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Time running out for SA residents seeking US dream

Mar 27 2017 06:57
Matthew le Cordeur

Cape Town – A unique window of opportunity for South Africans wanting to immigrate to the US will likely close in the next few months, an immigration expert warned last week.

The warning comes from America’s leading immigration lawyer, a South African expat who has been awarded corporate immigration lawyer of the year from 2010-2015 and was named Who’s Who Legal’s most highly regarded immigration lawyer in North America for 2017.

In a telephonic interview with Fin24, Los Angeles-based Bernard Wolfsdorf highlighted a unique opportunity where talented South African entrepreneurs wanting to make the most of their skills can immigrate to the US without gambling with the Green Card Lottery.

This programme is called the EB-5 visa category, where entrepreneurs are eligible to apply for a green card if they invest a minimum of $500 000 in a targeted employment zone in the US and directly or indirectly create or preserve 10 permanent full-time jobs for qualified US workers.

Wolfsdorf said the US government is looking at raising the minimum investment amount in the next four or five months by increasing the minimum to $1.35m.

“That would make this option very difficult for even the high net worth folks, so there is a narrow window of maybe only a few months for those seeking to immigrate via the programme,” Wolfsdorf said.

Get your money back after five years

The former Wall Street Journal legal representative said the current investment is easily manageable and individuals who undertake careful due diligence can get their money back after a period of about five years under the loan model.

Those investing in equity models may be committed for a longer time. “It’s less of an investment than an interest free loan,” he said. “If you do due diligence, most of the projects involve five or six-year loans and most of the good projects give you a 0.25% return.

“A critical aspect is to ensure the loan is adequately collateralised and not to seek high returns in the EB-5 programme.

“The reason is simple: bank loans are available at relatively low rates so if EB-5 is offering good returns, what is the catch,” asked Wolfsdorf.

Over $20bn has poured into the popular programme in just the last three years as worldwide popularity surges. Now, Congress is set to review the EB-5 programme before it expires next month, CNBCA reported in March. “The visa programme has come under criticism in the recent years as there have been multiple cases of scam and misuse,” the report explains.

“A special report by Reuters in 2010 identified many real estate firms misleading foreign investors by ‘selling the American Dream’ and looking for a quick way to receive investments to fund real estate projects.”

Brain drain or golden opportunity

Wolfsdorf, who has assisted former South African Elon Musk's Tesla Corporation and celebrities such as Coldplay's Chris Martin and Scarlett Johansen's about to be ex-spouse with immigration issues, said he believes the South African narrative of a “brain drain” is unfortunate.

Wolfsdorf points to the obvious: that the US is the centre of world from a business, trade and financial perspective. While it might be a brain drain on South Africa, he believes that for talented South Africans to truly push the envelope, they need to look and think globally to leverage their company's full economic power. "The world is bigger than South Africa and Africa and there are so many opportunities in the States,” he said. “Avenues are open in the US, but the perception is that this is just too difficult and they often go to Australia instead.”

“I see a number of smart South Africans coming over and they doing pretty well,” he said. “They take a few years to establish themselves, but then they do extremely well.

“Americans connect with South Africans and value our strengths like being straight forward, having a good education and being innovative and hard working. South Africans think outside of the box and this serves them well.

“That’s the pattern that I see. South Africans seem to get on very well with Americans and their businesses seem to grow at a remarkable rate,” he said. “The Elon Musks – the guys who have become billionaires are a small group - but it’s something which young entrepreneurs might want to see as positive role models in seeking to reach the top, to take their companies all the way.”

Tax issue the major headache

For South Africans who write off the US due to its double tax issue, Wolfsdorf said it is a big issue for a lot of nationals.

“To my knowledge, you can set off tax paid in one country in the other,” he said. “Before they immigrate, they need to carefully research the options as it's very important to do strategic tax planning.”

To get a better understanding of this, Wolfsdor pointed Fin24 in the direction of another South African expat, immigration tax expert Jonathan Lurie.

Speaking telephonically from Beverley Hills, Lurie explained that the US “has a bunch of very complex laws that determine when you become a resident here for income tax purposes”.

“There is a lot of analysis and significant planning that can be done both on estate tax (on death) and on income taxes before you start the immigration process,” he said.

“Regarding trusts, you have to analyse each trust and put it in the context in the US, which have completely different tax rules,” he said.

“If people do proper planning, the tax issue will not be so detrimental that they can’t afford to come here,” he said.

“For the last 10 to 15 years, the US has been seen as some kind of tax haven for some people,” he said. “The rules are complex and onerous, but there are lot of opportunities for planning.”

“The sooner the planning process starts, the better,” Lurie said. “If you wait too long in the process, then you are precluded from doing certain planning. If there is a possibility, then you need to start setting up planning structures.”

“You would need a tax lawyer and a good international accountant who deals with the international tax arena. The reporting obligation is onerous.”

However, Lurie said if you are moving to the US with little wealth, then while you need proper advice, he doesn’t think tax planning is necessary.

Time is running out

Wolfsdorf  concluded that while only 40 South Africans applied for EB-5 investor green cards last year, putting South Africa, in 16th place worldwide, just ahead of Germany, "that number will double in the next year as our firm alone has successfully processed almost half that number”.

“I'm expecting to see South Africa in the top 10 this year as this massive increase in the minimum investment amount will likely take this opportunity off the shelf," said Wolfsdorf.

“Those investors who want to go global with their businesses have only a short window to take advantage of this opportunity before this opportunity will be prohibitively expensive,” said Wolfsdorf.

* Do you have a question for Wolfsdorf? Ask us now.

* Wolfsdorf is hosting two events in Cape Town and Johannesburg this week. To attend, find out more here.

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