Immigrant Investors (Job Creation EB-5)
The immigrant investor visa option confers permanent resident status on eligible foreign nationals. In order to qualify for immigrant investor classification, a foreign national must invest at least $1 million in a new commercial enterprise that will benefit the U.S. economy and create full-time employment for at least 10 workers.
An exception is provided for those who invest $500,000 in a “targeted employment area”, defined as including rural areas with populations of less than 20,000 or locations that have experienced unemployment at 150% of the national average, as designated by a state government.
Further, the investor must have a policy-making (managerial) role in the enterprise. The EB-5 category requires that the investor be entering the United States to “engage in a new commercial enterprise.” Thus, an investor must have more than a passive role in the new enterprise. The investor may be involved in the day-to-day managerial operations of the entity, or may manage it through policy-making. The regulations provide that this requirement may be met if the EB-5 petitioner is a corporate officer, board member, or a limited partner in a limited partnership; however, it should be noted that there is case law where it was found that the limited partner did not meet the requirements, thus, the case law suggests that there must be engagement in fact.
An approved immigrant visa under the EB-5 category initially provides the investor with a “conditional residence” for a period of two years. An application to remove the conditions must be filed within the 90-day period preceding the second anniversary of the approval of EB-5 permanent residence. The application to remove the conditions must include evidence that the investor has substantially met the capital investment requirements and has continuously maintained this investment during the conditional period. Once the conditions are removed, the investor has completed the process for permanent resident status.
Under the regular program, two or more investors may join together to make an EB-5 investment. In this circumstance, each petitioning investor must have invested (or be in the active process of investing) the required capital, and each investment results in the creation of at least ten full-time positions for qualifying employees. Moreover, the sources of all capital invested must be identified, and all invested capital must have been derived by lawful means.
“New” Enterprise
To qualify for the EB-5 category, the enterprise must be “new” and “commercial”. The “new” enterprise must have been formed after November 29, 1990. An investor may reorganize or restructure an existing business to create a “new commercial enterprise”. There is little guidance regarding how much restructuring or reorganization is required to qualify, however, there has been some case law on this subject in which simply changing the legal form of the enterprise was held to be insufficient. Even with the restructuring and reorganizing of an existing entity, there must be the creation of at least ten new jobs.
It is also possible to qualify through the expansion of an existing business where the expansion results in an increase of at least 40% in either the net worth of the business or in the number of employees of the business.
“Commercial” Enterprise
A “commercial enterprise” includes sole proprietorships, partnerships (limited and general), holding companies joint ventures, corporations, business trusts, or other publicly or privately owned entities. Non-commercial activity does not meet the definition of a “commercial enterprise”. Thus, ownership of a personal residence or the formation of a nonprofit entity would not qualify.
“Capital” at Risk
The investor must have invested or be in the active process of investing capital. Notwithstanding this language of the regulations, the USCIS requires that the entire capital amount be already invested and at risk at the application. Thus, it is not sufficient to contribute capital in exchange for a note, bond, obligation, or other debt arrangement between the investor and the new enterprise. “Capital” includes cash and cash equivalents, equipment, inventory, and other tangible property. Retained earnings are not counted as “capital”. Capital does not include loans; however, indebtedness secured by assets owned by the investor may be considered capital if the investor is personally and primarily liable for the debts, and the enterprise’s assets are not used to secure any of the indebtedness. Nonetheless, what the USCIS will accept with respect to debt arrangements is extremely complicated and one should proceed only after appropriate analysis and with great caution.
Benefit U.S. Economy
The investment must be shown to provide a benefit to the U.S. economy in addition to the requirement that the investment create full-time employment for ten U.S. workers, which includes U.S. citizens, permanent residents, or other immigrants lawfully authorized to be employed in the United States. It may be sufficient to provide a detailed business plan showing creation of the ten jobs during the two-year conditional residence status.
Troubled Business Exception
A final option that does not entail the employment of ten full-time employees is the investment in a troubled business. The troubled business must have been in existence for at least two years, incurred a net loss for accounting purposes during the twelve to twenty-four month period prior to the filing of the EB-5 petition. Additionally, the loss for that period must be worth 20% of the business’s net worth before the loss. With an investment in a troubled business, the investor must show that the number of existing employees will remain at no less than the pre-investment level during the conditional resident period. The risk here is that the troubled business does not continue in operation during the full two years required for the conditional resident status.
$500,000 Regional Center Investment
Although immigrant investor status generally requires at least a $1 million dollar investment, the U.S. Citizenship and Immigration Services (USCIS) has approved immigrant investment visas through approved Regional Centers, which focus on specific geographic areas and the promotion of economic growth, and where a $500,000 investment is being made in a “targeted employment area”. ($1 million is still required if not in a “targeted employment area” but the job creation requirement is relaxed.)
The Regional Center program was started as a pilot program in 1993, was renewed several times, but is presently set to expire on September 30, 2008. This program provides the opportunity to qualify for the EB-5 category without having to directly employ ten or more full-time employees. Thus, it is possible to qualify for the EB-5 immigrant visa under this pilot program if ten or more jobs will be created directly or indirectly as a result of the investment. Indirect job creation may be shown by reasonable methodologies. The investment must meet the requirements both of the geographic and conceptual scope of the regional center. The regulations provide that purpose of the regional center is “for the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment.”
The investor must make the qualifying amount of investment (either the $1 million or the $500,000 in a targeted employment area) as provided under the regular EB-5 program summarized above. Additionally, the requirement that the investor be engaged in the day-to-day managerial control or through policy-making participation still applies. Further, the investment capital must be at risk, and the job-creating business must be located in the geographical limits of the Regional Center.
There are approximately 15 USCIS approved Region Centers.