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Basics of the EB-5 Immigrant Investor Program

E-2 Visas: Alternative to EB-5 Visas

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.

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