In the beginning of the EB-5 Immigrant Investor Program, all projects involved direct investments because the regional center option did not appear until several years later. The arrival of the regional center option saw a dramatic move away from direct investments and toward this new investment vehicle. Many EB-5 advisors believe foreign nationals are overlooking the many options and benefits that accrue from the direct investment route.

Investors regularly overlook the fact that regional centers require regular reauthorization to remain part of the EB-5 program, whereas the direct investment option is a permanent feature of this valuable program. Even though the regional center option has been successfully renewed in the past and near-future prospects show no indication of this changing, regional centers remain an impermanent opportunity that is subject to change or elimination.

The Difference Between Passive and Active Investments

The main difference between regional centers and direct investments is the amount of control an investor has in each type. With a regional center, the foreign investors are limited partners who supply the cash but are not involved in the daily operations of the project. While this suits many EB-5 investors and is a popular option, it also means investors have little input beyond the opportunity to vote with other limited partners on certain issues, making them passive investors.

In comparison, direct investors enjoy full control over their projects. While they can relinquish or pass control to other employees or officers of the commercial enterprise, they still can control major decisions that affect the future of the business. Obviously, this form of investment calls for greater involvement on the part of the investor, but some people thrive in such hands-on efforts, making them perfect active investors. Even for investors who are reluctant to commit to such intense involvement, there are direct investment choices that function as passive investments, meaning fewer operating decisions, but still leave full control in the hands of the EB-5 investor.

Franchises: An Ideal Blend of Passive and Active Investments

The franchise industry is ideally suited for EB-5 direct investments. Franchise investments are available in many industries, and the benefits of investing in a franchise include fuller disclosure requirements, public recognition and popularity, and an existing customer base that gives a new investor a running start on their EB-5 project. Another valuable aspect of franchises is their proven history and the existing regulations and oversight by both federal and state authorities. Compared to regional centers, franchises are subject to more rigorous and regular governmental review.

On top of governmental supervision, the franchises themselves usually perform their own audits and updates for their licensed franchise owners, giving each individual investor the opportunity to compare their performance against other franchisees and the general industry. While franchise owners are subject to the internal rules and regulations of the franchise license, these investors retain greater control over a franchise than they would by passively investing in a regional center.

Of course, no investment is perfect and each type of investment, passive or active, has its own benefits and drawbacks. The informed investor will work with qualified and experienced EB-5 consultants and advisors to evaluate as many realistic EB-5 investment options as possible. Only by such thorough and extensive research can the foreign investor reach an educated conclusion that will result in the best possible results for their preferred EB-5 investment.

Brazil, the largest and economically strongest South American nation, has lately become a key participant in the EB-5 Immigrant Investor Program. This is partially due to a recent slowing of its economy, which has been expanding since the 1990s. Brazilian citizens are now investigating investment opportunities beyond their country’s borders and developing a strong interest in exploring new cultures and lifestyles. Of course, American ideals and attractions have caused many Brazilians to look in that direction for a new life, and they have discovered the allure of the EB-5 program as a point of entry.

The Increasing Brazilian Interest in the EB-5 Program

The numbers are revealing: in fiscal year 2017, Brazil ranked third for nations participating in the EB-5 Program, securing nearly 3% (a total of 282) of the available EB-5 visas. By far, citizens from mainland China still topped the list, snagging 75% of the available visas. Vietnam came in second, with almost 5% of the visas.

This represents a noticeable jump from fifth place from the year before, pushing this South American nation past Taiwan and South Korea, nations in a holding pattern as to the number of visas issued each year. The number of visas issued to Brazilian investors has grown by 100 per year. Now that both mainland China and Vietnam are facing backlogs, the possibility of sustaining or increasing that pace seems highly probable. Since Brazil is still new to the EB-5 game, they are nowhere near reaching a retrogression stage like China and Vietnam, where waiting lists can extend for years. Developers are actively wooing Brazilian investors for their upcoming projects because of this surge in interest and participation.

Moneyed Interests in Brazil

Thanks to Brazil’s impressive economic growth over the past couple of decades, many new Brazilian millionaires appeared, with quite a few of them actively pursuing their own American dream. A two-day EB-5 conference held in São Paulo in April 2018 drew 300 attendees eager to learn more about the program.

One potential obstacle that needs addressing is that Brazilians currently enjoy one of the lowest tax rates in the world. By becoming green card holders, Brazilians would face taxation on all income they receive, regardless of where it originated. This can be considered an additional “cost” of obtaining permanent U.S. residency. Advisors should be able to discuss this point knowledgeably and explain the potential financial impact for Brazilian investors. Brazilian investors with an entrepreneurial mindset may see this additional tax burden as simply a minor obstacle that can be easily overcome thanks to the profitable business opportunities that abound throughout the U.S.

The Brazil–Florida Connection

For more than 20 years, Brazil has enjoyed a close and profitable trading partnership with the state of Florida. The main products imported from Brazil are related to technology and the aircraft industry, with refurbished aircraft parts being the top import. It seems that Brazilians are also comfortable investing in Florida, perhaps due to this historic trade relationship. To date, Brazilians have preferred EB-5 investments situated in Florida, particularly those operating in major cities like Miami, Orlando, and Jacksonville.

Because of the unique tax challenge they face and increasing attention from qualified persons, interested Brazilians are strongly encouraged to consult with qualified and experienced advisors and legal experts to grasp the larger and more complex picture of the EB-5 Immigrant Investor Program and the exciting opportunity it offers. For many investors, the opportunity to work, live, travel freely, and educate their children in America makes the effort more than worth their while.

There may be a time during an EB-5 investment that redeployment of the original funds is required. If fund redeployment occurs, investors should understand why it happened and how it should be managed to stay within the EB-5 guidelines as outlined by the USCIS. Because this process is complicated and operates differently depending upon the situation of the foreign investor, gaining a better understanding of redeployment is advised for existing EB-5 investors and for those investigating the value of an EB-5 investment for their own benefit.

Why Are Funds Redeployed?

Many EB-5 investments employ a similar process for managing the money received: funds are first placed into a new commercial enterprise (NCE), which in turn loans the money to a job creating entity (JCE). It is not uncommon for these funds to be returned prior to the due date if the JCE accomplishes its job creation goal earlier than anticipated. Another situation that often occurs is that the due date of the loan is reached before finalizing the conditional legal permanent resident (CLPR) status of the investor.

