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Proposed Regulations and Reforms

 

Congress has yet again extended the temporary EB-5 Regional Center program for another five months from April 30, 2017 to September 30, 2017, as part of its Continuing Resolution. Although the EB-5 Regional Center (“RC”) program was created 25 years ago by Congress in 1992, it still remains a “temporary” program.

 
By way of background, the RC program allows foreign investors who are interested in obtaining U.S. permanent residence or a “green card” to pool their investment funds into a U.S. Citizenship & Immigration Services (“USCIS”) authorized project that is part of a RC in order to create 10 full-time jobs directly or indirectly for U.S. workers. Once an investor has lawfully made the current $500,000 or $1,000,000 EB-5 investment and subsequently obtained a 2-year conditional green card, the investor needs to demonstrate that 10 jobs were created and sustained directly or indirectly within the 2-year conditional period in order to remove the conditions and obtain a full-validity 10 year green card. The RC program is noteworthy because it allows the counting of indirect jobs (e.g. most jobs created down the supply chain) along with direct jobs that were created as a result of the investor’s EB-5 investment. Therefore, the RC program has by far been the favored EB-5 investment option for a vast majority of foreign investors given its flexibility over the permanent direct EB-5 investment program.

 

Congress’ recent short-term extension is nothing new as it has extended the EB-5 RC program continuously since 1992, as Congress has tried and continues to work towards a consensus regarding the specific details of the temporary program. In 1997, the program was extended for three years; in 2000 for two years; in 2003 for five years. However in recent years, the extensions have gotten shorter, as legislators have sought to draft and agree to a comprehensive reform bill.

 

In the absence of legislation, USCIS issued proposed regulations in January 2017.[1] Since then, two notable “Staff Drafts” have been unofficially released for consideration by Congress to reform the EB-5 visa program. One draft is by Senator Cornyn (dated 4/30/2017) and the other is by Senators Grassley and Leahy (dated 4/15/2017). A comparison to the USCIS proposed regulations reveals disagreements regarding how the EB-5 program should continue to operate. EB-5 investment amounts and the definition and designation of Targeted Employment Areas (TEAs), are the two most hotly contested issues which will be addressed below.

 

 

Increases to EB-5 Investment Amounts

 

There has been no increase in the EB-5 investment amounts since the EB-5 Program’s enactment in 1990. Currently, the minimum investment amount in a TEA is $500,000 and the minimum investment amount in a non-TEA is $1 Million. TEAs are geographic areas designated by individual states that have either a high unemployment rate (at least 150 percent of the national average) or are located within a rural area (as defined by regulation). The minimum investment amount is lower for a TEA-designated area in order to attract greater foreign investment into these economically distressed urban or rural areas.

 

To account for inflation, USCIS has proposed to raise the minimum investment amount in a TEA to $1.3 million, an increase of 170% from the current amount of $500,000. USCIS has also proposed to raise the investment amount in a non-TEA to $1.8 million, an increase of 80% from the current amount of $1 million. These increases in investment amounts are controversial because they are significant compared to the current investment amounts. Further, the differential between TEA and non-TEA investment thresholds would decrease to 25% from 50%. As such, many major EB-5 stakeholders have voiced concern over USCIS’ proposed investment amounts.

 

In contrast, the two recently released unofficial legislative proposals take a more graduated approach to increasing the EB-5 investment amounts over the span of several years. For example, the Grassley/Leahy draft proposes an initial increase from $500,000 to $800,000 for investments in a TEA, and $1 million for investments in a non-TEA. The draft proposes subsequent and periodic increases to the investment amounts every three years. Similarly, the Cornyn draft proposes an increase from $500,000 to $800,000 for investments in a TEA, and even lowers the $1 million to $925,000 for non-TEA investments with subsequent increases every three years. For many stakeholders within the EB-5 industry, the proposed gradual increases to the EB-5 investment amounts are favored to USCIS’ exponential investment increases.

