Articles Posted in EB-5

On October 1, the Fifth Employment-Based preference (EB-5) Regional Center program was extended to Dec. 11 in order to give Congress more time to draft a long-term resolution. The program helps provide a crucial boost of foreign capital through investments from foreign nationals looking to attain Green Card/Permanent resident status through the program.

The EB-5 program impacts local economy as well as the national economy. A base investment of $500,000 would create at least ten jobs, since that is the requirement for a foreign investor looking to acquire permanent resident status. These investments often occur in industries in Targeted Employment Areas (TEA’s), creating jobs and generating capital in areas that sorely need them. The direct effects of an EB-5 investment also include contributions to the Gross Domestic Product (GDP) and State, Local, and Federal taxes. Along with the inevitable job increases, the EB-5 program also helps stimulate the economy through household expenditures, as the investors themselves will contribute to the economy through every-day household needs (automobiles, moving, travel etc.). Given the state of the U.S. economy, the influx of money from foreign investors would improve the job market and overall cash-flow in foreign and domestic areas.
If, by Dec. 11, Congress decides to increase the visa limit to the desired 20,000/year, the program would be able to support over 100,000 jobs for Americans and generate billions of dollars to the U.S. GDP. Those numbers are almost 1/3 of that as the visa limit currently stands. In order to prove that their investment has generated and supported 10 full-time jobs, the investor must fill out a form I-829. Once approved, immigration restrictions are lifted. Given the desire for the EB-5 investor to become a full-time U.S. citizen, it is clear that jobs are almost always guaranteed to be created through the EB-5 regional center program.

During the 2013 fiscal year alone, spending associated with EB-5 Regional Center investors contributed $3.58 billion to U.S. GDP and supported over 41,000 U.S. jobs. Their spending contributed over $750,000 to federal and local government tax revenues. The EB-5 provides jobs for all sorts of industries, including hospitals, construction, legal services, wholesale trade, real-estate, restaurants and transportation. Although most of the investors gravitate to the larger states and cities, as do most people, investors target all TEA’s where investments are needed to help stimulate the economy.

In a time in our country where it has become increasingly difficult to secure and use traditional sources of financing for development projects, such as traditional construction loans, developer equity and tax credits, EB-5 investments have become an increasingly useable and important source of finances. Those on an EB-5 visa have a great incentive for their investment to be successful, as they came to the U.S. searching for the best way for them to obtain a permanent residency visa. In order to do that, they must create jobs. EB-5 investors handle all kinds of investor-driven projects on every scale.
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The current EB-5 Regional Center program was extended to Dec. 11 as Congress attempts to draft a long-term resolution in the coming two months. In the mean-time, those looking to invest in American industry should take advantage of this extension before changes are made to the EB-5 program as the minimum investment will more than likely increase to $800,000 or more.
Clearly, Congress recognized the importance of foreign investments that create jobs for hard-working Americans. Foreign capital is a key part to the American economy, and Congress will look to spend the next two months finding a proper solution that all parties involved can be happy with the would-be revised legislation. The extension of the program was greatly in doubt as the Oct. 1 deadline initially approached.
Transparency appears to be an important goal for Congress. In the American Job Creation and Investment Promotion Reform of 2015 Act, which was introduced in June by Senators Chuck Grassley and Patrick Leahy, the Regional Center Program would continue for five more years while adding transparency and security to the program.
Meanwhile, Senator Rand Paul is attempting to make the program permanent, as he introduced the ‘Invest In Our Communities Act’ on Oct. 1. Paul looks to raise cap of 10,000 total visas and make it so that regulators would no longer count dependents (spouses and children) as a part of the cap, making it all investors. This would effectively increase capital and jobs for skilled American workers around the country, if passed. Paul is clearly one of the programs greatest advocates.
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As the Sept. 30 deadline for Congress to renew the fifth employment-based preference (EB-5) investment program approaches, questions arise as to whether or not the act will expire or if a short-term extension will be established. Though nothing is set in stone to-date, it seems likely that if the immigrant visa program continues to exist beyond Sept. 30, changes will be made to the legislation.
One change that appears to be as likely as any is an increase in cost of investment for those who look to gain permanent residency through the program. Since 1990, an immigrant investor had to pay $500,000 to invest in a company in a Targeted Employment Area (TEA). Patrick Hogan, President at California Military Bases (CMB) Regional Centers, said the “most common amount” being discussed among congressmen is an increase to $800,000.
Along with a potential cost increase, Hogan believes the cap of 10,000 authorized investor visas will not be increased. Regulators not only count investors as a part of the cap, but also dependents of the investors, making the actual number of investors lower than the cap may suggest.
“There are a host of other proposed changes being bantered about,” Hogan said. “It is clear Congress will not amend language such that only EB-5 investors are counted towards the 10,000 visa cap.”
Although the EB-5 program only needs to the investor to create 10 jobs per investment, it has generated much more than that since the Immigration Act of 1990. In a 2013 article Washington Post Senior Correspondent Kevin Sullivan wrote that $6.8 billion were invested and over 50,000 jobs were created from 1992-2013 through the program. Sullivan also wrote that the EB-5 program is “booming in popularity,” but also that the program has its opponent:
“…others argue that the EB-5 program amounts to buying citizenship, and that it unfairly allows wealthy foreigners to cut the visa line ahead of others who have waited for years.”
Even with that opposing viewpoint, the loss of the EB-5 program will cost the United States thousands of potential jobs and billions of foreign investment dollars. Along with that, the jobs that are created through the EB-5 program come at no cost to American taxpayers, which is not the case for jobs created by projects through national and local government. Given the state of the U.S. economy, an influx of money from foreign investors could improve the job market and overall cash-flow in foreign and domestic areas.
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no-entry-sign-2-657632-m.jpgStarting May 2015, EB-5 availability will be restricted for Chinese applicants. I-526 petitioners/applicants that receive approval from then on will have to indefinitely postpone their plans to enter the United States (unless, of course, they are able to get some other visa). In this sense, the introduction of a cutoff date is no different for EB-5 than it is for EB-2 or 3. However, further analysis indicates that the difference is significant. Priority date cutoffs result in a fundamental change in the EB-5 program.