Because the USCIS requires EB-5 funds to remain at risk during the period the foreign national holds CLPR status, the NCE will redeploy the funds to remain in compliance with the USCIS. Since investors may be in different phases of their CLPR status, redeployment requirements will vary depending upon each situation.

Understanding Redeployment Requirements for EB-5 Investors

The major requirement for any funds that are redeployed is that those funds remain at risk, just as they were subject to normal risks and rewards in the original investment. Another element that will determine the proper deployment procedures is based upon the CLPR status of the foreign investor.
For investors who have neither received their CLPR status nor have met their requirement of creating 10 new jobs through their EB-5 investment, funds must be redeployed to a qualified commercial entity that is actively engaged in commerce, with standard risks and rewards common to “at risk” investments. In addition, the redeployed funds must pass through to the JCE that was named in the original I-526 petition. Finally, the application of that money must remain consistent with the I-526 business plan.

Investors who have not received their CLPR status but whose EB-5 investment has already created the required 10 new jobs can redeploy their funds to another commercial enterprise that is participating in a business that is in accord with the I-526 business plan. As before, the funds must be subject to the same degree of risk as the original investment, but since the job creation requirements were met, they do not have to be channeled to the same JCE as before.

Investors who have already received their CLPR status and met their job creation requirement will find redeployment to be an easier process with greater leniency in their choices. As in the previous two instances, the funds must still be redeployed to an enterprise currently in operation and exposed to normal market risks leading to gains or losses. The major difference in this situation is that funds can be directed to a new business activity not considered or proposed in the original I-526 petition.
For any of the above circumstances, the USCIS requires that redeployment occur “within a commercially reasonable period of time.” Even though the USCIS has not defined what period they deem to be reasonable, experts generally agree that three months is an acceptable timeframe in which to accomplish redeployment.

Redeploying Funds for Investors with Pending I-526 Petitions

One situation commonly faced by immigrant investors is the case whereby the JCE is returning funds to the NCE, yet the investor still has an I-526 petition pending with the USCIS. In this case, the NCE is required to redeploy all the investor’s money within a “commercially reasonable period of time” into another business activity and under the same “at risk” conditions as before. If the funds have not met the requirement of creating 10 jobs , the money must be directed to the JCE designated in the I-526 petition.

The funds must be used in the same way as originally intended in the I-526 petition. Once the investor is granted CLPR status, the USCIS allows the funds to be redeployed into other business activities not originally detailed in the I-526 petition, but the “at risk” requirements remain the same.

Waiting Lists and CLPR Statuses

Another issue some EB-5 investors face that triggers the need for redeployment is if their country is on a waiting list for their CLPR visa. In such a situation, redeployment is almost certain, as investment funds must keep their “at risk” status in place until two years after investors receive their CLPR status. Only through redeploying funds can investors remain eligible during this waiting period.

If investors still need to meet their job creation requirement, funds will be redeployed to the same JCE named in the I-526 petition. If the job creation requirement has been fulfilled, funds do not need to be redeployed to the original JCE. In either case, all other terms of the I-526 petition must be followed to remain in compliance with USCIS regulations.

Maintaining “At Risk” Status

According to the USCIS Policy Manual, investors are required to keep funds at risk until two years have passed from the date the CLPR was issued. Technically, once this stage is passed, funds may be withdrawn, but experts recommend caution rather than a hasty exit. As there are many forms and petitions to be processed and approved, early removal of investment funds could prove problematic.

Investors are better advised to wait until their I-829 petition has completed the adjudication process. It is during this final and crucial procedure that the USCIS gives the all clear signal. There have been instances where the agency questioned the job creation requirements and demanded further documentation; knowing that funds are still accessible gives the NCE flexibility in proving their job creation requirements or using that money to make up the shortfall. Investors who have already withdrawn their funds may find their I-829 approval delayed until funds are returned to the NCE and requirements met to the satisfaction of the USCIS.

Redeployment and Agency Interviews

It is imperative that immigrant investors be knowledgeable and conversant concerning their EB-5 investments; this includes being prepared to provide thorough details of any redeployment of funds. Both the USCIS and Department of State (DOS) will ask questions pertaining to the EB-5 Visa, with special focus on the use of investment funds to ensure the investor is complying with all regulations and maintaining eligibility. The DOS operates outside the US and oversees consular processing interviews that initiate the visa application process, while the USCIS works within the US and is engaged in managing all stages of the EB-5 immigration process, with emphasis on and close attention paid to the investment component of the procedure.

Much of the information the investor needs to provide can be obtained from their legal advisors and regional center operators in the form of commercial, financial, and legal documents. Specific items on their checklist should include

• Bank records supplied from the NCE
• Financial summaries generated from the regional center
• Loan records tracking the transfer of funds between the NCE and JCE
• If funds were redeployed, full documentation and tracking of funds from the NCE to approved business activities

Even the most experienced investors have learned that having adequate counsel conversant with all matters pertaining to EB-5 immigration is of the utmost value. Since a lot of effort and money goes into the EB-5 process, having experts on their side providing advice and information to bring about the desired conclusion swiftly and smoothly will make that result more likely.

Although the EB-5 Immigrant Investor Visa program began in 1990, it wasn’t until the 2008 repression negatively affected developers, impacting their ability to obtain funding for their ongoing projects, that the program experienced a surge in popularity and participation. While foreign nationals have realized since the inception of the EB-5 program that the easiest route to gaining citizenship for entire families was through investment, developers’ interest in the program opened the doors for new money to flood in.

Unfortunately, the overall climate surrounding immigration continues to become chillier and less welcoming, even for investors able to commit as much as $1,000,000 to new commercial enterprises that boost the economy while generating new jobs. Since 2015, Congress has debated the merits of and concerns about the EB-5 program, with regular discussions about transforming the program to create even higher thresholds for qualification than are currently in place. In March 2018, it once again approved an extension of EB-5 (until August 2018) instead of taking any definitive action.