 

Definition and Designation of TEAs

 

As stated above, under existing rules, a TEA is a rural area or one that has an unemployment rate of 150 percent of the national average. Individual states currently have broad discretionary authority to designate high unemployment areas and program regulations allow state officials to set TEA borders that best reflect local demographics.

 

Under the proposed USCIS regulations, the Department of Homeland Security itself would adjudicate the definition and designation of TEAs. USCIS proposed to allow any city or town with high unemployment (at least 150 percent of the national average) and a population of more than 20,000, a census tract, or a group of contiguous census tracts as a TEA. This would limit urban TEA investment to narrowly demarcated areas that can demonstrate a weighted unemployment rate of at least 150 percent of the national average.

 

Under the Grassley/Leahy and Cornyn legislative proposals, the Secretary of Homeland Security would also confirm the designation of a TEA. Both legislative proposals offer alternatives other than unemployment to qualify as an urban TEA as it considers additional factors including poverty rates and median family incomes. However, while the Grassley/Leahy proposal does not specify any limit on the allowable number of census tracts or shape of the area for an urban TEA, the Cornyn proposal does limit urban TEAs to a single census tract.

 

Conclusion

 

In reviewing and comparing USCIS’ proposed regulations with the legislative proposals, the USCIS regulatory measures are more restrictive especially with regards to the increased EB-5 investment amounts. Most EB-5 stakeholders would agree that increased investment amounts are not controversial provided that the increases are proportional and reflective of the significant financial risk investors must make to qualify for the EB-5 program. Similarly, a more balanced regional distribution of EB-5 investor financing is not necessarily controversial provided that urban projects and regions are not completely disadvantaged.

 

While many EB-5 stakeholders may look to Congress for a legislative answer to these EB-5 issues, given the current political climate, USCIS regulations may have a better chance of being enacted. The notes and comments period of the proposed regulations ended on April 11, 2017, over a month ago, and USCIS can determine whether it will proceed with, edit, or terminate the rulemaking based on its reasoning and conclusions on the rulemaking record at any time. Once the agency publishes a final rule, generally the rule is effective no less than 30 days after the date of publication in the Federal Register. If the agency wants to make the rule effective sooner, it must provide persuasive reasons for why this is in the public interest.

 

The Trump Administration had previously stated that it would freeze any Obama-era regulation that would have an annual effect on the economy of $100 million or more. However, on May 24, 2017, during the U.S. Senate Judiciary Committee’s confirmation hearing of Mr. Lee Francis Cissna, the Trump Administration’s pick for the Director of USCIS, Mr. Cissna expressed his strong interest in finalizing the proposed USCIS regulations. Therefore at this time, it is critical for any EB-5 stakeholder to closely monitor this dynamic and evolving situation surrounding the EB-5 RC program’s future.

 

[1] DHS, EB-5 Immigrant Investor Program Modernization, Federal Register, Vol. 82, No. 9, January 13, 2017 at https://www.gpo.gov/fdsys/pkg/FR-2017-01-13/pdf/2017-00447.pdf

 

Author: Chad Ellsworth, Partner, Fragomen Worldwide

 

Situated in the middle of the Mediterranean, as a full member of the European Union, Malta is an ideal jurisdiction from which to do business within the EU, and also with jurisdictions situated outside the EU.  A number of international businesses have established a presence in Malta for this reason, taking full advantage of Malta’s strong legal and regulatory system, excellent commercial infrastructure and framework and competitive tax system.

As a result of the increase in commercial activity in Malta, a number of Malta based companies require the services of employees from outside Malta.

The Maltese authorities have introduced the Malta Highly Qualified Persons Rules (HQPR) to encourage growth in certain areas of the Maltese economy and to attract expertise and skill in the financial services, remote gaming and aviation sectors.

 

Eligibility

 

Income earned from a “qualifying contract of employment” may benefit from the HQPR.  The employment activity contemplated in a qualifying contract of employment has to be activity in relation to an “eligible office”.

