EB-5 INVESTOR VISA DIRECT INVESTMENT
EB-5 is the only investment based visa that enables the investor to apply directly for permanent resident status in exchange for a significant investment into the U.S. The EB-5 program is overseen by the United States Citizenship and Immigration Services (“USCIS”) scrutiny. The standard EB-5 program, or “Stand Alone” investment option is the original investment program. A direct investment takes about 2-3 months longer to process the application, but from a businessman’s perspective it is actually a far safer and more profitable option to go with the direct investment option as the chances of losing all or part of the investment is much lower, and the return on investment is a lot higher. Also, it is easier to prove compliance with the USCIS requirements when an investor goes with the direct investment route, especially when the investor goes with franchises of nationally renowned brands.
The requirements for the Stand Alone program are as follows:
1. New Commercial Enterprise. Establishment of a “New Commercial Enterprise (a venture formed after November 29, 1990). The investor himself need not establish the new commercial enterprise; he merely invests the funds into the new commercial enterprise. A “New Commercial Enterprise” can be any of the following:
a. a completely original business;
b. an existing business where the business is simultaneously or subsequently “restructured in such a way that a new commercial enterprise results;
c. expansion of an existing business by 40% of its then current net worth and number of employess; or
d. A troubled business; an enterprise that has been in existence for at least two years and has incurred a net loss during the 12- or 24-month period prior to the priority date on the immigrant investor’s Form I-526. The loss for this period must be at least 20 percent of the troubled business’ net worth prior to the loss.
2. Business Structure. The business can take on a variety of legal structures, including sole proprietorship, partnership (whether limited or general), holding company (and subsidiaries), corporation, joint venture, business trust. The business can be publicly traded or privately owned.
3. For Profit Business. The business must be a For Profit enterprise, not a not-for-profit or charitable organization. Note, this definition does not include non-commercial activity such as owning and operating a personal residence.
4. Investment. The minimum qualifying investment for EB-5 is $1 Million. The minimum qualifying investment within a “Targeted Employment Area” or “TEA,” is $500,000.” Note, the reinvestment of a commercial enterprise’s revenues cannot be considered part of a qualifying investment. USCIS requires that the funds be “At Risk” at the time of investment and throughout the 2 year qualifying period when permanent residency status will then be adjudicated; therefore, any redemption, repayment or use of revenue will disqualify the investor for permanent status. Note that any return on investment whether guaranteed or not may not be made to an investor from EB-5 capital investment funds during the period of conditional permanent residence.
5. Escrow. The EB-5 Visa applicant’s capital investment must be truly at risk and not simply a loan.
There can be no guarantees on an EB-5 Visa Investment, the investment must be ‘at-risk’ as per federal guidelines. There can be no mention of redemption rights or guarantees. The entire capital must be at risk and therefore reserve accounts are also not allowed. The investor has to make sure that no distributions are taken from the investor’s capital account. Profit distributions can be taken, but not distributions that diminish the investor’s capital investment, which would prompt USCIS to conclude that investment was not sustained. Use of escrow agreements for purposes of the initial funding are permissible if the terms of the escrow agreement comports with 8 CFR 204.6(j)(2), which requires that the I-526 petition must be accompanied by evidence that the required amount of capital has been placed at risk. In essence, the escrow typically has a single condition, that the funds are released immediately upon approval of the I-526.
6. Targeted Employment Area. A Targeted Employment Area (“TEA”) is an area that, at the time of investment, is a rural area or an area experiencing unemployment of at least 150 percent of the national average rate. A rural area is any area outside a metropolitan statistical area (as designated by the Office of Management and Budget) or outside the boundary of any city or town having a population of 20,000 or more according to the decennial census. The investor’s Form I-526 petition must show that the area in which the capital investment has been made qualifies as a “rural” area or an area of “high unemployment as of the date of filing of the Form I-526 petition or the date of the capital investment, whichever occurs first. Moreover, two avenues by which someone can establish an area as a TEA are by providing the statistical documentation directly to USCIS (Economist’s Report) or by obtaining a TEA determination from the state in the area in which the investment is going to be made. In every case, the TEA determination is made as part of an I-526 petition adjudication. The two evidentiary avenues to demonstrate that an area qualifies as a TEA in I-526 petitions is described allows an investor to (1) directly provide evidence of TEA eligibility or (2) seek assistance from the state government in providing the required evidence. Generally, evidence is provided in the form of a letter from a State-designated official that meets the requirements of 8 CFR 204.6(i).