While the current program continues to gain extensions, developers and other investment managers are already working under the expectation that future funding through EB-5 may become restricted. With the economy finally showing renewed strength and potential, lenders are reappearing, giving borrowers new options for obtaining the financing they need for future deals. While EB-5 funding has not been crossed off the list, entrepreneurs have the opportunity to shop around and compare their various financing choices.
This new situation has also created three new concerns investors and project managers are watching closely to see how they develop or how they change the EB-5 landscape.

The Uncertainty of Future EB-5 Projects

The combination of inaction by Congress and its distaste for the current EB-5 structure have both investors and project managers prepared for the worst. Those who carefully monitor proposed changes and modifications to the EB-5 program hear a similar message from politicians, especially concerning raising the investment limits from their current minimums of $500,000 for Targeted Employment Area investments and $1,000,000 for all other EB-5 investments.

Not surprisingly, many developers are placing new projects on hold until Congress acts; others are already exploring new sources for financing their future developments. In contrast, developers already working with EB-5 funds know the value and importance of this source of financing and appear to be moving forward with little hesitation.

The Possibility of Fewer Future EB-5 Investment Programs

Developers who prefer to carry on with new projects instead of pausing while Congress makes up its mind are already seriously considering different pathways to funding their projects. While they understand that EB-5 investors have been significant contributors to projects in the past and will likely continue to be in the future, they need the financial agility to access funds under favorable and swift terms.

Interestingly, on projects exceeding $40 million, a larger percentage of funding typically originates through EB-5 funding, while on projects with smaller budgets, EB-5 funds often represent only 20–30% of all funds contributed to the project.

A Push for Cash Infusions by Existing EB-5 Projects

Perhaps on the positive side, this shadow of uncertainty is encouraging developers currently raising funds to pick up the pace and seek even more funding. They are finding that many EB-5 investors who have been undecided are now initiating their applications before the current minimum investment thresholds are increased or other terms are unfavorably changed. By locking in their EB-5 visas under the current, and likely more positive, terms than those being proposed, investors have a clear understanding of the requirements they need to meet to gain permanent residency for them and their immediate family members.

Because the pressure to modify the EB-5 program will continue, foreign investors anxious to remain informed and educated on the EB-5 immigration process are wisely connecting with qualified EB-5 consultants and advisors. Even foreign citizens who are undecided about proceeding with the EB-5 Immigrant Investor Visa program are working with EB-5 professionals to remain current on the ever-changing immigration landscape.

There are many paths to immigration in the United States, but all of them require the individual seeking citizenship to acquire a green card. A green card grants the holder a permanent resident status that expires after five years, at which time the holder is eligible for naturalization.
Some green card holders are given conditional permanent resident status, which means that the foreign national must satisfy certain conditions over the next two years. Once satisfied, the immigrant’s status changes to a permanent resident status with the first two conditional years counting as part of the five-year waiting period for green card holders. Some conditional permanent resident statuses last for two years, at which time the holder becomes eligible for naturalization.

The immigration process is even more complicated than the two types of resident statuses explained above. Experts estimate as many as two out of three applicants who try the process or appeal a decision on their own find their cases denied. In comparison, by working with seasoned and informed immigration experts, those wishing to obtain their green cards significantly improve their odds for success. A qualified immigration advisor will ask the right questions in advance to determine the best route to citizenship and then assist the foreign national through the immigration process.

Green Card Basics

Green cards grant citizens from other nations the right to live and work in the U.S., the same as American citizens. The person requesting the visa is the petitioner; the petitioner needs a sponsor, usually a relative (by blood or marriage) or an employer. There are also circumstances when, instead of relying upon the sponsorship of American relatives or businesses, foreign nationals can essentially “self-sponsor” by starting a new business in America and using that as their sponsor through the EB-5 Immigrant Investor Program.

The sponsor is required to be either a permanent U.S. resident or U.S. citizen (except for “self-sponsoring” EB-5 cases). More leniency is provided to U.S. citizens than to permanent residents—while only a spouse or unmarried child of a permanent U.S. resident qualify for a green card, siblings, children (married or unmarried), and parents of U.S. citizens qualify.

Spouses of permanent U.S. citizens who have been married for less than two years can get a green card with conditional permanent resident status. This expires in two years and the petitioner can then apply for permanent resident status. This waiting period intends to ensure that the marriage was not designed to evade the legal immigration process.

Forms Associated with Green Cards

There are several governmental forms an applicant will use during the process of obtaining a green card and ultimately exchanging it for permanent residence status. To initiate the green card process, petitioners file form I-485 (Application to Register Permanent Residence or Adjust Status) with the US Citizenship and Immigration Services (USCIS).

Those applicants wishing to work in the U.S. while holding a green card must file form I-765 (Application for Employment Authorization). Once approved, an Employment Authorization Document (EAD) is issued; this proves that the holder is authorized to legally work in the U.S. An EAD is normally valid for one year, so green card holders need to renew their EAD at least once during their two-year waiting period.
At the end of five years, permanent resident green card holders file form N-400 (Application for Naturalization). Once the form has been reviewed and approved, the petitioner is officially a U.S. citizen. Green card holders with a conditional permanent resident status go through a different process, using different forms.

Spouses of U.S. citizens or permanent residents file form I-751 (Petition to Remove Conditions on Residence) within 90 days of the green card’s expiration. After this form has been submitted and approved, all remaining conditions are removed from the permanent residency status. The spouse of the petitioner is required to appear for the final interview; this standard process discourages the illegal practice of marriage visas (marrying only to become a US citizen).

Green card holders participating in the investor visa (EB-5) program use a different exit process. They file form I-829 (Petition by Entrepreneur to Remove Conditions on Permanent Resident Status), which removes their conditions on their residence.

The Green Card Interview

The final stage of obtaining a green card involves the interview. Although some applicants find themselves nervous during this last important step, the interview is designed to confirm the information that has been previously examined and approved. Depending upon the reason for requesting a green card (marriage, work, investment, etc.), different questions will be asked, and different information will need to be provided.

Common questions and information include:

• Stating your full name
• Providing identification with photo (passport, identity card, etc.)
• If employed, show your EAD as proof of working legally
• If there are any criminal convictions, documents must be presented

In the situation of a petitioner seeking a green card based upon marriage to a U.S. citizen or permanent resident, the spouse must also attend the interview. Additional questions pertaining to their marriage would demonstrate intimate knowledge of the spouse, such as:

• When did you two first meet and where was it?
• Where were you married and on what date?
• What is your spouse’s birthdate and email address?
• How many siblings does your spouse have?