 

Eligible office means employment or office with a company licensed and/or recognised by the Malta Financial Services Authority (MFSA) in respect of any employment or office with a company licensed or recognised by the MFSA, the Malta Gaming Authority (MGA) in respect of any employment or office with a company licensed or recognised by the MGA and Transport Malta (TM) in respect of any employment or office with an undertaking holding an air operators certificate or an aerodrome licence issued by TM.

 

The eligible employment and offices are the following:

 

1. Chief Executive Officer, Chief Risk Officer (including Fraud and Investigations Officer), Chief Financial Officer, Chief Operations Officer (including Aviation Accountable Manager), Chief Technology Officer and Chief Commercial Officer
2. Portfolio Manager, Chief Investment Officer, Senior Trader/Trader, Senior Analyst (including Structuring Professional), Actuarial Professional, Chief Underwriting Officer, Chief Insurance Technical Officer, Odds Compiler Specialist, Head of Research and Development (including Search Engine Optimisation and Systems Architecture), Aviation Continuing Airworthiness Manager, Aviation Flight Operations Manager, Aviation Training Manager and Aviation Ground Operations Manager
3. Head of Marketing (including Head of Distribution Channels) and Head of Investor Relations
4. Chief Executive Officer of undertakings holding an aerodrome licence

 

 

Benefits

 

Applicants in receipt of a determination by the competent authority (ie MFSA/MGA/TM) may opt to have their income from a qualifying contract of employment taxed at a maximum rate of 15%.

 

Income from a qualifying contract of employment in excess of €5,000,000 would not be charged to tax in Malta.

 

EU/EEA/Swiss nationals may apply for the benefit for a maximum of 5 consecutive years, renewable for one extension of another 5 years (but subject to the expiry date below).

 

Non-EU/EEA/Swiss nationals may apply for the benefit for a maximum of 4 consecutive years.

 

No determination for qualification will be issued after 31 December 2020 and no benefit can be claimed after 31 December 2025.

 

 

Main Conditions

 

The minimum amount of income chargeable to tax at the rate of 15% is equivalent to €75,000 in 2010, adjusted by the Retail Price Index as published by the Maltese National Statistics Office. In 2017 this means an income of approx. €82,881.

 

A beneficiary under the HQPR must be able to demonstrate that:

 

• He/she is an individual who derives income subject to tax in Malta as income from employment or office payable under a qualifying contract of employment and received in respect of work or duties carried out in Malta
• He/she is protected and paid as an employee under Maltese law
• He/she has adequate and specific competence and professional qualifications
• He/she has not benefitted from the special income tax provisions relevant to Investment Services and Insurance Expatriates
• He/she resides in accommodation in Malta regarded as normal for a comparable family in Malta
• He/she is in possession of a valid travel document
• He/she is in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for himself/herself and his/her family
• He/she is not domiciled in Malta

 

The benefit is conditional upon the beneficiary disclosing and declaring all emoluments, including fringe benefits, received in respect of the qualifying contract of employment (or from any person related to his/her employer) for income tax purposes.  Furthermore, the beneficiary must not own, directly or indirectly 25% or more of the company providing the eligible office.

 

Application Process

Applications for determination from the MFSA/MGA/TM must be applied for and accepted before the benefit can be claimed.

 

Author: Thomas Jacobsen, Papilio Services Limited

 

As practitioners, we are guided by our clients’ interests but also principally by the regulation and best practice standards by which we are ethically and legally bound. At times there can be disjuncture between the two, but that disjuncture is rightly diminishing. The causes of this are manifold.

 

The regulatory frameworks that not only bind but guide us are constantly shifting, and in one direction only – towards higher standards of compliance and increasing levels of diligence in all aspects.

 

The Fourth Money Laundering Directive 2015/849 (4MLD) was formally adopted by the Council of the EU (the Council) in May 2015 after lengthy negotiations. Every Member State must transpose the Directive into national legislation by 26 June 2017. The Directive addresses new and emerging threats, clarifies and strengthens many existing obligations, and reinforces /enhances the risk based approach. The Directive is heavily influenced by the recommendations of the Financial Action Task Force (FATF), the global anti-money laundering (AML) and counter terrorist financing (CTF) regulation setting body, and is intended to update and improve the EU’s AML and CTF laws.

