All investors appreciate the necessity of analyzing and assessing financial opportunities. It is crucial to inspect every possible aspect of an investment to ensure that all potential risks are factored in. When evaluating an EB-5 investment, even more scrutiny and due diligence is demanded of the prudent investor.

EB-5 Direct Investment Opportunity

Foreign nationals desirous of U.S. citizenship have logically latched on to the EB-5 Program as perhaps the best avenue for gaining residency in the United States. Recent years have demonstrated the declining numbers of other types of U.S. visas, especially the H1-B Work Visa, leaving the EB-5 Visa highly attractive and viable for many immigrants.

Properly titled the EB-5 Immigrant Investor Program, this visa encourages immigration through the means of investments in the American economy. Specifically, this program requires foreign investors to commit $1,000,000 (certain circumstances can drop this to $500,000) to a commercial enterprise with an eye to creating a minimum of 10 new jobs within 2 years of starting the business. In exchange for such a deep commitment, the EB-5 investor will earn permanent residency for themselves, their spouse, and all dependent children under age 21.

Regional Centers vs. Direct Investments

EB-5 applicants are offered two choices for investment: direct investment or regional center investment. The difference between the two is significant and must be understood by the investor before proceeding.

A regional center investment is a pooled fund of money that is professionally managed. Investors have no say in the daily operations; they are considered passive investors who are looking to professional managers to meet the goal of creating at least 10 new jobs per investor. Since some regional centers will raise funds from as many as 1,000 individual investors, they are typically working with hundreds of millions of dollars or more. Their investments often include large hotels, hospitals and other health facilities, and shopping centers.

Regional center investors do not look for spectacular returns on their funds, but rather hope for a conservative return of 2% to 3% per year with preservation of original capital as a top priority. An additional benefit that accrues to a regional center investor is that documentation proving the creation of 10 new jobs is provided by the regional center, which is the key to citizenship for the investor’s family.

In a direct investment, a foreign national decides to start her or his own business and retains direct and complete control over the daily operations and long-term goals. As most entrepreneurs know, the upside potential of one’s own business is significantly higher than what a passive investment can offer. This makes sense, as the entrepreneur is actively involved in the business on a regular basis. Often, a business owner will take a small paycheck while working long hours in the early stages of a new business, in exchange for a higher return in the back end.

Understanding New Hires for Direct Investments

Investors choosing the entrepreneurial route for their EB-5 investment must understand the nuances concerning what will qualify as a new job. Since their goal is the creation of at least 10 new jobs, and since attaining U.S. citizenship is dependent upon that goal, the smart entrepreneur will carefully study the rules explaining which jobs count towards that total. Because the business owner must accomplish this within the first 2 years of operation, advance preparation and knowledge is strongly recommended.

Equally challenging is learning and following American laws concerning the hiring and firing of employees. As a direct business owner, the entrepreneur is obligated to adhere to all laws concerning employees, including understanding their rights and knowing what information an employer can and cannot ask of their employees.

Of primary importance is to understand that the business owner and any immediate family members may work for the new commercial enterprise, but none of them can be used in the total employee count of 10 that must be reached in two years, as they are not yet U.S. citizens. Similarly, while any other employee who is not a U.S. citizen or does not enjoy temporary residency in the U.S. may be hired, they are not included in the total employee count needed to meet the EB-5 requirements.

While an employer is not allowed to ask about the citizenship status of an employee, this restriction can be overcome for EB-5 investors by requesting all employees submit proof of citizenship or immigration status. This will help the employer avoid possible discrimination suits while also determining which job applicants qualify for the 10-job requirement.

The following persons qualify for the 10-job obligation:

• S. citizens
• Permanent residents
• Temporary residents, including asylum seekers, refugees, and aliens living in the US under deportation suspension

Other people may or may not meet the requirements set by EB-5, so any applications from persons other than those listed above need careful examination.

How I9 Documentation Works

I9 documentation must be provided by any person wishing to gain employment. The most common identification asked for, and given by the potential employee, is a driver’s license and a Social Security card. If a person provides a valid and current driver’s license (or state ID) and a Social Security card, you can be assured that they will count towards the 10-job requirement.

While these are the most customary forms of identification and proof of ability to work, other types of IDs are also acceptable under federal law. In some cases, these IDs may indicate that a person was not born in the U.S. but can provide the necessary proof of their approval to work in the U.S.

Because I9 documentation may not deliver indisputable proof of the ability to work in the U.S., and because employers must be careful when asking questions that may flout the rule of law or invade the rights or privacy of job applicants, EB-5 direct investors can include on job applications for their company questions concerning citizenship and immigration status. It is not considered as discriminatory if all employment applications are asking the same information of possible employees.

For reference purposes, EB-5 employers are encouraged to study and understand the I-9 documentation requirements as listed on the USCIS website.

Extra Obligations for EB-5 Employers

If proper care is not taken in collecting the information necessary to prove the hiring of 10 or more qualified employees, the EB-5 employer will not earn the U.S. citizenship they spent so much money on and worked so hard to earn.

In addition to the burden of meeting the 10-job requirement, all other laws affecting employers and business owners must be known and followed. As any American business owner knows, legal and equitable treatment of employees demands thorough knowledge of the laws governing employees and their rights. Many employers have been sued for trespassing on the rights or privacy of their employees. Mistreatment or illegal actions against an employee can be a costly mistake. For an EB-5 employer, such an error can also cost the entire family their chance at American citizenship.

Interested EB-5 investors should not be discouraged by the additional obligations placed upon them. Most EB-5 direct investors look to trusted and experienced EB-5 advisors to guide them through the application process and to assist in the documentation of the successful hiring of 10 or more employees to their new commercial enterprise. Successful EB-5 investors in the past are now running profitable businesses in America that pay their way as new American citizens, thanks to the help of qualified EB-5 counselors.