Proof of marriage in the form of documents is also required. Examples include marriage certificate, pictures and videos from the wedding, birth certificates of any children from the marriage, and financial documents like bank accounts, insurance policies, and trust deeds.
Considering the number of petitions to be filed, the documents to collect and present, and the types of green cards that can be sought, only by working with professionals familiar with the intricacies of the immigration process can an applicant wend their way through this complex maze with confidence and increase their chance for a successful petition.

Now almost 30 years in existence, the EB-5 Immigrant Investor Program has proven to be a winner both for immigrants seeking citizenship in the U.S. and for the American economy. Begun in 1990, this program has been responsible for driving billions of dollars into the economy while also generating much needed new employment across the country. In fact, the basic tenet of the EB-5 Immigrant Investor Program is to boost the economy while creating new jobs from that effort; as a reward, the immigrant investor and immediate family members (spouse and minor children) can earn permanent residency in the United States.

The 1992 Expansion of the EB-5 Immigrant Investor Program

Just two years after its beginning, Congress decided to expand the EB-5 program by adding the Immigrant Investor Pilot Program, more commonly called the regional center program. Prior to this introduction, foreign investors had one investment option: a direct investment of funds into a new commercial enterprise. While the direct investment approach is ideal for those persons with a knowledge of and an ability to manage their own business, many other investors who had assets to invest did not have the experience to start their own commercial enterprise, thus passing on the EB-5 opportunity.

The regional center program changed all that. Regional centers are usually structured as a limited partnership, where the foreign investors are limited partners and business and real estate developers act as the general manager. For those investors uncomfortable taking on the ongoing responsibilities of managing a business, the regional center was the perfect alternative.

Another advantage of the regional center option was a looser definition of job creation requirements. Under the original direct investment plan, the investor/owner was tasked with creating at least 10 new jobs for their $1 million investment; those new hires (called direct jobs or hires) had to be within the new commercial enterprise and were required to be fully documented before the immigrant investor would earn green cards for the entire family. The regional center option changed all of that by including indirect and induced hires on top of direct hires.

Indirect and induced hires reflect the fact that a new commercial enterprise often is responsible for creating new employment outside its own doors. A classic regional center project takes advantage of this fact in many ways: one example would be a real estate project that hires construction workers (direct hires) to construct a new hotel, which is then sold to an independent hospitality firm. When the new hotel owner hires staff, those are considered indirect hires. Finally, during the construction phase, an enterprising catering business may appear and serve meals to the construction workers, thus acting as an induced hire—the caterer saw the opportunity of new customers thanks to the construction project and was induced to serve the hungry workers.

Finally, regional centers can raise huge amounts of money for their projects. With each immigrant investor committing $1 million, and with upwards of 1,000 investors, regional centers can easily raise $500 million to $1 billion dollars and take on large projects. As compared to direct investments, where many investors own 100% of the business, a $1 million regional center investment may represent less than a 1% ownership interest. Many investors enjoy the sense of safety in numbers, and with such large sums to put to work, there is likely greater diversification of funds among multiple projects, which tends to lower the risk factor. America as well has benefited significantly from regional center investments, as it opened the floodgates for extensive multi-million and multi-billion-dollar projects which brought positive and strong economic results.

The Targeted Employment Area Opportunity

Congress added another enticement to the EB-5 program that many foreign investors have taken advantage of: reduced minimums for investments in a Targeted Employment Area (TEA). As the name implies, TEAs define areas around the country that suffer from higher than average unemployment rates and encourages foreign nationals to choose an investment in a TEA by cutting the $1 million commitment in half, to $500,000.

The obvious reason for such a dramatic drop in the investment requirement is to persuade investors to infuse capital into areas most in need of economic improvements and new employment. Although some investors remain wary about committing money to poorer pockets of America, many investors see the added potential for increased returns on their investment thanks to a recovered community boosting property and business values.
There are two types of TEAs, rural and urban, and each has its own rules for determining eligibility. Rural TEAs are those areas, including entire counties, that lie outside of a Metropolitan Statistical Area (think cities with populations exceeding 50,000) or sections of counties’ outlying towns with 20,000 or more residents. The US Census Bureau offers information detailing the MSAs for each state.

Urban TEAs identify areas experiencing levels of unemployment greater than 150% of the national average (based upon employment data from the previous year). The most common areas defined as urban TEAs are census tracts (or groups of them) within an MSA, but special circumstances can also outline zones within census tracts as a TEA.

In their effort to ensure that a fair share of foreign investors select a TEA-designated EB-5 project, 30% of all EB-5 Visas authorized annually are earmarked for projects operating in TEAs. Investors preferring to commit fewer funds through an EB-5 project in a TEA can find many worthy offerings from experienced developers and operators by performing standard due diligence.

EB-5 Immigrant Investment and Employment Requirements Explained

Regardless of whether an investor opts for a TEA-designated EB-5 project for $500,000 or a regional center or direct investment for $1 million, there are certain requirements that apply to every foreign national.

Investment funds can be in the form of cash, property, inventory, equipment, and secured loans, but assets other than cash are normally used only for direct investments. In the case of regional centers, individuals need to be prepared to have cash or equivalents available to invest. The investor must also provide documentary evidence detailing their sources of funds to prove they were legally acquired.

When an investment is selected, the funds must be actively “at risk.” This means that investors cannot be guaranteed any return of their funds beyond those which accrue from market forces in play during the operation of the commercial enterprise. They also cannot treat their funds as loans with preferential returns ahead of other debtors, as this also mitigates risk and protects the investment normal gains and losses.
Investors cannot use any of their investment funds to pay fees to attorneys, investment managers, tax consultants, accountants, administrators, or any other consultants assisting the investor. In some situations, investment funds are placed within an escrow account and must equal the minimums outlined for normal or TEA-designated projects. Documentation must demonstrate that funds were properly used to meet the requirements of the EB-5 Immigrant Investor Program; advisory and legal fees are not part of EB-5 investment requirements.

As generating new employment is a major requirement, attention and focus should be given to this goal from the outset. Investors should carefully weigh the benefits of direct investments versus regional center projects because of the vast difference when counting new employment. Since regional centers can include direct, indirect, and induced jobs, as compared to direct investments only counting direct hires, many investors prefer the regional center solution to more easily attain their goal. Another benefit with regionals centers is that general partners usually give investors the documentation they need to prove they met their job growth goal, saving the investor time and money.