 

The Directive covers financial institutions; credit institutions; lawyers, accountants, notaries, and tax advisors; real estate agents; legal persons dealing with transactions of EUR 10,000 or more; and also casinos. The primary areas of change relate to beneficial ownership, customer due diligence, the risk-based approach and politically exposed persons (PEPs).

 

On PEPs specifically, the categories of those who can be regarded as PEPs have been broadened to include members of the governing bodies of political parties, and directors, deputy directors and members of the board or equivalent function of an international organisation. Individuals in charge of international organisations such as FIFA, the WTO and the UN are also covered by the PEP designation. Additionally, the Directive now requires financial institutions to monitor and mitigate risks posed by PEPs for at least 12 months after they leave public office. Domestic PEPs are also now in scope for enhanced due diligence (EDD) measures. By extending the categories of individuals who are included within the scope of the PEP definition, obliged entities will need to review their client registers to determine whether they need to reclassify and apply EDD to any existing customers as PEPs under the new definition, as well as applying these measures to new clients at take-on stage.

 

The Directive increases emphasis on a risk-based approach (which has formed part of the UK’s AML regime for many years) and acknowledges that measures should be adjusted according to the level of risk presented in specific jurisdictions and sectors.

 

As restrictions tighten, our clients are moving in synchronisation. They increasingly and rightly value service that extends beyond what is merely required, to a desired norm of highest best practice standards. The end of 2016 saw a noticeable change in the demographic of those looking to investor (and entrepreneur) migration solutions globally, with a significant increase in appetite from European and American HNWI.

 

The causes of this include Brexit and political changes in the US and elsewhere. The trend looks set to continue well into 2017 and potentially beyond. This is a highly risk averse diaspora, which values compliance, integrity, reputation and transparency above all else.

 

Finally, it is not only external factors influencing the industry. The industry itself is demanding the highest standards of its own. We are listening to global immigration discourse, we are learning the lessons of controversy in investor migration programs, and under the governance of the Investment Migration Council we will continue to  implement best practices that create industry standards and span all aspects of the investment migration?

 

 

Author: Nadine Goldfoot IMCM, Partner, Fragomen Worldwide

 

 

As we head towards mid-2017, we continue to see diametrically opposed developments across the European Union in investor, and broader, migration discourse.

 

On the one hand, migration and nationalism featured prominently in European elections. In the Netherlands and France, centrist victories provided respite from anti-immigration rhetoric. The Dutch election was seen by some as a ‘symbolic Euroscepticism showdown that seems to have split society along the immigration policy divide’^[1]. France’s Presidential election too was billed as a battle between a ‘hardline campaign against immigration’ and ‘the progressive, pro-business and socially liberal’^[2]. All eyes now turn to Germany and the elections looming in September, with state elections earlier in the year already delivering gains for an anti-immigration party^[3].

 

The UK’s general election is largely dominated by talk of Brexit and which party will deliver the toughest negotiations for the country, with free movement likely to end but speculation ongoing as to a possibly lengthy transitional phase^[4].  It will be important to watch what incentives may be introduced post-Brexit to increase investment into the UK, both from investors and entrepreneurs.

 

At the same time, positive investor migration developments have been seen in Cyprus, Estonia, France, Italy, Luxembourg and Turkey in the last 12 months.

 

Cyprus has relaxed the financial thresholds of its Citizenship program, reducing the level to a potential EUR 2,000,000 for those investing in real estate. Also, government bonds can comprise up to EUR 500,000 of a combined investment. Although a requirement to obtain a permanent residence card has been introduced, this can be done simultaneously with the main application thereby causing minimal disruption.