Among Asian nationals, South Koreans tend to have a good understanding of the immigration picture in the United States. In conjunction with their improved economy, South Korean citizens have recently exhibited greater interest and participation in the EB-5 Visa program offered through the U.S. Citizenship and Immigration Services (USCIS).

An EB-5 Immigrant Investor Program Overview

The EB-5 Immigrant Investor Program is perhaps the most ideal format designed to create American citizenship opportunities for foreigners. Even with the subject of immigration remaining a hot topic for many Americans, few U.S. citizens voice concern about the intent of the EB-5 Visa.

This is because the EB-5 Program is built to invite foreign investors to start a U.S. business which generates new American jobs. Specifically, $1,000,000 is required to fund a new commercial enterprise. Within 2 years, at least 10 new full-time jobs are created from the efforts of that operation. This concept has proven successful, infusing billions of dollars of new capital into the American economy while generating new employment opportunities for working Americans.

Even more attractive is the TEA investment option within the EB-5 Program. TEA stands for Targeted Employment Area, and it identifies areas in America needing businesses that can provide work for locals. Specifically, a TEA is defined as either a rural area (which must be beyond the outskirts of any town populated by 20,000 or more people) or areas in metropolitan areas experiencing high unemployment. High unemployment is deemed to be any region with unemployment rates 150% higher than the national average. The fiscal year of 2017 ended with a national 4.4% unemployment rate, so any region suffering from unemployment of 6.6 percent or higher is eligible for TEA designation. Selecting an investment with a TEA designation cuts the financial commitment in half, down to $500,000, a significant reduction in the original investment requirement.

In return for this sizable commitment, the foreign investor is granted EB-5 Visas for immediate family, which includes the spouse of the investor and unmarried children under age 21. This unique feature of issuing bulk visas makes the EB-5 Visa the most attractive and surest choice for families desiring entry into the U.S.

Perhaps best of all are the methods of investing available to a foreign investor. Most EB-5 Program participants opt for a regional center investment, which is a pooled fund managed by seasoned professionals. Each investor is allocated a proportionate share of the investment, and it is common to have upwards of 1,000 investors in a regional center program, providing a regional center with hundreds of millions of dollars. This gives the fund sufficient financial muscle to construct hospitals, hotels, or other large projects, which in turn will easily generate the required 10 jobs per investor. The investor has no direct responsibility for the performance of the regional center, and may pursue other interests, including a separate career.

Some EB-5 investors choose an entrepreneurial path, building their own commercial enterprise which they directly manage and control. This path demands more commitment and attention to the business by the owner; however, potential returns are usually greater for such a hands-on operation. Entrepreneurs like this thrive in the direct involvement of their investment.

A Growing Popularity Boosts Demand

South Koreans can look to both Chinese and Vietnamese EB-5 participants in the past to gauge the popularity of and subsequent difficulty of gaining admission to the EB-5 Immigrant Investor Program. This is because both China and Vietnam are now marked as oversubscribed countries—both have been put on waiting lists due to the flood of prior EB-5 submissions from citizens of these nations.

The ruling for determining oversubscription is simple: immigrants from one country are allotted no more than 7% of all types of U.S. visas issued in a given year. Once a country has exceeded their 7% allowance, a backlog is created which captures and holds all future applications until a future date, called the cutoff date, is reached. Once an application reaches or passes the cutoff date, it can be processed by the USCIS.

To get an idea of how far back this date may be pushed, in May 2018 the State Department set June 22, 2014 as the cutoff date for both Chinese and Vietnamese immigrants, creating a nearly 4-year processing delay. As time moves forward, the cutoff date will also push forward, but not equal to the passing of time. For instance, by May 2019, it is probable that the new cutoff date will not be June 22, 2015 (a year longer than the current cutoff date). More realistically, the new cutoff date will be closer to December 2014 or perhaps early 2015. In other words, as time progresses, the cutoff date will likely be further away than the almost 4-year wait currently in place.

Reasons for Prompt Action

South Korean citizens interested in taking advantage of the EB-5 Program should not delay in submitting their petition. While South Korea has not yet reached the stage of oversubscription, all indicators point to this nation being next in line to do so.

In addition to the increasing number of South Korean applicants, there is a strong likelihood that Congress will make changes to the EB-5 Program. There have been discussions of raising the minimum investment requirement, tightening definitions for TEA designations, and possibly reducing the number of visas issued in the future.

Also, families with children nearing the age of maturity (21) should be concerned about locking in a date before a child reaches age 21. If South Korea is hit with delays of 3 years or longer due to oversubscription, a child near maturity may end up “aging out” and no longer be considered a dependent minor of the EB-5 applicant.

USCIS has established a clause, the Child Status Protection Act (CSPA), to address the problem of minors aging out before completion of the EB-5 Visa process. The CSPA allows children who were minors at the time of the EB-5 application to retain their minor status through the processing period. However, if the visa is delayed due to backlogs or waiting lines, this protection will likely be lost.

Even without cutoff dates or backlogs, there is a minimum 2-year wait before permanent residency is granted to a foreign investor, as the applicant is required to document the 10 new jobs that were created from the investment program from the first 2 years of operation.

Experts caution that the recent escalating activity by South Koreans in the EB-5 Immigrant Investor Program may soon create backlogs like those experienced by aspiring Chinese and Vietnamese immigrants. This fact alone should motivate South Korean nationals to begin immediate plans for participating in the EB-5 program.

Since so many options are open to the South Korean immigrant investor, working with a qualified EB-5 consultant is a smart choice. By doing so, the petitioning South Korean national can remain informed and up to date on the ever-changing EB-5 Program.

