The EB-5 program has many benefits for its stakeholders. Foreign nationals can use it as a pathway to U.S. permanent residency for themselves and their immediate family members, project developers in the U.S. can use it as a reliable source of capital, and the U.S. economy benefits from the billions of dollars that can be used to alleviate unemployment. However, the regulations of the EB5 investment program, which is overseen by United States Citizenship and Immigration Services (USCIS) can be overwhelming to those who are unfamiliar with the industry. One of the key aspects of the program is the requirement of each EB-5 project to create at least 10 jobs per investor which, at first glance, can seem like a daunting task.
In working towards complying with EB-5 investment regulations, business leaders should keep in mind that the industry offers two different types of investment models: direct investment projects and regional-center sponsored projects. Investors have the freedom to select the model that best suits them. If they choose the direct EB-5 investment offering, there are certain guidelines to consider.
1. Contrasts Between the Two EB-5 Investment Models
The EB-5 regional center program was created in 1992. In this model, foreign nationals make a minimum investment of $800,000—recently increased with the passing of the EB-5 Reform and Integrity Act of 2022—in a USCIS-approved regional center. Regional center projects are able to count indirect and induced jobs—those that are created as a result of the new commercial enterprise’s (NCE’s) economic impact—towards meeting the job creation requirement. The only caveat is that these jobs can only count for 90% of the requirement, meaning that at least one direct, W-2 position needs to be created to fully comply with USCIS regulations.
The greatest difference between the direct EB-5 investment model and the regional-center sponsored model is that direct EB-5 projects can only use direct, W-2 positions to fulfill the job creation criteria. This means that all of the jobs created by the project have to be full-time positions, so any indirect or induced employment—such as independent contractors and part-time employees—do not count towards complying with the regulation. In addition, they are smaller in scope than regional center projects and, where regional centers can have multiple investors, direct EB5 projects are limited to one.
2. Retaining Documentation on EB-5 Direct Jobs
In order for the jobs created by a direct EB5 investment project to count towards meeting USCIS regulations, direct investment projects must maintain thorough records of the employment process. No detail is too insignificant as these businesses must prove that the investment project created the minimum of 10 jobs, and that each of those jobs was available for two consecutive years. In addition, the jobs created by the direct EB5 investment project must be full-time positions, though they do not have to be filled by the same person for the entire two-year period. Examples of hiring documentation include, but are not limited to, salary statements, timesheets, Form W-4 and, most importantly, Form W-2.
Direct EB-5 investment project developers must also be careful to hire employees that meet the standards set forth by USCIS. The agency requires that EB-5 positions be filled by individuals who are legally authorized to work in the United States, such as permanent residents and U.S. citizens. This adds a layer of complexity to the hiring process, as employers are prohibited from requesting certain immigration information and Form I-9, Employment Eligibility Verification, doesn’t prove a person’s authorization for work. With this in mind, it may be best for direct EB-5 businesses to hire U.S. citizens and permanent residents.
3. Considerations for a Direct EB-5 Offering
When evaluating a possible direct EB-5 investment opportunity, foreign nationals should keep in mind the potential it has to comply with USCIS regulations. The EB-5 visa process has been known to be quite lengthy, and ensuring a project’s ability to meet USCIS standards will decrease the likelihood of running into any issues. In turn, that will increase the efficiency of the investor’s pathway to U.S. permanent residency and the project’s overall success.
One of the things to look for with regards to compliance is the potential for job creation, as this is a key aspect of the EB-5 visa program. Businesses that are able to create more than the minimum of 10 jobs will likely be more attractive to investors than others. In addition, investors should also consider the business developer’s track record. Those that have a history of high I-526 approval rates have a greater likelihood of being able to raise the appropriate amount of capital, which is another important aspect of a direct EB5 investment project. Demonstrating financial stability will be crucial in determining the potential success of the business in its market.
A solid business plan is the best way to demonstrate an EB-5 project’s financial stability. The plan should include market data, an analysis of the potential economic impact, and a description of the jobs it will create. One thing to look out for is how much the business is dependent upon the EB-5 investment capital. An overdependence on EB-5 investment capital is a sign that a business may not be financially stable enough to succeed and may put the approval of an I-526 petition at risk. Almost any for-profit entity has the potential to qualify for EB-5 funding, and many of these businesses are in the restaurant, retail, hospitality or wholesale industries.
The process for creating a direct EB-5 project that meets USCIS regulations is a lengthy and often complex one. However, many industry stakeholders have been able to overcome the challenges that come with the process and, with the help of expert consultants and immigration attorneys, now have the advantage of direct EB-5 funding at below-market rates.