Initiating the EB-5 Petition Process

Once a foreign national has decided that the EB-5 program meets their immigration needs, there is groundwork that needs to be completed before filing the initial I-526 Immigrant Petition by Alien Entrepreneur, which formally starts the entry process. Most investors find that working with experienced and knowledgeable experts versed in the intricacies of the immigration process, especially EB-5 Visas, saves them much frustration and avoids repeat interviews.

Another service that EB-5 specialists regularly offer is advice about different investment options, and they often know of reputable and successful regional center operators to give newcomers a head start in their own investigations. They also guide foreign nationals through the important process of due diligence, where they can do their own homework and learn more about the investment they are considering.
Most important is distinguishing between direct investments and regional center projects. While regional centers appear simpler and easier to understand, investors have very little say after they have invested their funds. Because of this, it is even more important to scrutinize any regional center offers under consideration.

Filing Petitions

After the foreign national chooses the best course of action, EB-5 specialists are essential for navigating the key petitions that are filed and require approval to ultimately earn permanent residency in the U.S. In addition to completing the forms accurately, qualified advisors will assist the investor in compiling the documentation that must accompany the forms. There are three key petitions that are filed during the immigration process: I-526, I-485, and I-829.

Form I-526, the Immigrant Petition by Alien Entrepreneur, is filed with the US Citizenship and Immigration Services (USCIS). This is the declaration by the petitioner demonstrating the intent to invest required funds into a new commercial enterprise, or to document a qualified business already funded and in operation.

The investor must be prepared to demonstrate the following:

• Suitability of the project
• Evidence funds have been invested or are in the process of investing
• Documentation trailing source of funds invested, proving legality of origin
• Business plan outlining the plan for creating 10 new jobs
• Level of investor involvement (direct investment versus regional center)

Once the I-526 petition has been reviewed and approved, the investor files form I-485, the Application to Register Permanent Residence or Adjust Status. This initiates the process of getting green cards for all family members, granting conditional permanent resident status.
Petitioners and all qualified family members must provide standard proofs of identify, including:

• Current passports
• Birth certificates
• Marriage certificates (when applicable)
• EB-5 Visa
• Medical records
• Vaccination history
• I-797C notice (approval from USCIS on I-526 petition)

If an applicant has a prior criminal record, documentation about it must be provided. All applicants provide recent color photos, are fingerprinted, and sign the petition.
The final petition occurs two years later. At this time, the investor needs to prove the creation of the required 10 jobs and will file form I-829, the Petition by Entrepreneur to Remove Conditions on Permanent Resident Status.

In this final and momentous filing, investors must:

• Deliver green cards for all family members
• Prove funds were directed to a qualified EB-5 project
• Document money was at risk during the two-year conditional permanent residency period
• Present evidence that the job creation requirement was met

Again, fingerprints, photos, and signatures will be required, and if there is any criminal history to be reported, proper legal papers need to be produced.

The many complexities and steps in the EB-5 Immigrant Investor Program demand expert guidance and advice for the foreign national ready to take advantage of all America offers. By collaborating with professionals with full understanding, strong connections, and a long history of satisfied clients, investors can make their journey as smooth and successful as possible.

With foreign nationals from China and other countries facing increasing waits and backlogs for their EB-5 Visas, many are now investigating other options that get their foot in America’s door. One of the emerging options that appears to offer either a good first stage, or simply an alternative, to the popular EB-5 Immigrant Investor program is the E-2 visa.

The Business Aspect of E-2 and EB-5 Visas

Both the EB-5 and E-2 Visas are issued to individuals intending to establish a business in America. In each instance, the petitioner must commit substantial funds into the new commercial enterprise they are establishing in the US.

There is a major difference between the amounts invested through the two visa programs: while the EB-5 program states specific minimum investment amounts ($500,000 for a TEA-designated investment or $1,000,000 for all other types), there is no stated amount required for E-2 visas. Most experts advise a minimum of $200,000 when launching a business under the E-2 petition; in any case, there must be enough money to adequately capitalize the new venture.

Another difference between businesses operating under an E-2 visa as compared to running a company under the EB-5 program is the counting of new employment. Whereas EB-5 investments expect to see at least 10 new workers for each $1,000,000 invested, the E-2 program simply requires enough staff to run the business effectively. This freedom from meeting job creation requirements makes the E-2 visa even more attractive for many entrepreneurs.

Advantages and Benefits of E-2 Visas

While the E-2 visa is not a green card, it offers some special features that make it an attractive option for foreign nationals desiring entrance into the United States. Perhaps the greatest benefit of the E-2 visa is that the processing and approval time for this visa is one of the shortest, often taking less than three months from application to issuance. Even better, there is no ceiling on the number of E-2 visas that can be issued, which is a tremendous relief for those immigrants facing the lengthy delays for some countries waiting for approval of their EB-5 petition.

While this visa expires in two years, E-2 visa holders can request two-year extensions without limit. Even though this requires the E-2 visa owner to watch their calendar carefully and stay on top of their renewals, the process is easy and quick to complete every two years.
Immediate family members also benefit from E-2 visas. They are not granted their own E-2 visa, but both the spouse and children under age 21 will be issued derivative E-2 visas which allows them to accompany the petitioner and live in America. Children may attend public schools and even qualify for state tuitions for college admission. The spouse of the E-2 visa holder may seek gainful employment, but children are not allowed to work as dependents of the petitioner.

Another advantage of E-2 visas are that key employees are eligible to apply for the visa. In such instances, those executives and other non-owners qualify for an E-2 managerial visa; as with the standard E-2 visa, spouses and dependent children can have derivative E-2 visas issued to them.

Differences Between E-2 Visas and EB-5 Visas

The main difference between the E-2 and EB-5 Visas is the permanent residency feature that is granted to EB-5 Visa holders. While the E-2 visa does provide the holder with much of the freedoms that permanent residents have, they hold a pure visa with no possibility of gaining US citizenship through it.