The EB-5 Program has recently seen a dramatic increase in the number of Indian EB-5 Visa applications filed. On April 6, 2018, U.S. Citizenship and Immigration Services (USCIS) announced that the congressionally mandated H-1B Visa cap for fiscal year 2019 had been reached within only five days of the agency opening applications. Yet again, the fates of many professionals and skilled workers in the US remain uncertain, driving interest in the EB-5 Visa program in an effort to attain security.

Once a little-known visa program, the EB-5 Program is becoming a common pathway for foreign nationals to immigrate to the USA. Due to immigration crackdowns and over-subscription to other visa categories, a number of other countries, including India, have recently turned to the EB-5 Program as a more secure way to obtain a U.S. visa. At the end of the 2017 fiscal year, 174 EB-5 Visas were issued to Indian nationals, a 17% increase from the previous year.

EB-5 Program applicants who invest $1 million in a new commercial enterprise (NCE), or $500,000 in an NCE located in a targeted employment area, and create 10 qualified jobs, are eligible for lawful permanent residence in the U.S. for themselves, their spouse, and their unmarried children under the age of 21.

The H-1B Visa used to be a popular choice for Indians, as they made up more than 70% of the H-1B Visa holders. There are several possible reasons for this rapid increase in EB-5 Visa popularity, and they are mostly centered around the disadvantages of the H-1B Visa. However, recent changes and possible changes to come have made Indians question whether they should apply:

• H-1B applications are being scrutinized more closely.
• Redefining of an H-1B “specialty occupation” to preclude many IT and other positions that may have more than one possible major field of study for entry into the occupation.
• Denial of H-1B petitions that pay level 1 wages.
• Requiring H-1B employers to identify in advance the specific itinerary of all work locations at which the employee will work during the course of the 3-year H-1B approval period. This is often not possible.
• The potential shortening of the H-1B Visa term.
• H1-B Visa holders’ spouses, who have an H-4 Visa, may lose their ability to work in the U.S. On December 14, 2017, the Department of Homeland Security published the agenda item “Removing H-4 Dependent Spouses from the Class of Aliens Eligible for Employment Authorization,” intending to revoke the employment eligibility of H-4 dependent spouses. The proposed regulation is reported to need further revision and finalization is expected by June 2018.
• Massive backlog in the EB-2 and EB-3 immigrant visa categories. The wait time for a green card through an EB-2 Visa is currently anticipated to be 11+ years, while the wait time with an EB-3 Visa is currently anticipated to be 12+ years.
• May not appeal to wealthier applicants who can apply to the EB-5 Program and obtain more benefits. The H-1B visa requires employer sponsorship, which means applicants are limited to where they can live and work, whereas, the EB-5 Visa has no such limitations.
• Many employers are turning away H-1B Visa holders in favor of hiring U.S. workers. The “Buy American and Hire American” executive order directs federal agencies to review whether existing policies adequately prioritize American products and protect American workers. This was also reflected in USCIS’ stringent adjudication of H-1B petitions, as seen by 2017’s wholesale issuance of Request for Evidence (RFE) Notices and Notices of Intent to Deny (NOIDs). As a result, H-1B visas are increasingly difficult to obtain.

Making decisions involving large amounts of money is never a simple process. For immigrant investors interested in participating in the EB-5 program, this process usually involves researching hundreds of available projects and investment options. One consideration for investors is whether to put their money into a regional center project or to invest directly into an EB-5 project, perhaps their own project.

While there are many project options for you to investment, the low predicted return might be a deterrent. You might also want to have more control over the project. If your thinking starts heading in that direction, you will inevitably toy with the idea of creating your own project to invest in, either by using a direct investment model or a regional center investment model.

If you’re giving it some thought, there are a few things you should take into consideration before branching out on your own. Direct investments and regional center investments each have their own set of benefits and risks. Regardless of the type of project you select, you will benefit from the help of an experienced team of professionals who can help you with structuring your project model and associated documents and giving you valuable advice along the way.

Direct Investment or Regional Center: Pros and Cons

Investment Expectations
Currently, a minimum investment of $500,000 is required for EB-5 investments in projects that are located in targeted employment areas (TEAs). However, if you choose to invest directly into a project that you develop yourself, be aware that you will likely end up contributing far more than the $500,000 as well as many hours of your time. You will need to keep extensive documentation and ensure that all aspects of the project remain compliant with various federal, state, and local laws.

Total Investment Amounts
While a direct investment, especially in your own project, will give you more control over the project, it is also important to consider the extra costs that may be involved. Direct investments may give you a higher return on investment (ROI), but those costs may offset that. If you are running your own project, you will be required to not only invest your minimum $500,000 but also obtain the remainder of the needed capital for construction and operation of your new enterprise. Investors should also consider regulations that govern what jobs can be included in the job creation requirement of the EB-5 program. Direct investments require the creation of 10 full-time direct jobs for each investor. While some investors may wish to have their own project as a way to start a “family business,” family members who are employed may not be counted toward the 10 full-time jobs. It is also important to take into consideration the amount of minimum wage in the area and how much capital will be needed to pay for 10 full-time employees.

Documentation Requirements
The job creation requirements for the EB-5 program are stringent and add to the difficulty of complying with various local, state, and federal regulations that govern the new commercial enterprise (NCE).

As an example, if the NCE is a restaurant, you must turn a profit (or at least avoid losses) and maintain customers like for any other restaurant, but you must also document all jobs created directly from the NCE and maintain detailed documentation showing that the jobs were not only created but maintained for a full two years. That information needs to be included with the I-829 Petition to prove that EB-5 Program job creation requirements have been met.

While this is certainly a time-consuming and stressful process for an investor who has chosen to invest directly in his or her own project, investing through a regional center can cut out some of that. Regional center investments allow for more job types to be counted, including indirect and induced jobs. The process is thus much simpler and less nerve-wracking, since there is a much greater job cushion. In addition, the investor is no longer solely responsible for ensuring job creation for every single investor; the regional center takes over that responsibility.

