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Proving the Legality of Loaned EB-5 Investment Capital

Proving the Legality of Loaned EB-5 Investment Capital

Many foreign nationals have come to enjoy the benefits of relocating to the United States through the EB-5 investment program. United States Citizenship and Immigration Services (USCIS), the agency that regulates the EB-5 program, sets out that investors who invest in a new commercial enterprise (NCE) and create at least 10 jobs for U.S. workers are entitled to permanent resident status. Unlike many other visa-by-investment programs, the EB-5 program’s minimum investment amounts are reasonable: as of June 22, 2021, EB-5 investors must invest at least $500,000 for projects in targeted employment areas (TEAs) and $1,000,000 for projects outside TEAs.

Qualifying investors from any country are allowed to make an EB-5 investment, and USCIS allows EB5 investment capital to come from a wide variety of sources. After making their investments, foreign nationals need to submit Form I-526, Immigrant Petition By Alien Investor. This petition must prove that the EB-5 investment was made in compliance with all applicable regulations and that the capital was sourced legally. Proving the legality of EB-5 funds can be challenging; investors must typically gather numerous documents to satisfy USCIS’s high evidentiary standards. In this article, we explain how to prove the legality of loaned funds, which many investors use to finance their EB-5 investments.

Proving the Legality of Loaned Funds

When completing their I-526 petitions, EB-5 investors must trace the invested funds back to their source. Therefore, they must include a loan contract that explains the terms of the loan, including the interest rate and deadline for repayment. This contract must also show which personal assets were used to secure the loan. (Even though the Zhang v. USCIS ruling sets a precedent for using unsecured loans for EB-5 investments, it will always be safer to use a secured loan.) Since USCIS must be able to trace the loaned funds back to their origin, EB-5 investors also need to prove that the personal assets used to secure the loan were sourced legally. For instance, if the personal assets consist of a real estate property purchased using salary payments, Form I-526 must prove that the investor indeed owns the property and that the salary payments were lawful.

Additionally, EB-5 investors must provide a capital source statement showing that the EB-5 investment capital came from a loan. If the investor borrowed funds from an individual rather than from a lending institution, the lender must also provide documentation. USCIS must have proof that the lender sourced the loan lawfully. It may be necessary to include employment records, real estate documents, or other evidence from the lender.

Whenever possible, Form I-526 must include the investor’s personal income tax returns for the preceding five years. If tax returns are unavailable in the investor’s country, a tax professional can provide the needed information and explain why tax returns cannot be procured.

Of course, the documentation needed to prove the legality of loaned EB-5 investment funds will vary greatly in each case, especially if the loan was made by an individual. Investors should keep in mind that gathering the necessary evidence will likely require time and effort. Therefore, an immigration attorney’s guidance during this stage can be invaluable.