7. Business Participation. The investor must actively participate in the Enterprise. Actively participate means playing more than a purely passive role in the new commercial enterprise. The petitioner must either be involved in the day-to-day managerial control of the commercial enterprise or manage it through policy formulation. If the petitioner is a corporate officer or board member, or, in the case of a limited partnership, is a limited partner under the provisions of the Uniform Limited Partnership Act (ULPA), he or she satisfies the requirement of engaging in the management of the new commercial enterprise.
8. Ownership. Any percentage ownership will do, as long as other requirements are met. This means an EB-5 investor in a direct EB-5 case may have U.S. partners, shareholders, members, etc. There is no set standard for percentage of ownership. For example, the investor can own and operate a U.S. business as a 10% owner, along with a U.S. citizen who owns the remaining 90% interest in the business. Other investors or even another alien investor can have ownership in the business as well. EB-5 investors can pool their investment into the enterprise, as long as the job creation requirements are satisfied. Where multiple investors are involved, voting power should suffice on policy issues should satisfy the standard for involvement in the business.
9. Pooling. Multiple Eb-5 investors can combine their money to invest in an enterprise. All investors must infuse the required amount into an enterprise and create at least 10 jobs. All jobs created by a pooling arrangement will be distributed evenly among investors. For example, if there are 3 investors and only 21 jobs are created, this does not mean that 2 of the investors created 10 jobs each and the third investor only created one job. It means that all three investors created 7 jobs a piece.
10. Job Creation. Every EB-5 investor must create at least 10 jobs as a result of his or her capital investment. A petitioner who acquires a pre-existing business must show that the investment has created, or at least has a reasonable prospect of creating, 10 full-time positions, in addition to those existing before acquisition. The petitioner must, therefore, present evidence concerning the pre- acquisition level of employment. Simply maintaining the pre-acquisition level of employment is not sufficient, unless the petitioner shows that the pre-existing business qualifies as a “troubled business.” The “troubled business” concept relates to the crediting of job creation through the preservation of jobs in an existing business that has incurred substantial net losses. “Full-time job” means employing a qualified employee in a position that requires a minimum of 35 working hours per week. Job-sharing arrangements, where two or more qualifying employees share a full-time position, will also serve as full-time employment if the hourly requirement per week is met. However, job-sharing does not include combinations of part-time positions even if when combined such positions meet the hourly requirement per week. This means you cannot just combine two part-time waitress positions and say you created one full-time position. Note that at I-526 stage, you just have to persuade that the requisite jobs will be created, not already have been created; but of course, at I-829 stage, you have to show that the requisite jobs. Finally, the investor would have to develop the business carefully in a way that remains in accord with the business activity that was approved by USCIS at the I-526 petition stage.
11. The Application. What is the I-526 petition? It is an immigrant petition submitted by Investor to USCIS evidencing that the all requirements of I-526 are met, specifically that 1) the investment fund has been lawfully obtained; 2) Conditions set forth in the business plan have been complied with; and 3) the particular EB-5 project should create the minimum number of jobs required, as well as information about the applicant’s income and net worth and documents proving the lawful source requirements. The most challenging aspect of the application is that the prospective investor must provide detailed evidence that they have already made or are in the process of making an investment in a qualifying U.S. business. Bank statements, asset verification, funds transfers, stock certificates, and other financial transactions must be submitted in order to gain approval. Evidence that the intended business will generate a minimum of 10 full time positions for U.S. citizens is also required. Suitable evidence may include I-9 forms, a detailed business plan, and credible operational projections. The comprehensive business plan must be included and should contain, at a minimum, a description of the business, its products and/or services, its objectives, financial projections, job creation analysis, and marketing plans. Key to the business plan is determining whether the capital investment has been made, that the proposed capital investment project is feasible, and that the requisite number of jobs have or can reasonably be expected to be created at the time of the Form I-829 petition stage. One of the primary reasons investors encounter challenges at the I-829 stage is due to the variances between the business plan that was approved at the I-526 stage and the actual capital investment and job creating activities that are documented in the Form I-829 petition. Deviations from the business plan in an approved Form I-526 petition are material to the adjudication of Form I-829 when the evidence demonstrating compliance with the capital investment and/or job creation requirements is significantly different than what was proposed in the approved Form I-526 petition.
12. Approval Action. Assuming I-526 petition has been approved, Investor and dependent family members need to take either “consular processing” at the American Embassy located in the country of residence, or file I-485 adjustment application for conditional green cards. The choice depends on several factors, and the more one thinks about the pros and cons of each type of procedure, the more complex it becomes.