Why Retain a Team of EB-5 Professionals?

The EB-5 immigrant investor process is one process you shouldn’t attempt to do on your own. The success of the process is the sole determinant of your ability to become a permanent U.S. resident through the program. It is important to surround yourself with a competent team to provide you with guidance throughout the process. You will need a qualified immigration attorney, an experienced business plan drafter, and additional financial and legal advisors regardless of the type of investment you make.

The Role of the Business Plan Writer
Even if you have developed your own business model and have obtained all the needed documents to support your plan, an EB-5 business plan writer will take that one step further and turn your model into a detailed plan that complies with all of the USCIS regulations that govern the EB-5 program. Full compliance is necessary to ensure the success of the investment process and immigration.

EB-5 business plans must be “Matter of Ho” compliant. Matter of Ho refers to a decision in 1998 that established precedence for determining the standards of an EB-5 business plan. Your plan will be measured against this precedent, and your business plan writer will make sure that your plan is fully compliant with those standards. A business plan writer can also help you with your business model and other aspects of your plan, but if there isn’t enough documentation to back up your proposal, you may want to consider investing through a regional center to increase the likelihood of successful immigration.

Both direct investment business plans and regional center business plans require a business plan writer to prepare an EB-5 compliant business plan. An economic analysis for the EB-5 project or a job creation study may provide added benefits. For regional center projects, all direct, indirect, and induced jobs created as result of the project can be included to meet the job creation requirement. Many of these jobs come from construction. Certain construction costs, such as expenditures for materials, furnishings, etc., can be used to count jobs beyond direct employees. This provides a greater chance of petition approval, as it is easier to count estimated jobs based on expenditures than it is to provide documentation of ten full-time direct employees for each investor at the time of petition filing.

Other than construction-related jobs, the rest of the qualifying jobs usually will come from the operations of the project once it is completed. For example, staff employed by a hotel after it has been completed would be included in this category. Direct employees of the enterprise can be used for all types of projects, and regional center projects can also count indirect and induced jobs associated with the operations of the enterprise.

While direct jobs can be proven with documentation such as payroll stubs and W-2s, they can also be calculated (along with indirect and induced jobs) with the help of economic models. These models use revenues to estimate job creation, and thus it is easier to prove that job creation requirements have been met since you simply need to produce financial statements that have been audited to show that the desired revenues have been achieved. An experienced economist can aid in the use of economic models. If using an economic model, however, it is important to have realistic revenue goals that you are sure you will be able to achieve.

The Need for Offering Documents

Offering documents describe the terms of the investment in detail. Contrary to the common belief that offering documents are only required for large numbers of investors or substantial offering amounts (several million dollars or more), offering documents are required in most EB-5 investment situations. It also improves a project’s marketability and decreases securities liability.

According to U.S. securities laws, securities offerings must be registered with the U.S. Securities and Exchange Commission (SEC). All investments are considered securities unless they are in one of the exempted categories. Most EB-5 investments fall under the Regulation D exemption.

Even though most EB-5 investments are exempt from the required securities offerings registration, anti-fraud regulations still apply. These regulations provide protection to parties by placing legal responsibility on those who state incorrect information or omit material contents on offering documents or any point during the sale of securities. Both entities and any individuals involved with the issuer can be held accountable for misrepresentations regardless of the extent of the involvement. Thus, it is important to include accurate and complete information in offering documents.

Preparing offering documents for an EB-5 project requires due diligence on the part of the document preparer. Preparers should exercise caution to ensure that all material information that investors may need is included within the documents and is an accurate representation of the investment details. Not doing this can lead to fraud claims and offering rescission and may lead to fines imposed on the parties involved.

The SEC has become increasingly involved in overseeing EB-5 projects and investigating fraud and similar issues. The risk of liability due to violation of anti-fraud regulations is very real, and a securities attorney can help reduce the risk by making you aware of any applicable regulations and instruct you as to how to remain compliant.

While careful preparation of offering documents can be a time-consuming and costly process, the cost of facing fraud charges for omissions or misrepresentation is far greater for all key players involved with the issuer.

Before deciding on which type of EB-5 project to go with, investors should carefully consider the risks and benefits involved with each project. Attorneys and other professionals can be valuable consultants during this process, as well as keeping in mind the primary goal of the investment—to obtain a green card.

Risk is unavoidable in any business venture, but because of inherent risks in the immigration process, care should be taken to minimize the risks associated with the investment. Implementing your own direct EB=5 project can complicate the process and increase the risks you may face. If you choose to use a regional center model for your own project, be mindful of timeframes. A regional center must be approved before investors can begin filing their initial petitions.

In the end, it’s your decision as an investor, but it is important to keep in mind the many factors involved. You may get a higher return with a project you direct yourself, but that also comes with a greater risk to you and your ultimate goal of obtaining permanent resident status.

According to the US Department of State, FY 2016 saw nearly two times as many EB-5 immigrant investor visas being issued to Latin Americans as had been issued in FY 2015. This was a result of greater effort being put into encouraging Latin Americans to participate in the EB-5 Program in addition to the current economic and political chaos in that part of the world.

Most of the increase in successful EB-5 petition adjudication was due to immigrant investors in Brazil, who received four times as many visas in FY 2016 as they had the previous year. This was greater than the number received by investors in any other non-Asian country. In Venezuela, as well, the increase was substantial, as the amount doubled from FY 2015 to FY 2016. There were 412 EB-5 visas in total granted to Latin Americans in FY 2016 compared to the 207 the previous year.

Why Brazil and Venezuela?

