Understanding the U.S. Immigrant Investor Program
The Immigrant Investor EB-5 Program has helped stimulate and rejuvenate the U.S. economy. The EB-5 program is a U.S. immigration program, which allows foreign investors to obtain a green card by investing a designated amount into the U.S. economy and creating a targeted amount of jobs for U.S. workers. In 2016 alone, this program contributed over USD 3.8 billion into the U.S. economy through EB-5 Foreign Direct Investments, and USD 16.9 billion since 2008. Last year, citizens from Mainland China, Vietnam, South Korea, China (Taiwanese born), and India took most advantage of the EB-5 program. Since its creation, the program has continued to grow in popularity and continues to offer investors the opportunity to promote and stimulate economic growth as well as the opportunity to obtain citizenship in the U.S.
What Are the Types of EB-5 Projects?
Although the regional center (RC) program is the most popular EB-5 program, there are other options for investors, such as the pooled direct EB-5 project or the entrepreneur (stand-alone) direct EB-5 project. At the inception of the program in 1990, the EB-5 program had been traditionally entrepreneurial-type or stand-alone projects. In these projects, individuals invest alone or with other non-EB-5 investors in a New Commercial Enterprise (NCE)[1], which may take any lawful business form, including a limited partnership. The regional center pilot program came about two years later, and only really became popular after the 2008 financial crisis. A hybrid of the regional center and the stand alone direct project is the pooled direct project, which has recently gained popularity. In the direct pooled scenario, investors’ funds are “pooled” or combined with other EB-5 investors into the project. The difference between a regional center project and the pooled direct is the corporate structure and the job creation, discussed further below.
What is the Minimum Investment Amount?
Whether the investor decides to invest in a stand-alone, direct pooled, or regional center project, the minimum investment amount does not change. Currently, an investor must invest the minimum amount of USD 1,000,000, unless if the EB-5 project is located in a “targeted employment area” (TEA)[2], the investor can invest the lower amount of USD 500,000.
However, the minimum investment amount is likely to increase, as the buying power of USD 500,000 has greatly decreased from 1990. The required investment funds have not changed since the inception of the program. It has been understood by all that the amounts are out of date and due for an increase.
What Role Do I Have in the Company?
The EB-5 program requires the immigrant investor to be engaged in the management of the project. For pooled investment programs, as in the regional center investment, the EB-5 policy management requirement can be minimal for those not interested in day-to-day management or running an active business. The investor can be a limited partner and still qualify, as long as the limited partners have a policy-making role. A stand–alone investor may also be involved in the “policy formulation” activities, but typically investors establish the project for the sole purpose of managing the business on a day-to-day basis.
In addition, the investor is not required to live in the place of investment; rather, the investor can live wherever he/she wishes in the United States. However, for investors choosing to invest in stand-alone projects to conduct day-to-day management, it is best that the investor lives nearby the business. Keep in mind however, that where an investor chooses to live in the U.S. may not be an ideal location for a business. It is imperative that investors conduct due diligence on location, among other factors, to understand the viability of a business.
Why is Job Creation Important?
The EB-5 program was formed to create jobs for U.S. workers. Once the I-526 petition is approved, the investor first receives a conditional green card. To remove the conditions, two years later, the NCE must evidence that 10 full-time positions have been created for each investor.
The amount a project can raise through EB-5 funds is directly related to how many jobs can be created. For a project to raise EB-5 investments, a regional center is not mandatory, as long as the project can create 10 full-time direct jobs for U.S. workers. Any type of business can work for EB-5, such as hotels, transportation, and manufacturing projects, and the list goes on, if the minimum required jobs are created.
What are the Cost, Benefits and Risks?
One of the key aspects of the EB-5 program is that the investment funds used for EB-5 purposes must be “at-risk”. That means the investor must have a chance to gain profits or to lose partial or all the investment. There cannot be any guarantees or redemption clauses in the EB-5 offering documents and agreements. If there is any indication that the EB-5 investment funds are not at-risk, the petition will be denied. As noted earlier, it is important for investors to conduct due diligence on each project. If a regional center has had successful projects in the past, it does not necessarily mean that its next project will also be successful.
In addition, investors may want to think twice before deciding to invest in a stand-alone project, unless the investor can invest a significant amount of funds, or there are partnerships or other sources of investments. USD 500,000 (or even USD 800,000 if the minimum amount is increased) is not nearly enough to sustain a business that requires 10 full-time employees.
Further, regulatory bodies such as the SEC (Security & Exchange Commission) who monitor fraud, misrepresentation and other unauthorized activities, are equally involved with direct pooled projects as well as regional center projects. The investor has protection.
Are There Other Options?
Another option is the E-2 treaty investor visa. Although a nonimmigrant visa and not a route to the green card, it is a faster way to enter the U.S. and does not subject the investor to being taxed on worldwide income. Unlike the EB-5, the E-2 treaty investor’s sole purpose is to invest, develop and direct the operations of a business. However, only certain counties have a reciprocal treaty with the U.S. allowing its citizens to take advantage of the E-2 investor program.
An E-2 visa does not automatically transition into EB-5, but can be done with viable projects meeting specific requirements. If structured correctly from the beginning, this can be a very worthwhile option.
Rebecca S. Singh, Esq.
Rebecca is an experienced attorney with Mona Shah & Associates.
As an advanced EB-5 practitioner, Rebecca works with project developers, analyzing, crafting and preparing project documents for initial regional center designation, as well as actual project or amendment filings. In addition, Rebecca handles direct EB-5 project petitions, both pooled investments and individual entrepreneurs, and I-829 petitions. Rebecca is well versed in USCIS compliance.
Rebecca is highly proficient at investor petitions, counseling clients through all stages of the EB-5 program. She has successfully filed complex source of funds issues from clients worldwide.
In addition, Rebecca handles the firms EOIR and Appellate issues, as well as employment visas such as H1-Bs, intracompany transferees (L visas), and treaty traders/investors (E visas).
[1] New Commercial Enterprise (NCE): A commercial enterprise established after November 29, 1990, as a for-profit entity formed for the ongoing conduct of lawful business.
[2] A TEA is an area that, at the time of investment, is a rural area or an area experiencing unemployment of at least 150 percent of the national average rate. A rural area is any area outside a metropolitan statistical area and having a population of 20,000 or less.