On the I-526 petition (which begins the process) immigrant investors must submit a credible business plan along with evidence that the required investment is being made and will be at financial risk. In normal circumstances, once this petition is approved, the immigrant is given a two year period of conditional residence to (help or fully) manage the investment and fulfill economic requirements, which involve the saving or creation of at least ten jobs. After the two years have transpired, an I-829 petition must be used to prove that those requirements were met. The immigrant investor must essentially show that the plans set forth on the I-526 petition were carried out. Approval here translates to unconditional permanent residence. Crucially, it must also be shown that the immigrant never liquidated the investment.

Though EB-5 conditional residence visas are comparable to nonimmigrant investor visas, their distribution is subject to the same annual caps as unconditional green cards. This is where difficulty becomes apparent. In order for a Chinese national to receive I-526 approval for a direct filing (non-regional center), he or she must present a business plan with the strong potential to lead to the employment of at least ten U.S. workers over the next two years. Accompanied must be evidence that he or she will be able to maximize the plan’s chance of success. It would thus be apparent that non-regional center EB-5 among Chinese nationals necessitates something that cannot obtain: that their U.S. residence would start immediately following the approval of their I-526 petitions. This issue, while perhaps affecting less than half of Chinese EB-5 filers, appears fatal to their ultimate success.

maize.jpgIn this article we discuss the effect that USCIS regulations have on immigrant investors whose operations may need a course correction in order to fulfill the requirements of the EB-5 program–and how best to proceed in light of them. In another article, we detail the difficulty in the program that makes this an issue, and USCIS’s reaction to it. The agency has issued guidance that is at best insufficient and dangerous at worst. The potential issues and inadequate government response to them necessitates independent analysis.

An example may prove illustrative: a typical EB-5 investor is running a restaurant. Over a year into the conditional residence period, the business isn’t doing very well. A local university has opened a branch campus nearby, drawing in a few major restaurant chains. Students and original customers alike are flocking to these other restaurants. However, no new coffee-houses, where students spend a great deal of time and money, have appeared yet. In this case, converting the restaurant into a coffee-house would seem like the best bet. However, the I-526 business plan specifically envisioned a sit-down restaurant with tipped waiters.