The increase in EB-5 visas in Brazil and Venezuela appears to be due to the increase in crime that has resulted from the political and economic chaos in the region. Brazil has seen its share of government scandals since the middle of 2016, and its economy has dropped drastically, sending crime rates through the roof. In Venezuela, violent crime has also increased substantially and there has been an increase in conflict between the government and demonstrators. In addition, Venezuela’s economy has been experiencing rapid inflation.

In contrast to Brazil and Venezuela, Mexico has seen a dramatic decrease in EB-5 visas. This is expected to continue due to recent political events in the United States related to the 2016 election of President Trump.

Argentina and Columbia both saw an increase in EB-5 visas as well.

Shifting the Focus from China

While China has historically been the main focus of EB-5 visa promotion, in recent years, EB-5 promotors have turned to promoting the program in Latin America. As the Chinese government continues to implement strict regulations regarding foreign investments, a Latin American countries, specifically Brazil and Venezuela, are becoming the central focus of EB-5 marketing efforts. This change in focus has contributed in part to the increase in EB-5 visas being granted to Latin Americans.

Most of the promotion efforts have centered around making Latin Americans aware of the EB-5 program and the opportunities it offers. Promoters of the program have also put a substantial amount of effort into building relationships with immigrant attorneys, tax specialists, and financial consultants in Latin America, and it has not been without its rewards.

Latin America regulations have presented some challenges, however. Each country in the region has its own set of regulations, and research must be done by the players to make sure local regulations related to currency exchange, taxes, and investment fund origins are complied with.

Temporary Residents as Potential EB-5 Immigrants

Because of the difficulty in identifying and meeting the requirements of individual countries in Latin America, many EB-5 promoters have focused on Latin Americans who currently have temporary resident status in the United States. A large portion of Venezuelans and Brazilians who apply for EB-5 visas already have temporary resident status and are merely seeking to change over to permanent resident status. The political views of the current President have encouraged temporary residents to seek ways to become permanent residents for greater security, and the EB-5 program is a desirable option for those who have adequate funds.

Cultural Considerations

Cultural considerations must be taken into consideration when promoting the EB-5 program to Latin Americans, whether they are already temporary U.S. residents or still residing in their home countries. Real estate projects, in particular, are of great interest to Latin American immigrant investors, as they prefer projects that are small in scope and that involve physical construction that is observable to investors.

Latin Americans also prefer to invest through a regional center rather than directly in an EB-5 project. Their goal is successful immigration, not direct and extensive involvement in a new enterprise. There is little desire to start a long-term business. Since Latin Americans see the United States as a land of opportunity and a new life, EB-5 projects based in the United States are particularly appealing, especially in areas like Florida, Texas, California, and New York.

United States Citizenship and Immigration Services (USCIS) established the EB-5 Immigrant Investor Program in 1990 as a way for foreign nationals to legally immigrate to the United States with an eventual opportunity for citizenship by making a substantial investment that bolsters the U.S. economy. The investment must be made in an approved project that will create and maintain a minimum of 10 full-time jobs for U.S. workers per investor.

The EB-5 Program has gradually become more popular over the years since its establishment. Unfortunately, this has led to extensive delays in processing petitions, in some cases delaying the processing time two to three years. Not only are these delays a frustration for investors wishing to quickly complete their immigration, they have in some cases had a negative impact on the progress of EB-5 projects. Temporary funding, also known as “bridge” funding, is a permitted way to finance a project while waiting for EB-5 investment funds to become available for use and has been in use for the past five years. Bridge funding is beneficial to both project developers and investors, as it allows investors to get credit for jobs created as a result of replacing bridge financing with EB-5 investment funds and also allows for the continuation of a project while EB-5 funds are still pending due to delays in petition processing.

However, despite the popularity and success of this form of financing, USCIS has begun placing restrictions on the use of bridge financing. It has specifically stated that bridge financing cannot be used for longer than one year, must have been considered before the project actually begins, and must be fully mature before the estimated end date of project construction. If these requirements are not met, USCIS may deny approval for projects using bridge funding.

All things considered, it is important for investors to be wary of projects that intend to depend on bridge financing for lengthy period of time (several years). Investors should ensure that funding and project progress are planned in a way that ensures that the EB-5 funds are used to further project development when they are finally released into the project rather than just being used to reimbursebridge loans.

Performing due diligence is vital if investors wish to avoid common pitfalls related to EB-5 investments. EB-5 immigrant investors should keep apprised of changes in USCIS regulations regarding investment financing and specifically bridge financing to be aware of the possible impacts on potential EB-5 projects.

There has been a recent increase in problems arising during the transferring of investment funds for EB-5 immigrant investors. Several countries, including China, Vietnam, and Ethiopia, have instituted regulations regarding how much currency they will allow to be changed into U.S. dollars and have imposed stringent requirements regarding the transfer of investment funds to the United States. In addition, United States Citizenship and Immigration Services (USCIS) has imposed additional requirements regarding how investment funds are sourced, making it difficult to use traditional methods of transferring international funds to meet the investment requirement. Several similar changes in local currency laws have also contributed to the difficulties.

As just one example, China created regulations at the beginning of 2017 that mandated discovery of the reason for the requested currency exchange and proof that it is not for immigration or on behalf of another individual. Several months later, additional regulations instituted a maximum transfer amount of RMB 50,000 each day per person, which is equivalent to $7,500, when transferring funds out of China. At the same time, USCIS now requires any third parties assisting investors in exchanging currency to provide proof of legitimate fund sources. This further complicates the process of transferring funds.

With all these barriers to investment fund transfers, what solution is there to be able to move forward?

One Possible Solution: Digital Currency

Digital currency allows individuals to send funds electronically without using a bank or other financial institution. Its value is based on supply and demand rather than individual exchange rates of various currencies. Also known as cryptocurrency, this type of currency is entirely electronic.

How Does It Work?

