Green cards for donuts
Thanks to donuts and coffee, high net worth South Africans can seemingly chase the ‘American dream’ with relative ease. Local investors can now participate in a Dunkin’ Donuts United States lending programme, set up by international private equity investment firm LCR Capital, in order to secure an EB-5 or ‘immigrant investor’ visa in the US for themselves and immediate family members. As per US Citizenship and Immigration Services (USCIS) requirements, non-US citizens are able to obtain green cards, or permanent residency in the US through the EB-5 visa programme, by investing $500 000 in businesses or real estate projects that create or preserve at least ten full-time jobs for American workers.
In addition to the minimum capital requirement, investors can expect to layout a further $60 000 for administrative fees and commissions. Investors can redeem the full $500 000 investment, together with an annual return of 1.5%, after five years.
“It is a nominal return but one must bare in mind that the objective is to get a green card. It is a very niche product for high net worth individuals. Unfortunately life is not fair, but for those that can afford it, it is a viable, time-efficient option,” said Douglas van der Merwe, a local representative for LCR Capital. He said that the EB-5 visa program has an industry average of 89% acceptance by the (USCIS).
“The biggest thing the American government looks at is the source of the funds, if the funds were obtained illegally, the application is turned down,” he said. Dunkin’ Donuts, the seventh largest restaurant chain and second largest coffee chain in the US, is not directly involved in LCR Capital’s lending programme. Instead, the private equity firm will provide experienced multi-unit Dunkin’ Donut operators with senior secured loans in order to finance the construction of more than 70 new outlets across the southern US. “Unlike property, where you put all your eggs in one basket, this fund is very well spread.
If one franchise doesn’t work out, it won’t have a massive impact on the fund,” Van der Merwe said. Borrowers are also required to contribute around 25% toward new store development costs with personal equity, said LCR Capital. The company claims to have underwritten loans for the development of 3 000 franchise outlets across 35 brands, with a loan default rate of less than 2%. The current $500 000 minimum capital requirement falls within South African exchange control requirements, which allows individuals to invest up to R10 million abroad per calendar year.
However, individuals interested in participating in the programme should seek expert tax advice based on their own unique situations. “It is very tricky because the American tax authority’s regulations are very stringent.
Green card holders are taxed on their global income no matter where they live,” he said. Based on LCR Capital’s experience, a tax optimisation strategy used by high net worth individuals, particularly in Brazil, is to donate the $500 000 minimum capital requirement to children who then apply for EB-5 visas. “They mainly invest in the programme so that their children can study and work in the US. Green card holders get an almost immediate discount on tuition at most American universities,” he said. The USCIS issues only 10 000 EB-5 visas through the immigrant investor programme per year.
If approved non-US citizens receive temporary US green cards within 12 to 18 months and permanent green cards one to two years later. Citing US Department of State data, Van der Merwe said about 35 South Africans received EB-5 visas in 2015. He said US EB-5 visa programme is currently one of the “cheapest” ways to gain foreign residency.
Source: LCR Capital, 2016