After months of negotiating an investment for a Chinese national to make an investment in the Pacific Northwest, a final hurdle puts the whole deal in jeopardy... How will the investor legally transfer the needed funds out of China when under China's currency laws no more than $50,000 can be transferred per person annually?
Enter Dorothy Kim, with the Law Firm of Desh International with a series of solutions to what could otherwise be a deal-killing problem.
... Recently, Chinese investors have become the largest group of participants in the EB-5 visa program. Even with the risks involved in the EB-5 process, there is another challenge for the potential Chinese investor. According to the EB-5 visa program investors are required to invest $1 million or $500,000 into the U.S. Yet under China’s current currency laws, the State Administration of Foreign Exchange (SAFE) has restricted its citizens to exchanging only $50,000 U.S. dollars per person annually. This makes it very difficult for investors to legally transfer sufficient funds for their EB-5 investments.
So how do Chinese investors get their money out of China and into the U.S. EB-5 investments? There are a few ways to accomplish this. The first, and most common, solution that Chinese investors use is the assistance of family and friends. The investor transfers $50,000 worth of Chinese Yuan Renminbi to ten (or twenty) family members and friends, trust them to exchange the money into U.S. dollars, and then transfer it to the investor’s designated U.S. account.
However this approach complicates the issue of tracing the source of funds. The investor must trace each transaction from the investor’s account to the ten (or twenty) family members and friends, then to the investor’s overseas account, and then finally to the Regional Center or new commercial enterprise. To make the funds easier to trace the investor should acquire bank statements that show the transfers between all the accounts involved, which also include the bank statements of the individuals that assisted the investor in transferring the money.
The second means of transferring money out of China is similar to the first approach, in that a third party is used. Here the money is transferred to a trusted third party’s China-based account, then the third party transfers money from their own Hong Kong-based account to the investor’s U.S. account. In this scenario, the investor should not only provide bank statements to demonstrate the transfers between all the accounts for tracing purposes, but also an affidavit from the third party to fill in the space that is created during the tracing of the funds.
The third method is for the investor to take out a loan. This can be through a home equity loan or a loan through the investor’s own business. However the investor must prove that the loan is secured by the investor’s personal or real property, and not the investment itself. In the case of a home equity loan, the investor must provide both the loan origination documents and documents of home ownership to demonstrate the origin of the loan. However, if the loan is from the investor’s own business, then the investor must provide ownership of the company share, board of director approval, and payments on the loan.
The fourth and final approach to this issue is for the investor to retain a Chinese licensed lawyer to assist them in getting approval from SAFE to transfer out more than $50,000. This is recommended under any approach to determine the best way to transfer funds out of China under the current currency restrictions.
Whichever method a Chinese investor chooses, they must understand the issues on source of funds and tracing, or their EB-5 application may be delayed or rejected even though the money has been transferred to the U.S. Thus, careful planning and documentation of the lawful source of funds with understanding of the issues is necessary.