 

In Estonia, investors are now eligible for a new temporary residence permit if they make a direct investment of at least EUR 1,000,000 into an Estonian company. Previously, investors could only enter Estonia on the basis of an employer-sponsored visa. In France, investors, entrepreneurs or innovators may now be eligible to apply for residence in France for up to 4 years based on a number of possible investments including: direct economic investments of EUR 300,000 or over; entrepreneurial investments of EUR 30,000 or over; and innovative economic projects (no specified minimum investment). Italy too has introduced a new visa category for investors, offering residence for 2 years initially, renewable for 3-year periods. Investment thresholds are set at EUR 500,000 for start up companies, and EUR 1,000,000 for those investing in equity instruments of companies based and operating in Italy. Luxembourg’s investment based residence permit took effect in March of this year.

 

We recently wrote about Turkey’s vast growth in HNWI population. Interestingly, Turkey introduced its own Citizenship by Investment Program early in the year. Turkey’s program will open citizenship to those meeting investment criteria starting at USD 1,000,000, including: real estate purchases of USD 1,000,000 or more; fixed capital investments of EUR 2,000,000 or more; local bank deposits of EUR 3,000,000 or more; government bond purchases at EUR 3,000,000 or more; or the creation of at least 100 jobs.

 

Finally,  these and other movements in the HNWI migration market have not gone unnoticed by the European Commission, who are poised to conduct a study in 2017 or 2018 of national investor permit schemes in the various member states – documenting trends and challenges in European investment migration.

 

Author: Christine Sullivan IMCM, Attorney and Manager Worldwide Private Client Practice, Fragomen Worldwide

 

 

^{[1] https://www.rt.com/news/380754-dutch-election-wilders-rutte/}

^{[2] https://www.theguardian.com/world/2017/apr/23/macron-set-to-face-le-pen-after-first-round-of-french-presidential-election}

^{[3] https://www.usatoday.com/story/news/world/2017/03/27/german-election-mekel-schulz/99679214/}

^{[4] https://www.bbc.co.uk/news/uk-politics-39498647}

 

 

Basic requirements

An application for Austrian citizenship in most cases requires – apart from some other requirements – that the applicant has a minimum time of lawful and continuous residence in Austria of at least 6 or 10 years, depending mostly on his current citizenship, his family background (e.g. married to an Austrian) and whether he is “highly integrated”. Besides the requirement of residency, in most cases advanced knowledge of the German language and a basic knowledge of Austria’s history and democratic structure is also needed. Furthermore, the applicant will have to provide proof of his income.

 

Republic’s special interest

 

There is however a possibility to apply for the citizenship on the basis of Art. 10 (6) of the Austrian Citizenship Act. This regulation allows a much favourable granting of the citizenship, if the applicant has already made extraordinary achievements and more of such can be expected from him. In these cases the Federal Government of Austria has to certify that the naturalization of such an applicant is “in the special interest of the Austrian Republic” because of his extraordinary merits.

 

The Austrian Citizenship Act however doesn’t say precisely, in what field of activity these extraordinary merits have to be achieved. Typically, sports, art or science can be fitting, but also economic achievements can be taken into consideration, such as big investments or other economic benefit brought to Austria. A “golden investment” itself will not be enough though; the applicant will have to make prove of his extraordinary contribution to the Austrian society alongside his investment, like creating a substantial number of new jobs (possibly in a rural area), or transferring know-how or new technologies to Austria.

 

If such a certificate is issued by the Federal Government, many of the basic requirements will not have to be fulfilled: neither will the applicant have to provide proof of his German or historical skills, nor will he need a certain period of lawful and continuous residence in Austria. Furthermore, he will be allowed to maintain his current citizenship as well, so that this is one of the few cases of legal multiple citizenship, which is otherwise mostly banned by the Austrian citizenship law.

 

 

Author: Balazs Esztegar, Attorney-at-law, Vienna & Co-Editor of an up-to-date commentary on the Austrian Citizenship Act that has been published in April 2017.

