Since June 2021, the direct EB-5 investment model has taken center stage in the EB-5 industry. Historically, the regional center EB5 investment model has been more commonly used, but it was deauthorized for several months and will only resume operations in mid-May 2022. The regional center model offers greater flexibility in meeting the job creation criteria set by United States Citizenship and Immigration Services (USCIS), making it the more popular option. While the direct investment model is more stringent, there are many benefits to this model, including the potential for faster access to the investment funds that are essential to EB-5 projects.
What is the Limit on the Number of Investors Who Can Participate in an EB-5 Direct Investment Project?
Direct EB-5 projects can only take on one EB-5 investors; all pooled projects must be sponsored by a regional center. In addition, it is important that the EB-5 investment funds make up only a small portion of the new commercial enterprise (NCE). Projects that are overly dependent on EB5 investment capital are considered less stable and pose risks both to the project itself and to the foreign national hoping to be granted permanent resident status through an EB-5 visa.
Meeting the Job Creation Criteria
As mentioned previously, the regional center EB-5 investment model facilitates the job creation criteria with greater ease. These projects can count any jobs created by the economic impact of the NCE to meet the criteria. This is known as induced and indirect employment. Examples include the NCE purchasing local materials and the employees of the NCE spending their wages at local businesses. Direct investment projects, on the other hand, can only use positions that appear on the NCE’s payroll to meet the job creation criteria. Part-time and contract employees will not count, only full-time employees who receive a W-2.
In addition, the positions created by the NCE must last for at least two years and be filled by persons legally authorized to work in the United States. The only flexibility lies in the fact that the positions do not need to be filled by the same employee for the two-year period. The position must simply be available for that entire time.
How Involved Do Investors Need to Be In Direct EB-5 Projects?
Direct investment projects often require investors to have a more hands-on approach to the day-to-day operations of the project, at least in comparison to the regional center model. The regional center model historically gives investors the role of a limited partner, which makes it attractive to foreign nationals who are not interested in the business aspect of the project. The direct investment model, on the other hand, often gives investors more of a managerial role, which could be appealing to investors who wish to understand the inner workings of their project and have an impactful role on decisions that affect the business. Potential investors would do well to thoroughly examine the scope and terms of each project before committing funds to it. This will ultimately depend on the project’s management structure.
The greatest difference between the regional center model and direct investment model of the EB-5 investment industry is that one offers greater flexibility while the other is more streamlined. The EB-5 visa program has proven to be a safe and reliable pathway to U.S. permanent residency and is a great opportunity for foreign nationals who aspire to build a life for themselves and their immediate family members in the United States.