For businesses, becoming a USCIS-approved EB-5 regional center offers unique opportunities to raise inexpensive capital. While business projects can also be funded with direct EB-5 investments, most entrepreneurs either rent an EB-5 regional center or apply for their own regional center designation.
As opposed to most direct investments, EB-5 regional centers can work with any number of EB-5 investors on a single project, greatly increasing the project’s access to capital. The primary advantage of working through an EB-5 regional center, though, is how job creation is calculated. For direct investments, United States Citizenship and Immigration Services (USCIS) requires the EB-5 project to directly create 10 full-time job positions per EB-5 investor. For projects sponsored by EB-5 regional centers, however, the required 10 full-time positions per EB-5 investor may be direct, indirect, or induced.
The majority of EB-5 investors opt for regional center investment as opposed to directly making an EB-5 investment in a project. In addition to the above-mentioned facilitation of the job creation requirement, regional centers offer investors the ability to satisfy the managerial involvement requirement simply by signing on as a limited partner and voting on important matters. Thus, regional center investment lowers their immigration risk and frees them up to live anywhere in the United States—even far away from their EB-5 project. Lowering investors’ immigration risk is in the interest of a project developer, as it makes the project more appealing to prospective investors and helps shield the project developer from potential litigation.
The process of establishing a regional center can be slow and costly, which is why some businesses opt to rent regional centers for their projects instead. Generally, this is a preferrable option, given the lengthy processing times and exorbitant fees associated with filing an I-924 petition to establish a regional center. With abundant regional center terminations in FY2020 and FY2021, the acceptance rate of new regional centers has also plummeted, rendering application an uncertain procedure. Affiliating with an existing regional center can also grant a project developer access to the highly experienced EB-5 professionals who head the regional center. These experts help attract EB5 investment capital to the project and ensure a smooth EB-5 process throughout the investment period.
However, for those who have the time and capital, owning and operating a regional center may also be an excellent option. Ultimately, the particular needs of each business should be taken into consideration when determining whether regional center designation is the best path forward.
EB-5 Regional Center Basics
An EB-5 regional center is an economic unit involved in promoting economic growth. Such growth may be in the form of job creation, regional production, export sales, and EB-5 investments. USCIS does not require any particular license for EB-5 regional centers, and any U.S. commercial entity or government agency can apply for EB-5 regional center status. Regional centers cover a particular geographical area (often a state) and can affiliate with projects operating within the approved jurisdiction.
To become a USCIS-approved regional center, a business or organization must complete and submit Form I-924 and any necessary supporting documentation. As of February 2021, filing this form with USCIS carries a cost of $17,795.
The overall cost to gain regional center approval, however, may be far higher depending on additional documentation requirements and how those requirements are met. For example, a business might need to hire several professionals to write the required comprehensive business plan and the necessary economic impact report.
EB-5 Project Readiness
Every application to USCIS for regional center approval must be accompanied by a project. This project’s readiness determines the particular documentation required in addition to Form I-924. USCIS categorizes projects as either hypothetical, actual, or exemplar.
A hypothetical project contains general proposals and predictions but is not supported by a Matter of Ho compliant business plan. USCIS may consider such a project sufficient in proving that the proposed regional center will likely promote economic development.
An actual project offers more detailed and conclusive documentation. This documentation demonstrates through verifiable economic or statistical evidence that the proposed regional center will promote economic development.
Applications that involve actual projects must include a comprehensive project business plan instead of a sample business plan. Additionally, actual projects must include sample transactional documents (e.g., investor subscription agreement and private placement memorandum).
An exemplar project is an actual project that includes the actual organizational and transactional documents of the commercial entity seeking regional center designation. Such a project also includes a sample I-526 petition with its Form I-924. For exemplar projects, final transactional documents are required instead of sample transactional documents, and a sample Form I-526 must also be submitted.