 

Politically exposed persons (PEPs), and foreign nationals who possess a U.S. temporary visa, before residency by investment may be subject to the U.S. foreign account tax compliance act (FATCA) and the financial action task force (FATF).

 

Foreign National Investors (hereinafter FNIs) may obtain U.S. permanent residency by their investment of personal funds (USD$500,000.00 or USD $ 1 million), into a U.S. business which creates U.S. jobs by compliance with the U.S. immigration laws and regulations, as part of the EB-5 Immigrant Investor Program. The preparation and filing of the FNI petition with the United States Citizenship and Immigration Services (USCIS), which includes evidence of the lawful source of funds, to be approved by the USCIS, is the first step towards U.S. residency.

 

The EB-5 regulations and policy state the FNIs shall provide evidence and authenticate the lawful source of personal investment funds, which includes bank account deposits and withdrawals.

 

Proof of compliance with FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)requirements and written statements or reports from the financial institutions detailing how they applied increased deep due diligence on POLITICALLY EXPOSED PERSONS (PEPs), such as a current or former senior foreign political figures (including both elected and non-elected executive, legislative, and administrative persons and members of political parties), their immediate family, and their close associates (including anyone widely known to maintain a close relationship with the public figure and anyone in a position to conduct substantial financial transactions on behalf of the political figure), as a result of the Panama Papers, puts the FNI in a positive position when showing the authentication and transfer of the lawful source of funds especially when referring to foreign bank accounts deposits and withdrawals.

Notification to the USCIS of compliance adds to the authentication of the lawful source of funds evidence.

 

It is worth noting, that the FNI may be considered a U.S. taxpayer, and subject to worldwide tax. As a result, the FNI must comply with FATCA requirements.

 

The FNI is considered a U.S. taxpayer if s/he is physically present in the U.S. for more than 183 days in one year. The FNI may be legally in the U.S. as a B-2 visitor, F-1 student, E-2 investor, L-1 intracompany executive transferee, or professional working status, and may be earning income through employment or real estate holdings or by corporate business dividends or profits.

 

A person who is present in the United States for less than 183 days, but at least 31 days, during a single year may still be considered a U.S. tax resident in that year if the sum of the number of days the person was present in the United States during the current year and the 2 preceding years (when multiplied by the applicable fraction) equals at least 183 days.

 

FATCA requires Foreign Financial Institutions (FFIs) to report to the U.S. Internal Revenue Service (IRS), information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

 

Many countries, such as China and Brazil, are signatories with the FATCA Intergovernmental Agreement (IGA).

 

FFIs report bank account information to the IRS, while the FNI also will be required to report the bank account information to the Department of Treasury, by submitting an electronically special form.

 

If the FNI does not comply with the reporting requirements, s/he will face penalties. The penalty can be substantial e.g., the FNI may have USD $1 million in a foreign bank account. The IRS will take 50% of the balance in this account for 6 years, totaling a penalty of USD $3 million.

 

Currently there has been an increase in the number of PEPs intending to obtain U.S. residency by their investment. Politically Exposed Persons include a current or former senior foreign political figures, their immediate family, and their close associates. A “senior foreign political figure” is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation.270 In addition, a senior foreign political figure includes any corporation, business, or other entity that has been formed by, or for the benefit of, a senior foreign political figure. A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

Offshore banking in Panama has become popular for PEPs because the Privacy laws in Panama restrict disclosure of information on bank deposits and there are no reporting requirements.

 

However, reporting requirements for PEPs will be determined by whether they are U.S. tax payers.

Even if the PEPs are not U.S. tax payers, their source of funds from bank accounts in Panama will be open to extensive due diligence and scrutiny by the USCIS, IRS, and Department of Treasury, more so today because of the Panama Papers incident.

 

Recently, the New York Times, revealed in a report, that the well-known law firm Mossack Fonseca in Panama represented many clients in regard to tax planning. The law firm represented many U.S. tax payers and PEPs, but misguided them unlawfully, in evading U.S. tax and avoiding compliance with the financial disclosure laws.