Another difference between the two visas has to do with the percentage of business ownership. Due to the size and scope of many EB-5 projects, especially those invested in regional centers, there are usually more than 100 investors in a project; this means that each investor owns a small percentage of the overall investment, sometimes less than 1 percent. Conversely, E-2 visa holders must own 50 percent or more of the business they are operating.

Holders of EB-5 Visas must satisfy residency requirements; this means they must reside for at least half of their time in the States. Failure to adhere to this directive could result in abandonment of their permanent residency status unless a two-year re-entry permit is obtained. Individuals holding an E-2 visa will find much more lenience regarding their physical location during the year. Because the E-2 visa grants entry, but not residency, holders of this visa have no minimum or maximum periods of time to spend in the US.

How visa holders are taxed is another area where differences can be vast. For EB-5 Visa holders, income is declared on their US tax return and appropriate taxes are levied; this includes income earned outside the US. E-2 visa holders face an unusual situation, because they must first run a “substantial presence” test to determine if they are treated as a resident alien and pay taxes just like EB-5 Visa holders or if they qualify for a non-resident alien status.

The substantial presence test uses a formula to determine if the resident alien status is applied. The E-2 visa holder will be deemed a resident alien if that individual physically resided in the US for at least 31 days during the most recent calendar year and if the total number of days lived in the US over the last three years is more than 182 days, adjusted as follows:

1. Count all days lived in the States in the most recent year;
2. Add 1/3 of the days lived in the States for the previous year; and
3. Add 1/6 of the days lived in the States for the year before that.

A simple example illustrates how this is calculated: assume an E-2 visa holder lived in the United States for 120 days for the previous three years (2015-2017) (which is an actual total of 360 days, well over the 183-day threshold). To determine if this person is a resident alien, the total days lived are adjusted for 2015 and 2016 as follows:

• For 2016, 120 is divided by 3 for a total of 40 days, and
• For 2015, 120 is divided by 6 for a total of 20 days.

The adjusted total is 180 days, which classifies the E-2 visa holder as a non-resident alien for 2017. This further means that the E-2 visa holder avoids paying US taxes on worldwide income earned, which can add up to a huge savings.

E-2 Visas for Citizens of Treaty Countries Only

So far, E-2 visas sound like ideal alternatives to an EB-5 visa, or to use while waiting to be approved for an EB-5 petition. The final hurdle for qualification is determining the nationality of the E-2 applicant. The E-2 visa will only be issued to citizens whose nation is considered a Treaty Country; a list of eligible nations can be reviewed here on the US Department of State website.

For those citizens whose country is not listed as a treaty country with an E-2 classification, there are still options. Because the E-2 visa is based upon the country of citizenship of the individual instead of the country of birth, some enterprising immigrants are opting to change their citizenship to a nation classified as E-2 on the Treaty Country list and then submitting their E-2 petition. Advisors point to Grenada as an ideal country to seek citizenship, as it can be issued in four months or less through an investment, and Grenada is classified as an E-2 Treaty Country.

Avoiding USCIS Through E-2 Visa Petitions

The USCIS has a reputation for thorough and rigorous reviews of all working visa petitions, as all EB-5 applicants are aware. It is only after receiving USCIS approval that individuals then file for their visa at a US Consulate. Those considering the E-2 visa route are relieved to learn that this is the only working visa that circumvents the USCIS and allows the applicant to directly submit their petition at a US Consulate. As US Consulates are all over the world, most interested parties contact the consulate located in their country of birth; other options include visiting a consulate at one’s country of citizenship (for Grenada citizens, the US consulate is in Barbados), a consulate in the country of residence, or any other US consulate worldwide willing to process the petition.

For those individuals working outside the USCIS, it is especially important that applicants be fully prepared for the many questions asked and documents required during the interview at the consulate. For this reason, and many more, applicants desirous of fast and successful outcomes wisely choose to work with experienced and knowledgeable experts in the field of E-2 and EB-5 Visas.

In the past, attorneys have brought cases against U.S. Citizenship and Immigration Services (USCIS) when the agency challenged the validity of EB-5 petitions, often claiming that the investment was either not at risk, was a debt arrangement, offered a guaranteed redemption, or some combination of the three. Curiously, the USCIS often confuses or applies all three terms to one situation. By successfully demonstrating the differences between these terms and focusing on nuances in legal documents, legal counsel can often present arguments that successfully overturn decisions made by USCIS.

Because any of these situations would invalidate an EB-5 investment, and consequently destroy the chances of the investor and their immediate family gaining permanent residency in the United States, a better understanding of these terms and how they negatively impact the EB-5 Visa process is important for both current and potential EB-5 investors. Most significantly, it is incumbent upon the investor to understand all terms and conditions pertaining to the successful operation of an EB-5 project; such an investor cannot rely upon ignorance as a defense with such costly outcomes at stake.

An Overview of EB-5 Investments

Over the past decade, the increased awareness of the EB-5 Immigrant Investor Program as a viable, and often desirable, financial resource for developers has kept the program running at maximum capacity. In fact, the window of opportunity for a successful EB-5 petition by a foreign national remains brief, often reaching its annual maximum in April.

The EB-5 program has proven to be an effective immigration method with a higher rate of success than many of the older, more traditional systems that have been under fire since the 9/11 tragedy shifted American attitudes away from lenient immigration standards and policies. As contrasted with most immigration programs, EB-5 rates popularly among Americans because of its high cost of entry: successful applicants must invest $1,000,000 ($500,000 for investments in Targeted Employment Areas) into a new commercial enterprise which, in turn, must prove its worth by creating a minimum of 10 new jobs per $1,000,000 investment.

As a reward for successfully satisfying these EB-5 requirements, investors, along with their immediate family members (spouse and children under age 21), are granted permanent residency and enjoy the rights and privileges granted to all American citizens. For America, the rewards are equally fruitful—thanks to the EB-5 Immigrant Investor Program, billions of dollars have been infused into the economy, many areas suffering from high unemployment have experienced visible improvement, and new jobs have sprung up across the nation.

An Overview of EB-5 Risk Factors

While this opportunity is mutually beneficial, it is up to the USCIS to govern and monitor the program to prevent abuse or manipulation of the rules or procedures. Emphasis is placed upon adhering to the entrepreneurial spirit which the EB-5 program encourages: investments must be directed to projects that entail the natural risks of any business venture. In other words, funds must be “at risk” and subject to normal losses or gains depending upon internal and external factors or conditions.