If obtained, exemplar status can be advertised to help attract EB5 investment capital to a project. Since exemplar projects have already presented a completed sample I-526 petition to USCIS, as long as there have not been any material changes, investors need not worry about the project-related information in their own I-526 petitions. As long as their source-of-funds documentation is acceptable, they will likely be approved. This can both strengthen an investor’s chances of I-526 approval and speed up the adjudication process, allowing investors to receive their conditional permanent residency rights more quickly and the EB-5 investment capital to be released from the designated escrow account sooner.
Applying for EB-5 Regional Center Status
1. Determine the Regional Center’s Scope
USCIS requires regional center applicants to clearly define both the geographic scope and industry scope of their projects. In particular, the geographic scope should include reference to any targeted employment areas (TEAs) within which the EB-5 regional center will operate.
2. Prepare the Required Documents
All EB-5 regional center applications require the following documents:
- Operational business plan
- Corporate structure agreement
- Sample project business plan
- Economic report for the project
- Legal securities documents
- Legal immigration documents
- Sample management agreement between regional center and project
Due to the complex requirements of USCIS, preparing these documents typically requires the engagement of professionals in relevant areas of expertise.
For example, the USCIS reviews business plans according to the standards set forth in Matter of Ho, an Administrative Appeals Office (AAO) precedent decision. These standards dictate that the business plan must be credible and should contain the commercial enterprise’s organizational structure, its staff’s experience, and its staffing requirements, including job descriptions for all positions and a hiring timetable. The plan should also include a detailed market analysis, the commercial enterprise’s market strategy, a list of any required permits and licenses, details of any contracts related to supply and distribution, and descriptions of any manufacturing processes. Finally, the plan should include projections for sales, expenses, and income—and a detailed explanation of how these figures were determined.
The economic report is another example of a document that should be prepared by an expert. In addition to showing whether or not the project is in a TEA, this document is used to demonstrate that the project will create the required number of jobs. While direct job creation is not complicated to calculate, regional centers are also allowed to count indirect and induced jobs when calculating overall job creation. Indirect jobs are those created as a result of the project’s development and ongoing operation (e.g., purchasing building materials, supplies, etc.). Induced jobs are those created by the economic impact of the project (i.e., the money spent by the project’s employees). Indirect and induced jobs must be demonstrated using accepted economic methodologies.
Transactional documents should be prepared by securities counsel with relevant EB-5 experience. In addition to compliance with the Securities and Exchange Commission (SEC), the investor subscription agreement and private placement memorandum must comply with USCIS, particularly the requirement that the EB-5 investors’ capital is actually “at risk”—simply an intent to invest is insufficient.
3. Submit Form I-924
With the necessary documents prepared by the appropriate experts, Form I-924 can be submitted to USCIS for approval. Once Form I-924 is filed, USCIS allows the applicant to market their project—but the applicant cannot accept investments until USCIS approves their I-924 petition.
Operating an EB-5 Regional Center
1. Submit I-526 Petitions
Once USCIS approves Form I-924, the applicant receives USCIS designation as a regional center and can submit EB-5 investors’ I-526 petitions. Each Form I-526 must be accompanied by the actual or exemplar project documentation. Once an investor’s I-526 is approved, they gain conditional permanent resident status. Many projects release EB-5 investment funds from the designated escrow account upon I-526 approval.
2. Manage Projects and Maintain USCIS Compliance
To maintain USCIS compliance, the regional center is required to track its projects’ job creation and annually file Form I-924A, a supplemental compliance document. Failure to submit Form I-924A can result in the termination of regional center designation. In addition to this USCIS filing, the regional center must complete the proper documentation for the SEC and other agencies that regulate securities at the state and local levels.
3. Prepare Documentation for EB-5 Visa Applicants’ I-829 Petitions
For EB-5 investors, the last step in obtaining an EB-5 visa is submitting Form I-829, Petition by Entrepreneur to Remove Conditions, which allows investors to change their status from conditional permanent resident (granted by Form I-526) to lawful permanent resident. This form is filed by each EB-5 investor, but the necessary supporting documentation is provided by the EB-5 regional center. Upon filing an I-829 petition, an investor is no longer required to maintain their EB-5 investment capital at risk.