 

PEP clients of the law firm included individuals connected to Russian President Vladimir Putin; Prime Minister of Iceland; Prime Minister of Ukraine; King Salman of Saudi Arabia, and relative of Syrian President Bashar Al Assad, just to name a few.

 

As a result of tax evasion, money laundering, and non-compliance with reporting requirements, the Financial Action Task Force (FATF) was formed and most countries became signatories.

Through FATF, international cooperation amongst banks and financial institutions have led to heightened scrutiny of deposits in accounts, deeper due diligence (Know Your Customer), and enforcing reporting requirements.

The United Nations Convention Against Corruption (UNCAC) and its signatories have also enhanced scrutiny of PEPs.

 

In addition, U.S. Bank Secrecy Act requires bank due diligence on depositors in U.S. banks, and this due diligence will apply to U.S. banks in Panama.

 

In the preparation of the EB-5 petition to obtain residency, a FNI can obtain documentation to show compliance with the reporting requirements, use documents to show how the financial institutions used comprehensive due diligence as to the FNI and, state how their bank or financial institution scrutinized their account deposits and withdrawals.

This documentation as evidence in their EB-5 Residency Petition will support the credibility of the FNI authentication of the lawful source of personal investment funds, to be invested in the EB-5 project.

 

A Positive for the FNI?

 

Author: Edward C. Beshara IMCM, Attorney at Law/Managing Partner, Beshara Professional  Association

 

For centuries, China has experienced many historical periods of emigration and in the era of modern emigration, large numbers of Chinese have migrated to popular immigration destinations such as the U.S., Canada, Australia, U.K., etc.   For many of these destination countries, China has been a top immigration source country.  But in recent years, significant policy changes in immigration and taxation from these destination countries, global economic events, along with capital outflow restrictions from China have raised concerns about the sustainability of the Chinese immigration market.  In this article, I will analyze some of the threats to the Chinese immigration industry and suggest some areas where there are still opportunities.

 

THREATS

 

CHINA’S SLOWING ECONOMIC GROWTH

Gone are the years when China’s GDP experienced double-digit growth.  Up until 2015, China was the world’s fastest-growing major economy, with growth rates averaging 10% over 30 years.  However, the Central government has set its economic growth target to a modest 6.5% this year, giving policymakers more leeway to introduce painful reforms and contain financial risks.  With fears of a hard landing of the economy, come fears that this may impact the Chinese immigration market.  A devalued Renminbi means many prospective immigrants cannot meet minimum asset requirements for some immigration programs.  As well, China’s recent strengthening of capital outflow restrictions makes it more difficult for investor immigrants to get their money out of the country.  On the other hand, a slowing economy is a significant push factor for HNWIs and immigration is seen as a way to hedge against wealth devaluation as an investor immigrant could move capital out of the country and acquire property or invest in overseas businesses.

 

LONG TERM VISAS

 

Years of economic growth have made Chinese more affluent and with this new-found affluence came an increased desire to travel abroad.  According to the United Nations World Tourism Organization, since 2012 China has been the #1 source market in the world of outbound travellers, with travellers spending more than twice the tourism expenditure of the #2 country, the U.S. in 2016 (USD $261 bn vs $122 bn).  Thus it makes sense for countries to make it easier for Chinese to visit, with Western countries like Canada, the U.S., Australia and the U.K. routinely issuing long term visas, up to 10 years.  The relative ease of obtaining a travel visa may lead some Chinese to question the necessity of immigration.

 

INCREASINGLY DIFFICULT TO IMMIGRATE

 

Chinese are finding it increasingly difficult to immigrate to traditional destinations like the U.S., Canada, and Australia, with each country posing specific challenges.  The Canadian FIIP (Federal Immigrant Investor Program) and the U.S. EB-5 program have similar success trajectories in that the former became a victim of its own success and the latter now becoming a victim.  The huge backlog of files for the popular FIIP became the Canadian government’s justification for terminating the program.  The current queue for the EB-5 program requires applicants to wait up to 7 years.  If the EB-5 is to survive and thrive, the huge backlog problem must be resolved.