Because most of the EB-5 funds are channeled to regional center investments, where the EB-5 petitioner is a limited partner in a large project representing pools of funds often exceeding $1 billion, the ultimate success of the project is beyond the control of the limited partners. Cautious and conservative investors would like to have some guarantees included, but any agreement to redeem the investor’s money because of market failure is an attempt to mitigate or eliminate risk. Therefore, a guaranteed redemption clause runs contrary to the “at risk” requirement.
Another aspect of an investment is the element of equity. Equity is a value that can and does fluctuate; it can even be wiped out if market conditions or other factors cause a decrease in prices and the asset is encumbered with debt. Those holding debt secured by the asset are made whole before an equity holder will realize any return on their investment. For this reason, anything that has the look and feel of a debt arrangement, whereby the investor is offered a preferred or protected position upon liquidation, would also be a violation of the “at risk” character expected of an investment.

Differentiating Between Investors, NCEs, and JCEs

There is more than one financial relationship in EB-5 regional center investments. There is, of course, the investor, who creates a relationship with a regional center by investing in the New Commercial Enterprise (NCE) which is structured to meet the USCIS requirements concerning EB-5 projects. The NCE is empowered to deploy those funds to meet the EB-5 job creation requirements. A Job Creating Entity (JCE) will borrow the funds raised and managed by the NCE and initiate projects intended to generate the economic growth and new employment needed to satisfy EB-5 conditions.
All investor funds raised by the NCE must be placed with a JCE to ensure that 100% of investor funds are placed at risk. When these funds are loaned, the NCE can formulate terms that require the JCE to guarantee repayment without violating the debt guarantee conditions monitored by the USCIS. The reasoning is that the concern of debt guarantee relates between the investor and NCE only and not between the NCE and JCE.

The Difference Between Puts and Calls

Another area of confusion arises between the differences of puts and calls and how they are used in EB-5 investment contracts. If an EB-5 operator includes a provision allowing them to buy out an investor’s interest under specific terms and conditions, this is considered a call option, also called a buy option. The important term here is “option.” The EB-5 general partners have the right to purchase the investor’s interest but are under no obligation to do so. This avoids the label of guaranteed redemption while offering extra incentive to an investor who may be hesitant about committing to an EB-5 project.

On the reverse side, sometimes an EB-5 agreement has a clause allowing investors to exercise a put option, or sell option. This option does confer rights to an investor that allows for a redemption of their investment, but even a put option can be structured so it is not deemed a guaranteed redemption. Specifically, if the put option can only be exercised upon a contingency related to the success or failure of the EB-5 project, it will not be categorized as a guaranteed redemption, since no one can guarantee the occurrence of a contingency.

Sustaining the “At Risk” Requirement

There have been questions in the past as to how long an investment must sustain its “at risk” characteristic. It has been successfully argued that once the job creation requirement has been satisfied, the investment has met its EB-5 requirement and no longer needs to sustain its “at risk” status. This argument holds up well, as USCIS regulations concerning the I-526 petition (Immigrant Petition by Alien Entrepreneur, filed at the beginning of the EB-5 process) specifically address the “at risk” requirement, while USCIS regulations regarding the I-829 (Petition by Entrepreneur to Remove Conditions on Permanent Resident Status, filed upon satisfaction of the job creation obligation) does not reference the “at risk” requirement.

Some legal experts have argued that sustainment of “at risk” does not apply during the two-year period when conditional residence takes place; only that the investment ownership is sustained during that provisional period. Although this situation is not specifically addressed in the USCIS policy manual, investors are advised to err on the conservative side—they should assume that the investment must be at risk at least during the qualification period of the first two years of the EB-5 investment.

“At Risk” Requirements for Redeployed Investment Funds

Since long wait lists have become more common, the sustainment requirement gets a little more complicated. In these cases of lengthy wait periods, often, the money has already been put to work and may be in the process of attaining the goal of creating 10 new jobs. Once the wait period ends, investors may be required to redeploy their funds until they reach their two-year conditional residence wait period. It has been successfully argued in the past that if those redeployed funds have already met the job creation requirement, they are no longer required to remain at risk.

By redeploying funds into another investment that remains engaged in a trade or form of commerce, experts believe this further strengthens their case that funds are being used for their intended purpose and “at risk” factors are less important in the overall picture. Since this situation has not been litigated often in court, and has reached various rulings, it remains somewhat cloudy; nevertheless, most legal council finds that a proactive approach in the courts typically ends on a positive note for immigrant investors.

The Difference Between Debt and Equity

Of all the risk factors, identifying the difference between debt and equity may be the clearest and easiest to prove in a court of law. A good start is by using the definition from Black’s Law Dictionary which defines debt as an “obligation of a debtor to pay,” along with the “right of a creditor to receive and enforce payment,” and is often used in conjunction with IRS codes addressing differences between debt and equity. If this is challenged by the USCIS, hiring a CPA as an expert witness to explain generally accepted accounting principals concerning debt structure as compared to equity positions usually produces positive results. Normally, the onus is upon the USCIS to prove that an investment is structured as a secured debt by providing documentation that irrefutably proves their assertion.

Avoiding Guaranteed Redemptions

While most investors prefer to mitigate their risk by having some guarantees put into place in the investment, one of the biggest red flags is the inclusion of a form of guaranteed redemption in the investment agreement. To determine if a guaranteed redemption exists, the USCIS studies the investment contract to see if it includes an absolute pledge to purchase the interest of an investor at a predetermined price at a determined future date. There has been some success by attorneys in arguing that all three conditions (the unconditional promise, the fixed price, and the set date) must be present to meet the guaranteed redemption definition, but the USCIS is likely to disagree and litigate the issue in a court of law. Investors should carefully review their investment agreement to see if it addresses this potential problem and, if so, ensure that no ambiguous language is used.

Understanding the Matter of Izummi

One legal case, the Matter of Izummi, has been carefully and thoroughly studied and is often referenced by attorneys as it involved an EB-5 investor dealing with all three issues: the “at risk” status, debt and equity positions, and guaranteed redemptions. While legal opinions are not law, previous views stated by judges often lay the foundation for actual rulings in future cases. Most immigration attorneys believe the Matter of Izummi case offers excellent opinions and arguments in support of the immigrant investor.