Assuming the investor wishes to avoid the negative consequences of filing a new I-526 (detailed in the other article), the options are few. The most obvious one is to simply record the changes in the I-829 petition to remove residence conditions. However, this will intrigue a USCIS officer and invite serious scrutiny. Even if the evidence of job creation is rock-solid, this could lead to a denial. (Of course, failure to record such changes is even riskier.) The position apparently taken here by the government is “if there were changes, they had better have been worth it, though we reserve the right to deny.” This seems unfair–and in fact is not necessitated by law. It is due only to an interpretation of USCIS regulation, which is often much stricter than statute.

maze.pngStarting a business can be difficult. Sometimes an initial investment and a dream aren’t enough to create permanent jobs (or even profits for the entrepreneur); success is often the result of trial and error. However, in the case of EB-5 investing, the potential for changes in business plan add an extra dimension of difficulty. The issue originates in filing procedure. A business plan must be submitted as part of the petition to start the process, before the immigrant begins conditional residence. USCIS will then expect that the business plan included in the original petition is followed in order to fulfill the job creation requirement to receive unconditional permanent residence.

The expected timeline for an EB-5 investor (that doesn’t use a regional center) appears straightforward. A business plan must be drafted and $1,000,000 (or $500,000 for Target Employment Areas) must be secured. The investor then files the I-526 petition with this information, its approval implying that USCIS thinks the plan is feasible. Once this happens, the immigrant undergoes the normal process for obtaining a green card, though the one received at this stage is only good for two years. During those years, he or she must follow the approved business plan and create at least ten full time W-2 positions. If this has happened by the end of two years, the immigrant investor will receive approval on the I-829 petition to remove conditions on residence.

While many investors have been able to do this, in part thanks to competent legal counsel, the expectation seems somewhat unrealistic. It rests on the apparent assertion that it is possible to successfully predict two years’ worth of economic activity (with no chance to course-correct as needed). USCIS holds that in order for the investor to stay eligible for successful immigration, there cannot be any “material changes” made to the approved business plan. (The term “material changes” lacks specific definition; unfortunately giving USCIS the ability to decide what it means on a case-by-case basis.) This makes things much harder for immigrant investors. Of course, one will be in good shape if the business plan can be followed lucratively enough to sustain 10 permanent jobs. Short of abandoning the project, however, this leaves someone whose EB-5 business is in need of improvements to the original plan with two options: either report the deviations in the petition to remove conditions–or don’t. USCIS has implied that both of these increase the chance of denial.

buildingsite-1132003-m.jpgEB-5 is an immigration option for those with the resources to invest in U.S. job creation. It allows an immigrant to be eligible for permanent residence if he or she invests at least $1,000,000 in the U.S.–and with it creates at least ten jobs. (The monetary requirement is half if the investment is made in a designated “Target Employment Area,” which is either rural or suffering from an unemployment rate at least 50% higher than the national average.) There are two ways to do this: by going it alone with individual or “Direct” investment, or by using a Regional Center. We have said before that those who wish to immigrate in order to invest should use direct investment, while those who want to invest in order to immigrate should consider using a Regional Center. Both sides have their advantages, but the Regional Center option is viewed as a safer bet–with greater support from others–than the alternative.

A Regional Center is a government approved economic entity that takes in foreign investment and outputs domestic job creation. In contrast with EB-5 Direct, Regional Center immigrant investors do not need to be more than minimally involved in managing the investment. Most Centers boast several apparently effective schemes for protecting and returning investor money, each with varying levels of risk/potential reward. However, it is not possible for an immigrant investor to avoid risk altogether. (The government requires that the money be at risk for green card eligibility.)

Another key attraction of the Regional Center program, as opposed to EB-5 Direct, is its more inclusive definition of job creation. Under EB-5 Direct, all ten required jobs must manifest themselves as actual employees of the company or enterprise being invested in by the immigrant. These are called direct jobs. However, for Regional Center investors, “indirect” jobs may also be counted.

que.jpgEB-5 is an option for employment based immigration to the United States. To gain permanent residence by it, immigrant investors must invest in U.S. economic development and save or create at least 10 jobs. Within it, there are two sub-options. An immigrant may (1) use a regional center or (2) undergo “direct” EB-5. When using a regional center, the process is more stable, but the immigrant has less control over the investment. Conversely, when using EB-5 Direct, the immigrant has more control, but the process is less clear-cut. In fact, it involves several legal grey areas and potential immigration pitfalls. However, EB-5 direct investors have an advantage: a greater apparent capacity to profit from their investment. The option is thus, perhaps rightfully, seen as high-risk-high-reward. In order to illuminate some concerns our law firm has with the process, we have compiled this list of things EB-5 direct investors should take into consideration before committing to investment.

