EB-5 Immigrant Investment

USCIS administers the Immigrant Investor Program, also known as “EB-5,” created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors.  Under a pilot immigration program first enacted in 1992 and regularly reauthorized since, certain EB-5 visas also are set aside for investors in Regional Centers designated by USCIS based on proposals for promoting economic growth.

All EB-5 investors must invest in a new commercial enterprise, which is a commercial enterprise:

• Established after Nov. 29, 1990, or
• Established on or before Nov. 29, 1990, that is:

1. Purchased and the existing business is restructured or reorganized in such a way that a new commercial enterprise results, or
2. Expanded through the investment so that a 40-percent increase in the net worth or number of employees occurs

Commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to:

• A sole proprietorship
• Partnership (whether limited or general)
• Holding company
• Joint venture
• Corporation
• Business trust or other entity, which may be publicly or privately owned

This definition includes a commercial enterprise consisting of a holding company and its wholly owned subsidiaries, if each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business.  It does not include noncommercial activity such as owning and operating a personal residence.

“Engaging” in a New Commercial Enterprise

The statute requires an EB-5 applicant to enter the US to engage in a new commercial enterprise.  To qualify, an investor must maintain more that a purely passive role in the new enterprise upon which the petition based.  The regulations require an EB-5 immigrant to be involved in the management of 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.  The regulations state that if the EB-5 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.  The Administrative Appeals Office, however, has found that merely calling the investor a limited partner pursuant to the ULPA in a partnership agreement does not automatically mean that the person is involved in the management of the new commercial enterprise.

Job Creation Requirements

Regardless of the forms used to create a new enterprise, the focus of the law is on the creation of at least 10 new employment opportunities.  Investments creating a new enterprise but failing to create 10 new jobs will also fail to qualify for EB-5 classification.

• Create or preserve at least 10 full-time jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor’s admission to the United States as a Conditional Permanent Resident.
• Create or preserve either direct or indirect jobs:
  • Direct jobs are actual identifiable jobs for qualified employees located within the commercial enterprise into which the EB-5 investor has directly invested his or her capital.
  • Indirect jobs are the jobs, which have been created collaterally or because of capital invested in a commercial enterprise affiliated with a regional center by an EB-5 investor. A foreign investor may only use the indirect job calculation if affiliated with a regional center.

Note: Investors may only be credited with preserving jobs in a troubled business.

A troubled business is 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.  For purposes of determining whether the troubled business has been in existence for two years, successors in interest to the troubled business will be deemed to have been in existence for the same period as the business they succeeded.

A qualified employee is a U.S. citizen, permanent resident or other immigrant authorized to work in the United States.  The individual may be a conditional resident, an asylee, a refugee, or a person residing in the United States under suspension of deportation.  This definition does not include the immigrant investor; his or her spouse, sons, or daughters; or any foreign national in any nonimmigrant status (such as an H-1B visa holder) or who is not authorized to work in the United States.

Full-time employment means employment of a qualifying employee by the new commercial enterprise in a position that requires a minimum of 35 working hours per week.  In the case of the Immigrant Investor Pilot Program, “full-time employment” also means employment of a qualifying employee in a position that has been created indirectly from investments associated with the Pilot Program.

A job-sharing arrangement whereby two or more qualifying employees share a full-time position will count as full-time employment provided the hourly requirement per week be met.  This definition does not include combinations of part-time positions or full-time equivalents even if, when combined, the positions meet the hourly requirement per week.  The position must be permanent, full-time, and constant.  The two qualified employees sharing the job must be permanent and share the associated benefits normally related to any permanent, full-time position, including payment of both worker’s compensation and unemployment premiums for the position by the employer.

Capital Investment Requirements

Capital means cash, equipment, inventory, other tangible property, cash equivalents and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness.  All capital shall be valued at fair-market value in United States dollars.  Assets acquired, directly or indirectly, by unlawful means (such as criminal activities) shall not be considered capital for the purposes of section 203(b)(5) of the Act.

Note:   Investment capital cannot be borrowed.

Required minimum investments are:

• The minimum qualifying investment in the United States is $1 million.
• Targeted Employment Area (High Unemployment or Rural Area). The minimum qualifying investment either within a high-unemployment area or rural area in the United States is $500,000.

A targeted employment area 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.

“Investing” or actively in the process of Investing “Capital”

The statute requires an EB-5 petitioner to have invested or be in the process of investing.  Although the statute explicitly states that an EB-5 petitioner may be “in the process” of investing the required capital, USCIS effectively requires the entire capital amount committed and immediately available for use in job-creation.

The term “invest” means to contribute capital.  A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the entrepreneur and the new commercial enterprise does not constitute a contribution of capital and will not constitute an investment.

The regulations define “capital” as cash and cash equivalents, equipment, inventory, and other tangible property.  According to USCIS, retained earnings cannot count as “capital.”

Capital does not include loans by the petitioner or other parties.  In some cases, USCIS may view indebtedness as contribution of capital at risk.  The immigrant investor, is considered to be “at risk” if the investor is clearly obligated to make all the required payments on the note and there are no “escape” clauses.  The investor cannot receive any bond, note, or other debt arrangement from the enterprise for the capital contributed to it.  This includes any stock redeemable at the holder’s request.  All capital is valued at the fair market value in the U.S. dollars at the time the investor contributes it to the enterprise.  Debt arrangements are extremely complicated and USCIS often challenges them.  In addition, immigration attorney should advise the foreign investor to consult with investment advisors and regarding the financial aspects of the investment, securities and tax professionals regarding foreign country securities laws and U.S. and foreign taxation reporting. 

