Points to consider for EB5 applications from India in 2020

World seems to have turned upside down for EB5 aspirants in the last few months. Till 2019, it was the backlog that Indian EB-5 applicants were worried about. Then the amendments made in November 2019 for increase in the investment amount took a heavy toll on the pockets of investors. Changes in definition of TEA, making many EB-5 projects unattractive, became just one more hassle in the decision-making process. And this wasn’t enough that Finance Act confirmed a 5% TCS on all foreign remittances exceeding INR 7,00,000 w.e.f. 1 st October, 2020 (earlier it was announced as applicable from 1 st April, 2020 but implementation had been postponed). The plight doesn’t end here; RBI has been vigilant on foreign outflows under LRS, Liberalized Remittance Scheme. Without a proper outflow structure, it would not be possible to take the funds out of India even if one were ready to pay the TCS, especially if the applicant is residing in India as against an Indian applicant living in US.

Reduced Project Options

Huge number of Regional Centre EB-5 Projects which earlier enjoyed the rural TEA designation, & hence the reduced investment limits, will not qualify with ‘certainty’ under the new TEA regulations. While most projects even today, post the amendment, claim that they qualify the TEA norms under the new definition, de facto they do not. The reason for this is that earlier, projects had the possibility, or luxury if we may say, to consider unemployment numbers of multiple census tracks which were nearby, and further nearby, and nearby to further nearby, and nearby to that. This thus meant that one could go on & on till the point of achieving desired “output” by combining multiple census tracts.

There is hardly any clarity on this subject. You will often hear people saying “TEA rules have changed”, but how they changed and why it will impact is not clear to many. Hence, we have narrated an example here for the readers. Let’s simply say, you are building a complex in Thane, Mumbai. As an example, BMC has offered subsidy to all real estate developers who are building complexes in a lower GDP area. Thane per se didn’t qualify for the same, however if the builder includes the numbers of Dombivli, & then Mulund, and further Nerul too, then the average may fulfill the “requirement matrix” of BMC, and hence the builder’s eligibility to claim the subsidy/rebate will be valid. In this example, if the BMC regulated the extent of proximity one can consider for calculations, then Thane will not qualify. Metaphorically, this is what has happened. Whether RCs would like to accept this harsh fact or not, a good number of EB-5 projects will not pass the TEA test in our opinion.

Data provided by Census Bureau via the American Community Survey or Bureau of Labor Statistics shall be acceptable and the applicant can choose to use either of them. It is however worthwhile to note here that the local authority/state is no more allowed to confirm the TEA designation. Previously, it was the State that decided the TEA eligibility, and literally projects in downtown New York also qualified due to the then prevailing methodology. Henceforth, it will be DHS, Department of Homeland Security, that will decide the merits of the case, and which would be as per the revised framework outlined in the preceding paras. This may still be bearable but the real Elephant in the room is that TEA status shall not be confirmed upfront; rather the petitioner will have to wait all the way till the point of adjudication. This makes it important, critical, highly pressing, and at the cost of repetition INEVITABLE, for the investor to identify a project which is TEA on a sure-shot basis. We have been extremely careful with this part of the rule, and will continue to maintain our conservative approach.

The only good change which the new regulations have brought in is the ability of investor to retain his or her priority date of an approved immigration petition for a subsequently filed petition under the same classification. Do bear in mind that retention is possible only if one’s petition was approved.

FEMA Work-around

The current permissible limits under LRS are $ 2,50,000 per person per financial year. With $ 9,00,000 being the investment amount (plus the costs), one would need to do apt planning under FEMA to ensure that investor is not violating FEMA regulations. Remember that penalties under FEMA are abnormally high (100% to 300% of the sum involved). Violating RBI norms is not even the last thing one wants to do. Regional Centers / Developers may be desperate to raise funds at this juncture and at times, applicants have been found eager to remit funds overseas without managing compliances. This will not only hit you back locally, with RBI, but also for the success of your I-526 petition.

Do note that TCS is not applicable if funds are being routed through NR ordinary account. Most are not aware about this but it is a real blessing and an absolute legal work around to avoid the 5% TCS.

Lastly, we would like to stress upon the fact that borrowed funds from banks are not allowed for pursuing EB-5 investments. This is not a change, and this is not a USCIS regulation. This bottleneck is due to RBI regulation which has been in existence for several years now that states that banks are strictly prohibited from lending funds to investors for overseas investments (need not necessarily be EB-5, any overseas investment with the help of bank funds will be prohibitive due to this restriction).

EB5 India Advisory Pvt. Ltd. comprises of professionals as Indian Chartered Accountants, CPAs (USA), Lawyers, FEMA Consultants, & Analysts. We take pride in our due-diligence capabilities & understanding of the subject from all angles.

This article was written on 11th September, 2020, on eb5expert.in