Digital currency transactions are recorded on a ledger of sorts, referred to as a “block chain” ledger. The ledger is maintained by companies commonly known as “mining companies.” Any changes to recorded transactions can only be completed by the stipulation of all involved parties.

As payment for maintaining the ledger, mining companies receive digital currency, which they will frequently turn around and sell to specialized brokers, who will then sell the currency to individual buyers through a cryptocurrency exchange market.

The most popular digital currency in today’s market is bitcoin.

Bitcoin as an Example

In order to use bitcoin, an individual must first set up an online bitcoin wallet that will allow for an exchange with the currency used in the individual’s country of origin. He or she can then use the local currency to purchase the bitcoin and store it in the wallet. The mining companies record the transaction onto a public ledger. The ledger, while recording details about the transactions, does not record information regarding the names of the parties involved, so these parties can maintain anonymity.
After depositing bitcoin into his or her wallet, an individual is then able to transfer it as a form of payment to other bitcoin users or exchange it through a cryptocurrency exchange. In the case of EB-5 investments, investors would need to use a cryptocurrency exchange in the United States and then exchange the bitcoin for the correct amount of U.S. dollars based on the current market rate. This method bypasses using a bank or other financial institution that may otherwise have limits on amounts or types of transactions. Once the foreign investor has successfully purchased U.S. dollars with bitcoin, he or she can then invest the money into a selected EB-5 project to begin the EB-5 immigration process.

Using a cryptocurrency exchange is not always necessary for the transfer of bitcoin. Individuals can sell or transfer bitcoin and other forms of digital currency directly by self-publishing the transaction on the publicly accessible block chain ledger.

Difficulties Associated with the Use of Digital Currency

While the use of digital currency to exchange or transfer funds seems relatively simple, changes in government regulations in some countries are complicating its use. China, for example, recently passed a regulation banning the use of digital currency to exchange funds. Bitcoin and other forms of digital currency may still be used in China for purchases by those who already “own” the currency, but the use of cryptocurrency exchanges has been prohibited. While the decision was made in an apparent effort to protect China’s economy, it creates difficulties for EB-5 immigrant investors trying to transfer investment funds from China to the United States.

Despite these regulations, the digital currency market attempted to remain afloat through the increase of direct transactions that did not require the use of cryptocurrency exchanges. It was successful in its efforts to circumvent the regulations imposed by the Chinese government. As a result, the Chinese government has recently suggested that it has plans to permit the use of cryptocurrency exchanges in the future but with added restrictions. Plans include the development of a licensing program so that the government will still be able to oversee the digital currency market. At this point in time, it is unknown what type of effect government oversight will have on the digital currency market. However, the digital currency market has proven its resilience by continuing to grow despite efforts by various countries to restrict its use.

Government regulations in select countries are not the only concern regarding the use of digital currencies. There are several other factors that may create difficulties for EB-5 immigrant investors who wish to use digital currency to be able to transfer funds for their investments. Three of these factors are listed as follows:

The Ever-Changing Exchange Value of Cryptocurrencies
The exchange values of digital currencies, unfortunately, are not stable. Since they are based on a constantly fluctuating market value, the potential for a drastic decrease in value after an EB-5 investor has purchased the currency and before he or she is able to exchange it for U.S. dollars is very real. If this occurs, the investor will no longer have the required funds for an EB-5 investment, resulting in a delay in the process while the investor obtains additional needed funds.

Additional Costs Related to Government Regulations
As exchange rates for some currencies are controlled by local governments (such as the Chinese RMB/Yuan), an investor may be confronted with additional costs due to inequivalent exchange rates. Digital currency exchange rates are controlled solely by the supply and demand of the market; thus, they may differ substantially from individual country exchanges rates.

Restrictions on How Much Digital Currency Can Be Purchased at a Time
Most digital currency exchanges have placed limits on the amount of digital currency an individual can purchase at one time. Limits may cover the purchases in a day, a week, a month, or more. Even the most popular exchanges in the United States impose such limits. For example, in the state of New York, an individual cannot purchase more than $8,000 bitcoin in a single week, which is approximately 21 bitcoins at the current exchange rate. These limits may pose a challenge to investors, as they make it difficult for investors to exchange the needed amount of funds in a timely manner.

Where Digital Currencies are Headed

The use of digital currency as a means of transferring funds is expected to continue to grow globally. While it is currently only one way to transfer funds, its use has increased rapidly over the years as well-known companies have begun to permit its use. Microsoft and PayPal are among those, as they now accept bitcoin as an appropriate form of payment.

However, digital currencies are still relatively new and, as such, carry with them unknown variables and have not yet gained the trust of investors. There is not a lot of detailed information available to potential investors about the process of digital currency transactions, and many are concerned about the fluctuating market value of the currency and the lack of global acceptance of its use. However, as more difficulties arise in the process of exchanging currencies through traditional methods, digital currencies are expected to rise in popularity. Countries may continue to attempt to regulate the use of digital currency, much like China already has. However, ways have been found to circumvent regulations in a way that is impossible to do with direct exchanges of local currencies. Due to this, it is expected that digital forms of currency will be in greater demand by EB-5 immigrant investors who are located in countries that have rigid regulations regarding the exchange of local currency in an effort to protect their economy.

While the EB-5 program offers a way to achieve resident status in the United States more rapidly than other immigration options, one downside is the taxes that investors become subject to. Relevant taxes include both income tax and transfer tax. It is important for investors to be aware of what these taxes entail prior to beginning the EB-5 program so they can take appropriate steps to reduce the amount of taxes they will need to pay.

Income Tax for U.S. Permanent Residents
In most cases, a U.S. permanent resident, i.e., someone who has obtained their “green card,” must pay income taxes like any U.S. citizen. Not only do they have to pay this on income received from within the United States, but taxes can also be assessed on income received from other countries (unless there is a tax treaty in place that prohibits this). In contrast, most other countries only assess taxes on income obtained within the country’s borders.

