for when planning their EB-5 investment.
Regulations from the South African Reserve Bank and SARS
The biggest obstacles that South African EB-5 investors face is complying with South African Revenue Services (SARS) and South African Reserve Bank (SARB) regulations while also meeting the eligibility requirements of the EB-5 program. The most inconvenient regulation comes by way of the SARB, which has set a limit of a 1-million-rand discretionary allowance for each passport holder. This means that each citizen can only take 1 million rand out of the country, which presents a problem when an investor is trying to meet the minimum required investment amount of $1.8 million or $900,000. Even the lower minimum investment amount equates to R 15 million, as of the most up-to-date exchange rate in December 2020.
In this situation, there are three strategies that South African EB-5 investors can use to source their funds and remain compliant.
Move Investment Capital Offshore in Advance
If an investor is forward-thinking, they may have already moved some of their investment capital out of South Africa. If this is the case, they may not have to clear the full amount of their EB-5 investment capital with SARB, allowing them to move just enough to meet the minimum investment amount required while still complying with SARB’s regulations.
Some investors use this strategy and attempt to time their investment with the strength of the rand to get the best conversion rate. Investors should keep in mind that this can be risky because of the volatility of the rand.
Because the regulations permit 1 million rand per passport to be moved out of the country, investors can use a spousal donation to move more than that amount. This strategy is fairly common, which means that the South African government is familiar with it and should not challenge it as long as the investor’s dealings are properly handled.
Investors who choose this strategy should make sure to provide the proper documentation with their EB-5 petition to ensure they satisfy the source-of-funds requirement.
Prepare for Scrutiny
It is important to point out that it is not illegal to move more than R 1 million out of the country—it just leads to increased scrutiny and more consequences in regard to taxes. If an investor chooses to move more than the R 1 million limit, they should prepare for an in-depth review process that involves the SARS and SARB. After the minimum investment amount increased in November 2019, this review process significantly slowed down for South African EB-5 investors.
An Outline of the EB-5 Journey for South African Investors
Compared to countries like China, Vietnam, and India, the South African EB-5 market is still relatively small, but it is growing. Many South African investors are planning an EB-5 investment and a future in the United States, and despite the obstacles they face, many are creative enough to find ways to meet all the requirements and complete their EB5 investment. This shows how savvy many South African investors are as well as how valuable the EB-5 professionals are that they collaborate with.
On average, EB-5 investors from South Africa should prepare three years in advance of the date by which they plan to leave for the United States. Many parts of the EB-5 process can involve delays and long wait times that are out of the investor’s control.
Step 1: Preparing Capital for the EB-5 Investment
When a South African-based investor chooses to make an EB-5 investment, they will most likely not be able to invest their capital immediately. If their investment capital has already been moved offshore, the process can be fairly quick. Otherwise, it normally takes about three months to complete the investment. If the investor still needs to acquire funds and is moving an amount that requires SARS approval, the process could take significantly longer.
Step 2: EB-5 Petition Processing
Next, the EB-5 investor must file their I-526 petition and wait for it to be adjudicated. This process necessitates several visits to the consulate to obtain all the necessary supporting documents, as well as the completion of multiple petition packets. Working with an experienced immigration attorney can help ensure that this process is completed as quickly as possible without any delays. It is crucial that investors provide all the necessary information to avoid a request for evidence, which could potentially slow down the process.
As of December 2020, this adjudication process takes about three years. However, each investor’s EB-5 journey is unique, and different factors could lead to a shorter or longer time frame.
Step 3: The Move
Assuming the investor’s I-526 petition is approved, they can then begin making plans to relocate to the United States. It normally takes between 8 and 24 months for an I-526 petition to be processed, so applicants should plan on using that time to get their affairs in order and make the necessary travel plans.