Immigrant investor eb5 program explained

According to U.S. Citizenship and Immigration Services (USCIS) statistics, more than 1,200 families had immigrated to the U.S. through the EB5 program in 2009, and the number was anticipated to increase substantially in 2010. The majority of these investor immigrants are from China, South Korea, and other Asian countries.

What exactly is the EB5 program?

The Immigration and Nationality Act (INA) authorizes the issuance of 10,000 immigrant visas (green card) per year for immigrant investors who can create jobs in the U.S. It gets the EB5 designation because the section of the law that creates this category is found in section 203(b)(5) of the INA.

The EB5 program has two key requirements: capital investment and job creation. The requisite amount of investment is $1,000,000. The investment is most common in the form of cash, but inventory, equipment, and other tangible items are permitted as well. In areas designated as Targeted Employment Area or TEA, the requisite investment amount is reduced to $500,000. A TEA generally refers to an area that has an unemployment rate of 150% of the national average, or a rural area with less than 20,000 people. For job creation, the requisite number of full time jobs to be created per investor is ten.

Four key steps of the EB5 program

Participation in the EB5 program requires four steps.

Step 1 – Submit the I-526 petition to USCIS. The investor uses the I-526 petition to demonstrate to USCIS’ satisfaction that he/she has a valid proposal for job creation and has taken concrete steps to transfer funds to the U.S. for investment. The investor also must prove the legal source of his/her money as well.

Step 2 – After the I-526 is approved, the investor either goes through the I-485 Adjustment of Status process if they are already in the U.S. under a valid non-immigrant status, or through the U.S. Consular Processing if they live outside of the U.S.

Step 3 – Receipt of conditional permanent residence for two years, following the approval of the I-485 application or a successful immigrant interview at a U.S. consulate.

Step 4 – Within and before 90 days of the expiration date of the investor’s conditional permanent residence, he/she must submit an application to remove the condition of his/her permanent residence by submitting Form I-829 to USCIS. The purpose of the I-829 application is to demonstrate to USCIS that the full amount of the investment has been made, and that ten new jobs have been created according to the plan presented in the I-526 petition. The approval of the I-829 petition is the key to the immigrant investor. If the I-829 petition is approved, the immigrant investor will receive his/her permanent residence in the U.S. and is then free to determine whether to maintain the investment that has formed the basis for the EB5 application. However, on the other hand, if the I-829 application is denied, the investor loses his/her status in the U.S. and is subject to removal or deportation.

Traditional Investment and Regional Center

For the EB5 program, an immigrant investor may start any active business, such as a restaurant or a motel, investing the requisite amount of money and creating ten jobs. This is often referred to as “traditional investment” in EB5. The advantage of the traditional investment is that the immigrant investor retains control of the business and is able to make adjustment of the business based on economic changes. For entrepreneurs who are looking for opportunities to start a business in the U.S. and obtain U.S. permanent residence at the same time, the traditional investment presents an excellent opportunity.

The Regional Center (RC) generally refers to a business unit that spreads across one or more contiguous counties. A RC can engage in all kinds of businesses: a shopping center, a resort, or a fund, for example. It is usually organized by private sectors who want to attract foreign investment to start projects in the U.S. However, most RCs are supported by the local government because of their potential to create jobs in the region. RC designation must first be approved by USCIS. Organizers of RCs submit petitions to USCIS to demonstrate how the RC will benefit the local economy and create new employment both directly and indirectly. Direct job creation in an RC refers to jobs that the RC will create and put on the RC’s payroll. Indirect jobs creation by an RC includes employment induced by the RC. A complete list of approved RCs is available online at http://www.uscis.gov/eb-5centers.

The most significant advantage of the RC is that both direct and indirect job creation will count. For example, an RC may create only 10 direct jobs. However, due to the economic impact and business activities that the RC will stimulate in the local economy, 100 indirect jobs may be created. Therefore, a total of 110 jobs will be created, which will potentially allow 11 immigrant investors to obtain permanent residency through their investment in the RC.

An important attribute of the RC is that the investor does not have day-to-day management responsibilities. Most RCs are formed as limited partnerships in which the investors will have authority only to make and vote on major corporate decisions. The day-to-day management responsibilities fall in the hands of the general partner, who may be the organizer of the RC. As long as the partnership is set up properly under the U.S. Uniform Partnership Act, the limited involvement of the foreign investors is sufficient for EB5 purposes. There is no requirement that the immigrant investors live in the RC area. They can live anywhere in the U.S.

On the other hand, a major disadvantage of investing in a RC is that the investors will not have direct control of business operations. Their hope of obtaining U.S. permanent residency hinges on the success of the RC, in which they have little control. However, the vast majority of EB5 investment immigrants are going through the program through the RC.

Some parts of EB5 are unclear

There are many fine areas of the law pertaining to the EB5 program that are not fully settled. For example, the time in which the ten jobs must be created is not clearly defined. While the law does not appear to put a time limit on when the jobs must be created, the current USCIS interpretation requires the ten jobs to be created within 2 ½ years after the I-526 petition has been approved.

One may imagine that because the goal of the EB5 program is to create ten jobs, it should not matter what those jobs are. However, USCIS has denied cases when the investor had planned to create jobs in certain positions, but due to changed circumstances, different types of jobs were created even though the same requisite number of jobs were created. Needless to say, this has brought about havoc for the investor and his or her family. The point is that while the basic premises of the EB5 program are fairly straight forward, the actual application and interpretation of the law is less clear.

EB5 risks

EB5 investors face two main risks in participating in the EB5 program: investment risk and immigration risk. If the investment does not work out, the EB5 investors will lose money in connection with the investment. If the investment fails before the EB5 investor receives his/her permanent residence in the U.S., the EB5 investor will most likely fail to qualify for the green card. However, it is possible that even if the investment projects are panning out, the immigration risks continue to affect the EB5 investor because the CIS interpretation and changes in the law in the EB5 area.

Even with risks and uncertainty, the EB5 program is well received by many, especially Asian investors.

EB5 issues to keep in mind

  1. Source of Funds: USCIS is extremely strict in requiring investors to demonstrate the legal source of the capital invested. Every dollar must be accounted for. However, the investor does not need to account for his/her entire net worth to USCIS. Only the amount of investment ($500,000 or $1,000,000) must be clearly documented of its origins.
  2. Transferring funds to the U.S.: Many countries have currency control. While USCIS does not typically request proof that the money invested was transmitted to the U.S. legally (even though they would still want to know how it was accomplished), the logistic issues of transferring money or assets to the U.S. should be discussed early on.
  3. Be Aware of Claims of Quick Exit and Guarantee: Investors should be aware that the law prohibits any guarantee of a return on the investment capital. The investment must be “at risk” in order to qualify for EB5 investment. The investment capital will be committed for quite a few years. Investors should understand that the EB5 program requires a substantial commitment of time and resources. Investors should be aware that they could lose all of the investment and still not receive their green card.
  4. Family members: The spouse of the investor can immigrate with the investor, along with unmarried sons and daughters under 21 years old.