In addition to income tax on earned income, EB-5 investors who have obtained green cards also have to pay taxes on any gains from worldwide assets. For example, if an investor has a business in his or her country of origin and sells that business after receiving his or her green card, both federal and state capital gain taxes will be assessed on the total amount received in the sale.

If the investor cannot provide evidence of the purchase price of the asset, then taxes are assessed on the entire proceeds from the sale of the asset. The investor is required to provide documentation of what was originally paid for the asset if he or she wishes to deduct that amount from the total gains. Keep in mind that this only applies to assets sold after the green card has been received, but it does apply to all gain obtained outside the United States after a green card has been issued.

Preparation for Immigration
In order to reduce or eliminate the amount of taxes that end up being assessed, there are several steps that EB-5 investors can implement prior to beginning the EB-5 process. First, EB-5 investors should get rid of assets and monetary gain prior to applying for permanent resident status. One way this can be done is through gifts deposited in trust accounts. It is important to keep in mind that if trusts are foreign and the beneficiary applies for permanent resident status within five years of the trust’s formation, he or she will be taxed on the trust upon receiving resident status. To avoid taxation, trust assets can be deposited in an investment that is either non-taxable (like insurance policies) or minimally taxable (like certain tax-efficient investments).

Transfer Tax Assessment
If no tax treaty to the contrary has been established between the United States and the investor’s country of origin, any transfer of property that is located in the United States but owned by an individual who is not a U.S. citizen is subject to a transfer tax, i.e., gift tax, equal to 40% of the transfer amount if the total transfers are greater than $15,000 and transferred to someone who is not a spouse and $152,000 if the transfer is to a spouse who is not a U.S. citizen. Amounts above $60,000 that are still owned at death are again subject to a 40% estate tax.

In contrast to the tax requirements imposed on immigrants, U.S. citizens and legal residents are permitted through a unified credit to transfer up to $5 million to another individual without being taxed on it. In addition, gifts up to $14,000 each year are exempt from gift taxes. Once that $14,000 is surpassed, the unified credit kicks in. This also applies to assets located outside the United States.

To complicate things further, the definition of “residency” for tax purposes is different for transfer tax and income tax. For transfer tax, a “resident” is an individual living in the United States who has no intention of leaving at the time of transfer or death. Since EB-5 investors are required to declare their intent to stay in the United States, they are considered to be U.S. residents for the purpose of assessing transfer tax as soon as they begin residing in the United States.

If the immigrant investor has not yet qualified as a resident under transfer tax regulations, steps can be taken prior to moving to the United States to reduce or eliminate future transfer tax with the help of a tax professional. If assets are purchased through the correct structure, usually using a trust, that will eliminate any transfer taxes. However, the trust needs to be used from the initial purchase in order to qualify for this exception. Any property purchased in the investor’s name (other than the EB-5 investment, which is always in the investor’s own name) is much more likely to be subject to transfer tax assessment.

EB-5 immigrant investors come from many different countries and backgrounds, and their situations vary. While there isn’t any single best way to minimize or eliminate U.S. taxes for investors, it is important to plan ahead of time with the help of a tax professional who knows the ins and outs of U.S. tax laws. It is also important to be very clear about what the investor’s primary goals are regarding the ownership of assets.

As an example, if the investor intends on keeping the property or assets purchased, a trust structure like the above mentioned one would be the ideal way to eliminate any transfer taxes. If, however, the investor plans to sell the assets in the near future, income tax should also be taken into careful consideration. Again, the use of a trust would come into play, but the investor may also want to place ownership of the assets with a partnership or LLC through the trust.

Carefully planning must take place before EB-5 investors enter the EB-5 process and become residents of the United States for tax purposes. A qualified tax professional can assist with this process and help immigrant investors know what steps to take in order to eliminate or at the very least reduce U.S. taxes.

Making decisions involving large amounts of money is never a simple process. For immigrant investors interested in participating in the EB-5 program, this process usually involves researching hundreds of available projects and investment options. One consideration for investors is whether to put their money into a regional center project or to invest directly into an EB-5 project, perhaps their own project.

While there are many project options for you to investment, the low predicted return might be a deterrent. You might also want to have more control over the project. If your thinking starts heading in that direction, you will inevitably toy with the idea of creating your own project to invest in, either by using a direct investment model or a regional center investment model.

If you’re giving it some thought, there are a few things you should take into consideration before branching out on your own. Direct investments and regional center investments each have their own set of benefits and risks. Regardless of the type of project you select, you will benefit from the help of an experienced team of professionals who can help you with structuring your project model and associated documents and giving you valuable advice along the way.

Direct Investment or Regional Center: Pros and Cons
Investment Expectations
Currently, a minimum investment of $500,000 is required for EB-5 investments in projects that are located in targeted employment areas (TEAs). However, if you choose to invest directly into a project that you develop yourself, be aware that you will likely end up contributing far more than the $500,000 as well as many hours of your time. You will need to keep extensive documentation and ensure that all aspects of the project remain compliant with various federal, state, and local laws.

Total Investment Amounts
While a direct investment, especially in your own project, will give you more control over the project, it is also important to consider the extra costs that may be involved. Direct investments may give you a higher return on investment (ROI), but those costs may offset that. If you are running your own project, you will be required to not only invest your minimum $500,000 but also obtain the remainder of the needed capital for construction and operation of your new enterprise. Investors should also consider regulations that govern what jobs can be included in the job creation requirement of the EB-5 program. Direct investments require the creation of 10 full-time direct jobs for each investor. While some investors may wish to have their own project as a way to start a “family business,” family members who are employed may not be counted toward the 10 full-time jobs. It is also important to take into consideration the amount of minimum wage in the area and how much capital will be needed to pay for 10 full-time employees.