The prudent attorney will want to apprise his client in writing of the issues that could arise and should insist their clients sign a retainer agreement containing the following disclosures, confirmations, warnings, and conflict waiver:

Initial Evidence for the Regular EB-5 Program

Investor must submit the following documentation with his petition for EB-5:

The New Commercial Enterprises – To qualify for EB-5 classification an investor must show that he/she invested in a qualified commercial enterprise.

• An organizational document for the new enterprise, including articles of incorporation, certificates of merger and consolidation, or partnership agreement;
• A business license or authorization to transact business in a state or city, if applicable; and
• For investments in an existing business, proof that the required amount of capital was transferred to the business after November 29, 1990, and that, the investment has increased the net worth or number of employees by 40 percent or more.

Capitalization –To show that the petitioner has invested (or is actively in the process of investing) the required amount of capital, the petition must be accompanied by evidence that the petitioner has placed the required amount of capital “at risk.”  A mere intention to invest will not demonstrate that the petitioner is actively in the process of investing.  The investor must show actual commitment of the required amount of capital.  Such evidence may include:

• Bank statements showing deposits in the U.S. account of the enterprise;
• Evidence of assets purchased for use in the enterprise;
• Evidence of property transferred from abroad;
• Evidence of funds invested in the enterprise in the exchange for stock, except for stock redeemable at the holder’s request, or
• Evidence of debts secured by the investor’s assets and for which the investor is personally and primarily liable.

The AAO has held that merely putting cash into the corporate account of a business does not show that the capital is “at risk” for generating a return.  The AAO has also held that the full amount of the required capital must be expended by the enterprise directly toward job creation; otherwise, that capital is not at risk of loss.  Based on these statements, it is difficult to know what a petitioner must do to show that the money is truly at risk.

Legal Acquisition of Capital – The regulations require filing the following types of documentation to establish that capital used in the new enterprise was acquired by legitimate means:

• Foreign business registration records;
• Personal and business tax returns, or other tax returns of any kind filed anywhere in the world within the previous five year;
• Documents identifying any other source of money; or
• Certified copies of all pending governmental civil or criminal actions and proceedings, or any private civil actions involving money judgments against the investor within the past 15 year.

Although the regulations list these requirements in the disjunctive, meaning that submission of any one type of document should suffice, the AAO requires investors to submit tax returns for the previous five years.  This interpretation makes it harder for investors to qualify for EB-5 status, and appears to violate the regulations.

Creating Employment – To show that a new commercial enterprise will create at least 10 full-time positions for qualified employees, the petition must be accompanied by:

• Photocopies of relevant tax records, Form I-9, or similar documents for 10 qualifying employees; or
• A comprehensive business plan showing the need for at least 10 qualifying employees, and the dates of the proposed employment. The plan should include a description of the business and their relative strengths and weaknesses; a comparison of the competition’s products and pricing structures; a description of the target market and prospective customers; a description of any manufacturing or production process, materials required and supply sources; details of any contracts executed; marketing strategy including pricing, advertising and servicing; organizational structure; and sales, cost and income projections and details of the bases therefore. In addition, specifically with respect to employment, the business plan must set forth the company’s personnel experience, staffing requirements, job descriptions for all positions and a timetable for hiring.

Troubled Business – To show that a new enterprise, established through capital investment in a troubled business, meets the statutory requirement, the petition must show that the number of existing employees will be maintained at no less than the pre-investment level for a period of at least two years.  The applicant should include photocopies of the I-9 forms, tax records or payroll documents, and a comprehensive business plan.

Managerial Capacity of the Investor – An EB-5 immigrant must be involved in the management of a new commercial enterprise to qualify for a visa.  The petitioner must either be involved in the day-to-day managerial control of the enterprise, or manage it through policy formulation.  These requirements may be evidenced by:

• A comprehensive job description for the position occupied by the investor. The petitioner’s title should also be indicated;
• Evidence that the petitioner is a corporate officer or on the board of directors; or
• Evidence that the petitioner is involved in direct management activities or policymaking activities of a general or limited partnership. A limited partner must also show that he has rights, powers, and duties commensurate with those normally granted under the Uniform Limited Partnership Act (ULPA).  The AAO, however, has found that merely calling the investor a limited partner pursuant to the ULPA in a partnership agreement does not automatically mean that the person is involved in the management of the new commercial enterprise.

Designation of a high employment area – The state government may designate a particular geographical or political subdivision as an area of high unemployment (at least 150 percent of the national average rate).  Evidence of such designation may be provided with Form I-526.  Such evidence should include:

• Boundaries of the subdivision;
• The date of the designation; and
• The method by which the statistics were gathered.

Creation of employment in a targeted employment area – To show that the new commercial enterprise has created, or will create, employment in a targeted employment area, the petition must be accompanied by:

• For a rural area, evidence that the new commercial enterprise is not located within any standard metropolitan statistical area, or within any city or town having a population of $20,000 or more; or
• For a high unemployment area, evidence that the metropolitan statistical area, or the county in which a city or town with population of $20,000 or more is located, in which the new commercial enterprise is principally doing business has expired an average unemployment rate of 150 percent of the national average rate; or a letter from the state in which certifies that the area has been designed as a high unemployment area.