Other difficulties faced by prospective Chinese immigrants include more onerous documentation requirements to establish the legality of the source of funds, and an overall higher bar for immigration to popular Western countries.  Typically, as an immigration program matures, it becomes more selective in order to target a more specific and qualified type of immigrant.

 

CONSTANTLY CHANGING ENVIRONMENT

 

It has been said that one of the main differences between China and the West is that in the West policies remain the same but governments change while in China, the government remains the same but policies change, and oh how they’ve changed!  China transformed itself from a largely agrarian society to the world’s second largest economy.   The immigration industry in China has also experienced much change over the years and my company has been able to survive and thrive for the past 23 years largely because our focus has been to look beyond market share and competition and to more fundamental concerns of survival and sustainability in an ever changing business and regulatory environment.  Accept the fact that there will be change.  Talk to experienced people in the field who have no doubt experienced change before.  Handling change successfully begins with new goals and a good plan.

 

OPPORTUNITIES

 

EDUCATION AS A STEPPING STONE TO IMMIGRATION

 

Detractors of the Chinese education system cite its emphasis on memorization and standardized testing.   China’s college admission exam (the gaokao) is a gruelling nine-hour exam spread over two days which TIME magazine calls the “most pressure packed examination in the world.”  Unfortunately, the importance of this exam means teachers focus mostly on the exams at the expense of teaching critical thinking and creativity leading many parents to look overseas for better quality education alternatives with a possible eye toward future immigration.

The internationalization of higher education has resulted in more and more foreign students with many of them considering overseas education as a stepping-stone to permanent residency.  For example, Canada’s immigration system has programs in place which allow for international students to study and upon graduation from a post-secondary institution, qualify for a work permit and the acquired education and work experience in Canada count towards their immigration application.  Thus, an overseas education can result in immigration in the long term.

 

ENDEMIC PUSH FACTORS

 

POLLUTION

In early May 2017, a sandstorm swept over Beijing causing the AQI (Air Quality Index) to skyrocket to 905, more than 36 times the WHO PM 2.5 safety standard.  In spite of the Chinese government’s best efforts and the issuance of the Action Plan for the Prevention and Control of Air Pollution which reduced coal consumption by closing polluting mills, factories, and smelters and switching to eco-friendly energy sources, air pollution is still a significant concern for many Chinese and remains an important push factor for immigration.

 

FOOD SAFETY

A 2015 Pew Global Attitudes survey found that  71% of Chinese considered food safety  a big problem.  From melamine-tainted milk to gutter oil to contaminated fruit to expired meat, the list goes on.  China’s tougher Food Safety Laws along with the State Council’s proclamation that food safety is a top priority are important steps but according to a 2016 Brookings Institute article, China’s food safety regulators greatest challenge is in the implementation of these laws due to the fragmented and chaotic state of the domestic food industry.  In the meantime, consumer anxiety over food safety remains and this continues to be another significant push factor.

 

OVERCROWDING

The scale of urbanization in China is unprecedented in human history, with its rise coinciding with China’s extraordinary economic boom and the emergence of megacities (population >10 million) of which 9 of the world’s 37 are in China.  Current daily life in China’s major cities means seas of pedestrians, jam-packed buses and subways, and stand still traffic jams.  Under such conditions, it is easy to imagine immigration being on the minds of daily Chinese commuters.

Throw into this mix of push factors, other factors like the higher cost of living, the un-affordability of property (especially for young, first-time buyers) as well as work mobility restrictions and you can see that the desire to immigrate should remain high for the near future.  “ Zhè shān wàngzhe nà shān gāo” translates as a mountain looking enviously at another higher mountain and is the Chinese equivalent of “the grass is always greener…”  To many Chinese, they will always be looking abroad for higher mountains.

 

Author: Larry Wang, President of Well Trend United Inc.