Documentation Requirements
The job creation requirements for the EB-5 program are stringent and add to the difficulty of complying with various local, state, and federal regulations that govern the new commercial enterprise (NCE).

As an example, if the NCE is a restaurant, you must turn a profit (or at least avoid losses) and maintain customers like for any other restaurant, but you must also document all jobs created directly from the NCE and maintain detailed documentation showing that the jobs were not only created but maintained for a full two years. That information needs to be included with the I-829 Petition to prove that EB-5 Program job creation requirements have been met.

While this is certainly a time-consuming and stressful process for an investor who has chosen to invest directly in his or her own project, investing through a regional center can cut out some of that. Regional center investments allow for more job types to be counted, including indirect and induced jobs. The process is thus much simpler and less nerve-wracking, since there is a much greater job cushion. In addition, the investor is no longer solely responsible for ensuring job creation for every single investor; the regional center takes over that responsibility.

Why Retain a Team of EB-5 Professionals?
The EB-5 immigrant investor process is one process you shouldn’t attempt to do on your own. The success of the process is the sole determinant of your ability to become a permanent U.S. resident through the program. It is important to surround yourself with a competent team to provide you with guidance throughout the process. You will need a qualified immigration attorney, an experienced business plan drafter, and additional financial and legal advisors regardless of the type of investment you make.

The Role of the Business Plan Writer Even if you have developed your own business model and have obtained all the needed documents to support your plan, an EB-5 business plan writer will take that one step further and turn your model into a detailed plan that complies with all of the USCIS regulations that govern the EB-5 program. Full compliance is necessary to ensure the success of the investment process and immigration.

EB-5 business plans must be “Matter of Ho” compliant. Matter of Ho refers to a decision in 1998 that established precedence for determining the standards of an EB-5 business plan. Your plan will be measured against this precedent, and your business plan writer will make sure that your plan is fully compliant with those standards. A business plan writer can also help you with your business model and other aspects of your plan, but if there isn’t enough documentation to back up your proposal, you may want to consider investing through a regional center to increase the likelihood of successful immigration.

Both direct investment business plans and regional center business plans require a business plan writer to prepare an EB-5 compliant business plan. An economic analysis for the EB-5 project or a job creation study may provide added benefits. For regional center projects, all direct, indirect, and induced jobs created as result of the project can be included to meet the job creation requirement. Many of these jobs come from construction. Certain construction costs, such as expenditures for materials, furnishings, etc., can be used to count jobs beyond direct employees. This provides a greater chance of petition approval, as it is easier to count estimated jobs based on expenditures than it is to provide documentation of ten full-time direct employees for each investor at the time of petition filing.

Other than construction-related jobs, the rest of the qualifying jobs usually will come from the operations of the project once it is completed. For example, staff employed by a hotel after it has been completed would be included in this category. Direct employees of the enterprise can be used for all types of projects, and regional center projects can also count indirect and induced jobs associated with the operations of the enterprise.

While direct jobs can be proven with documentation such as payroll stubs and W-2s, they can also be calculated (along with indirect and induced jobs) with the help of economic models. These models use revenues to estimate job creation, and thus it is easier to prove that job creation requirements have been met since you simply need to produce financial statements that have been audited to show that the desired revenues have been achieved. An experienced economist can aid in the use of economic models. If using an economic model, however, it is important to have realistic revenue goals that you are sure you will be able to achieve.

The Need for Offering Documents

Offering documents describe the terms of the investment in detail. Contrary to the common belief that offering documents are only required for large numbers of investors or substantial offering amounts (several million dollars or more), offering documents are required in most EB-5 investment situations. It also improves a project’s marketability and decreases securities liability.

According to U.S. securities laws, securities offerings must be registered with the U.S. Securities and Exchange Commission (SEC). All investments are considered securities unless they are in one of the exempted categories. Most EB-5 investments fall under the Regulation D exemption.

Even though most EB-5 investments are exempt from the required securities offerings registration, anti-fraud regulations still apply. These regulations provide protection to parties by placing legal responsibility on those who state incorrect information or omit material contents on offering documents or any point during the sale of securities. Both entities and any individuals involved with the issuer can be held accountable for misrepresentations regardless of the extent of the involvement. Thus, it is important to include accurate and complete information in offering documents.

Preparing offering documents for an EB-5 project requires due diligence on the part of the document preparer. Preparers should exercise caution to ensure that all material information that investors may need is included within the documents and is an accurate representation of the investment details. Not doing this can lead to fraud claims and offering rescission and may lead to fines imposed on the parties involved.

The SEC has become increasingly involved in overseeing EB-5 projects and investigating fraud and similar issues. The risk of liability due to violation of anti-fraud regulations is very real, and a securities attorney can help reduce the risk by making you aware of any applicable regulations and instruct you as to how to remain compliant.

While careful preparation of offering documents can be a time-consuming and costly process, the cost of facing fraud charges for omissions or misrepresentation is far greater for all key players involved with the issuer.

Before deciding on which type of EB-5 project to go with, investors should carefully consider the risks and benefits involved with each project. Attorneys and other professionals can be valuable consultants during this process, as well as keeping in mind the primary goal of the investment—to obtain a green card.

Risk is unavoidable in any business venture, but because of inherent risks in the immigration process, care should be taken to minimize the risks associated with the investment. Implementing your own direct EB-5 project can complicate the process and increase the risks you may face. If you choose to use a regional center model for your own project, be mindful of timeframes. A regional center must be approved before investors can begin filing their initial petitions.

In the end, it’s your decision as an investor, but it is important to keep in mind the many factors involved. You may get a higher return with a project you direct yourself, but that also comes with a greater risk to you and your ultimate goal of obtaining permanent resident status.