EB-5 Visas Plus the California Competes and New Employment Tax Credit Programs: Making Job Creation Affordable
By William Tolin Gay*
The EB-5 or immigrant investor visa process is a method of obtaining green cards for wealthy foreign immigrants who invest money in the United States. The basic requirement for the EB-5 visa is to invest a certain sum of money in a business enterprise that creates at least ten permanent jobs over a two-year period. For the past several years, most immigrant investors have elected to invest in "regional centers," rather than creating their own businesses.1 With its emphasis on job creation, the EB-5 program tends to result in overhiring, i.e., the company that is the beneficiary of the immigrant investor’s money will typically hire more than the optimal number of employees, only to scale back after the investor has obtained the green card and been cashed out.2 Two recent California tax credit programs may serve to help alleviate this problem.
The California Competes Tax Credit ("CCTC") program provides a tax credit against state franchise taxes for new hires in businesses that are considered to be of high value in terms of total impact on the economy. Separately, California’s New Employment Credit ("NEC") provides a tax credit for new hires within certain geographic areas. To the extent that these geographic areas overlap with Targeted Employment Areas ("TEAs") under the EB-5 program, these credits would be available to EB-5 employers, including regional centers. As discussed in this article, both the CCTC and the NEC could provide a monetary incentive that would financially justify the number of hires required under the EB-5 program.