For those foreign nationals already involved in an EB-5 project, and for those desirous of participating in future EB-5 investments, gaining a clearer grasp of the subtleties of “at risk” investments, knowing the difference between debt and equity holdings, and understanding the complexity of guaranteed redemptions is imperative to selecting a qualified EB-5 investment that meets their goals without raising possible legal entanglements that could disqualify them from earning permanent residency in the United States.

With the surge of interest and participation in the EB-5 Immigrant Investor Program, there has been a similar explosion of regional center investment offerings to keep pace with this growing demand. This offers the immigrant investor more EB-5 investments from which to choose. Since there are many variations in the structure of regional center investments, the possible outcomes and risk exposure differs widely. It is up to the investor to perform their own due diligence to ascertain the worthiness of each investment.

A standard due diligence evaluation of an investment attempts to calculate a realistic rate of return while gauging safety of principal; for regional center investments, the ability of the regional center to create the 10 required jobs needed for each investor is equally important. If a regional center preserves the investor’s capital and delivers an acceptable rate of return but fails in meeting the required job quota, the investment is a failure.

Components of Regional Center Investment Offerings

Like other investment pools, regional centers combine general partners, who bring their experience to the table, with limited partners, who provide financing. Often, in addition to the funds provided by the limited partners, the general partners seek additional financing in the form of conventional loans. The general partners also structure the profit sharing arrangement of the regional center investment.

A seasoned investor will learn to look at these two components in the first stage of analysis. By understanding the debt burden as a ratio of invested funds, the investor can better judge the risk of their investment capital. By fully comprehending the backend profit sharing plan, the investor can better assess the probable return on their capital commitment.

Judging Capital Risks
While judicious use of debt can increase returns on investment through effective leveraging, regional centers that rely too heavily upon debt capital can find themselves at risk of foreclosure or restructuring debts at higher costs. Therefore, a careful study of the debt to capital ratio should be the first step in examining a regional center offering. While some regional center operators will seek to obtain 80% financing, this leaves a thin layer of protection for the investors who represent the remaining 20% of capital.

Since debt financing must be paid back before sharing profits, a small decrease in the value of a heavily leveraged investment will directly and negatively impact the investors while the lenders remain whole. The only way lenders risk a loss is if the investors are completely wiped out and there is still insufficient equity to pay back the loans. Most lenders are careful to ensure there is enough cushion to avoid that financial calamity; however, lenders cannot be concerned about the welfare of the investors.

Therefore, investors are advised to only consider regional centers which limit their debt to 60% or less of the total investment. Unless a complete catastrophe occurs, the chances of the investor losing their principal is greatly reduced. Such a low percentage of debt also serves as a buffer during difficult economic periods when revenues and reserves may temporarily decrease.

Assessing Probable Returns

Although determining debt structure is straightforward, assessing the potential returns entails more guesswork and estimates. There are many variables that can impact the final return for an investor; some variables are better anticipated than others. In all cases, the general partners should provide historical data to support their forecast and clearly explain any discrepancies or unusual projections that deviate from the supporting information.

While general partners cannot control such elements as the state of the economy, current interest rates, or overall appreciation on invested assets, the managers of the fund can structure the profit sharing to ensure that their interests remain subordinate to the priorities of the investors. There are many creative approaches that the general partner can offer, but the investor should expect a preferred return on their investment before the general partner can share in the profits.

Because general partners want to paint a positive picture, they often use favorable assumptions when estimating the use of funds, expected cash flow, and anticipated final sale. It benefits the diligent analyst to counter these glowing predictions by employing a conservative approach and crunching the same numbers. This allows an investor to get a realistic picture of probable returns that may be expected under a worst-case scenario.

Minimizing General Partner Conflicts of Interest

Regional center general partners should properly align their interests with the expectations and needs of the investing partners. Because general partners earn fees for managing the investment fund, they are motivated to operate a long-term project. On the other hand, since investors are seeking the quickest return of their investment, they prefer a shorter holding period for the investment. This creates an immediate conflict of interest that must be satisfactorily addressed by the general partner.

While most investors desire a quick turnaround, sometimes as short as five years, this is not a realistic assumption. Raising funds can sometimes take several years before an EB-5 project can begin in earnest. Also, the managing partners have no control over many factors, including the general economic picture. Investors should anticipate a holding period of at least seven years; ten years is more realistic. Of course, if the regional center investment should be fortunate enough to complete and sell its project in five years, this is a bonus for the sensible investor.

If a regional center is projecting strong results based upon aggressive assumptions and variables, the managing partners should be willing to back those numbers with performance guarantees. For instance, if they are promising a five-year return of principal and will allocate 30% of the profit for themselves (leaving the investors 70%), then they should scale back their profit sharing percentage in the event they do not reach their goal. By reducing their portion of the profits by 5% per year, they are motivated to meet their goal or pay the price for not keeping their word.

Meeting the New Jobs Requirement

EB-5 investors must also factor in the goal of meeting the requirement of generating at least 10 new jobs within the first two years of operation. This element depends upon the performance of the general partner.

An investor should not assume that if their I-526 petition is accepted by the USCIS based upon the anticipated number of jobs to be created, this guarantees that the regional center has met the predicted goal. It is only after form I-829 (which documents the actual number of jobs created) is successfully accepted with documented proof of new employment that permanent residency is granted to the investor and immediate family.
This means that careful attention should be paid to the assumptions and projections used for the job creation component of the EB-5 investment. Due diligence should reveal whether there is valid data backing up the job generation predictions. One should also look to see if conservative projections easily exceed the 10-job minimum each investor needs to achieve for an extra cushion of safety.

Past Performance Results

If the above due diligence steps pass muster, the final investigation should focus on the managers of the regional center. While past performances never guarantee future results, a smart investor will judge the experience and success of the general partners in previous and currently operating projects.

Many investors will once more look to their EB-5 advisors for their endorsement of a regional center investment. Because these professionals have had more exposure and experience working with regional center principals, they are an excellent resource to seek out in this final and crucial stage of the due diligence process.

As any veteran investor understands, due diligence cannot guarantee success, but it goes far in eliminating projects that are riskier than the investor is comfortable with. It also reduces unpleasant surprises that could arise in the future and soften the financial blow of any temporary downturns.