13. Consulate Interview/Consular Processing. Consular processing is the procedure that Investor and dependents must go through if they wish to obtain a visa at the American Embassy located in the country of their residence. It involves paying Visa Fees and sending Immigrant Visa Applications and supporting documents to the National Visa Center (NVC), a division of Department of State. This procedure is required to ensure that the investor and their family members undergo medical exams, police, security and immigration history checks before the Conditional Permanent Resident Visa is issued. During the interview process the Consulate will address these issues, request that the investor provide a summary of what the nature of their investment is and discuss the information included in the I-526 application.
14. I-485 Processing. If the investor, their spouse and family are already based in the United States, an Adjustment of Status may be applied for by filing form I-485 with the appropriate USCIS office. I-485 adjustment processing is the procedure Investor and dependents have to resort to when there is a very good reason why the consular processing is not the first option. The I-485 may take longer than the consular processing. No interview customarily is required.
15. Source of Funds. This is often a very big hurdle for many potential EB-5 Investors to overcome and prove that the money or funds which are being used for the EB-5 investment have come from a legal and traceable source. The regulations set forth by the USCIS require that the foreign investor verify that the investment assets were gained in a lawful manner. This means that the investor must prove the funds were obtained from a business, salary, investment, property sales, monetary gift, inheritance, loan, proceeds from a sale of real estate or other assets, earnings from stocks or other investments, inheritance, gift and be legally traceable. The documentation to substantiate the source of funds includes tax returns, bank statements, salary statements, business licenses, and court records. Related to, but separate from, the lawful source of funds requirement is the requirement to trace the funds from the individual investor to the new commercial enterprise. In some cases, this is as simple as a wire transfer document from an individual’s bank account to the investment enterprise. In other cases involving countries with restrictions on outbound currency transfers, this can be extremely complex, often involving transfers to multiple parties. It is important to note that the investment must come from the individual investor. An investment from a business entity, including a wholly-owned corporate entity, will not qualify.
16. Residence. Upon receipt of the visa from the U.S. Consulate or Embassy in the country the investor resides, the investor has 180 days to enter the United States to establish residency. Proof of establishing residency is done through obtaining a driver’s license, social security number, opening a bank account, paying federal or state income taxes or renting/buying a home. The Investor may reside anywhere in the United States. Once residency is established the investor may work overseas if it is required due to the nature of their business or profession, but all permanent residents must remain in the U.S. for more than 6 months each year and unless the USCIS is informed in advance of an extended absence the U.S. government will consider them to have abandoned their permanent resident status. Legal permanent residents are subject to important restrictions when it comes to “Abandonment of residency” rules. Investors are permitted to travel abroad as long the trip is temporary and it is advised that a re-entry permit be obtained before departure. The conditional Green Card allows the visa holder and his or her immediate family to live in the U.S. for up to two years. Before the end of the two-year period, the visa holder must file Form I-829 to have the “conditional permanent resident” status changed to “lawful permanent resident” status. By becoming a lawful permanent resident, the visa holder is allowed to reside in the U.S. indefinitely. Establishing the residence should be done with the understanding that at any time the investor changes residence (address) within the U.S., such information must be reported to USCIS.
17. Green Card Status. Green Card holders are allowed to live, work, and retire permanently anywhere in the U.S. Other benefits of a Green Card, include: (1) Eligible to apply for U.S. citizenship five years after receiving the conditional Green Card; (2) Travel to and work in other countries as long as a residence is maintained in the U.S.; (3) Sponsor relatives for Green Cards applications; (4) apply for federal financial aid for education and pay reduced “in-state” tuition at public universities; and (5) no need to get additional permission from U.S. Citizenship and Immigration Services to work or start a company.
18. Time Period. It generally takes USCIS from two to six months to review a Form I-526 application. If the application is approved, the applicant will receive a conditional Green Card within six to eight months after approval of the I-485 or DS-230 application. These times can varying depending on the applicant’s home country and the current backlog with USCIS. All EB-5 cases are adjudicated at the California Service Center. Upon approval of the permanent resident application, the investor receives “conditional permanent resident status”. This means that the “green card” that the investor receives is valid for two years. During the 21 to 24 month window after approval, the investor must file an application to remove conditions on residence. As part of this process, the investor must prove that the investment funds have not been withdrawn and that the requisite jobs have been created or will be created within a “reasonable time.” “Adjustment of Status” is also known as the filing of the form I-485.
19. Employment. Unless the Applicant has been admitted to the United States with a Non-Immigrant status that grants him/her the authorization to work and this authorization does not expire before the Adjustment of Status is granted, then the applicant must obtain the necessary authorization to work. Authorization for employment typically takes 60-90 days and processing times could be longer if background checks on the applicant are required. Employment without authorization at any time in the U.S. is a violation of immigration status and may jeopardize the right to adjust status.