1. When an immigrant is acquiring a company for direct EB-5, there are cases in which the business will need to grow by at least 40% in either employees or net worth for the immigrant to be eligible for permanent residence. This seems clear enough until one attempts to actually calculate the company’s growth. The present total amount of employees and net worth can be easily calculable (the former more so than the latter). However, in order to show a change over time, one needs two points of time. It is obvious that the present is one of those times, but the other is guesswork. There are several potential options, including past tax returns and quarterly reports.

2. It is possible for immigrant investors to pool the investment with each other (if each immigrant invests at least the minimum amount and saves or creates ten jobs). It is also possible for non-immigrant foreign investors to be involved in this as well, so long as their invested funds are shown to have been lawfully acquired. However, it has not been officially specified what evidence the USCIS is looking for in this regard.

country-town-series-1-69122-m.jpgThe EB-5 visa category is an immigration option for those who can afford to invest at least $1,000,000 in job creation or entrepreneurship in the U.S. (The investment requirement is half as much if it is to be made in a designated “Target Employment Area,” which is either rural or suffering from an unemployment rate at least 1.5 times the national average.) There are two routes to accomplishing this: directly, or through a Regional Center. A simple way of differentiating them is that Regional Centers are for those who want to invest in order to immigrate, while the direct option is for people who want to immigrate in order to invest. EB-5 Direct is the method one uses when the investment is geared toward buying a business, and it allows more personal control over one’s investment, giving the immigrant the chance to maximize his or her profit from the venture. However, without the guidance of a Regional Center, the process can be complex and difficult to navigate. Due to some unpredictable USCIS methods of evaluating EB-5 Direct cases, there are many ways an immigrant can err and potentially delay or lose their chance at the unconditional permanent residence that follows a successful EB-5 investment. This is an area where the right immigration council and make a huge impact in the client’s favor.

For all forms of EB-5, in order to obtain unconditional permanent residence, an immigrant investor is given a two year period in the country (with up to an additional year in many cases) to show that their investment led to the creation or preservation of at least 10 jobs. One needs to only show the “preservation” of jobs if the company being bought is a “troubled business.” (Out of its at least two years of existence, to be classified as “troubled,” a business must have had at least a 20% net loss over the one year or two year period prior to the investor’s I-526 priority date.) Things are difficult on the onset, as the immigrant investor must be able to know how the USCIS will view the acquisition of business assets. In most cases, unless the investor is purchasing a troubled business, he or she should try to avoid becoming a successor in interest of the company selling the assets.

Becoming a successor in interest means obtaining a company’s tax liabilities (among other things). A buyer of all or “substantially all” goods of a business can be considered a successor in interest of that business. While the owner and the name of the business can change, the immigrant buyer can be viewed by USCIS as only continuing the prior business. In such a situation, proving that the immigrant investor is the source of any new jobs becomes more difficult. There have been cases where immigrant investors put the necessary amount of money at risk in starting a business and hiring at least 10 employees, only for USCIS to say that there was inadequate evidence of the employment criterion being met. It appeared that the USCIS suspected that the new employees of the immigrant investor were either carryovers from the prior business or just their replacements. In this sort of case, the net creation of opportunity for U.S. workers is not evident.

noinvest.PNGLate in the previous fiscal year, something happened for the first time: the EB-5 investor immigrant visa category’s quota of 10,000 annually was reached. Once the visas allocated to this visa category run out, (which is what happens when the quota is reached) annual per-country limits are designed to come into effect. This outcome has not been properly planned for and would have serious consequences for the many local economies that benefit from international investment. Luckily, the quota was reached at the very end of the fiscal year, after the State Department (DOS) released its official monthly visa bulletin saying that the visas would be available until the very end of the year based on its calculations. With its hands somewhat tied, DOS decided to act as if though it had more visas to give out by borrowing some from the following fiscal year’s supply.

Because of this, DOS has not yet instituted the per country limits. However, the problem has nowhere near resolved itself. In fact, this is evidence that the clock has almost run out on EB-5 investment immigrants from (The People’s Republic of) China. This is because almost 80% of the people who receive visas under the EB-5 category are from China. In order to prevent an oversubscription of visas, there will most likely soon be a priority date cut-off introduced for Chinese immigrants, but likely not for anywhere else (though this may happen too). (This translates to an introduction of a “waiting period” for the visa to Chinese immigrants.)

The EB-5 category is for those wishing to move to the United States to invest. The process is slightly different than usual employment based immigration. In most cases, the immigrant must invest $1,000,000 dollars in U.S. enterprise and create or save at least ten jobs. (The immigrant may only have to invest $500,000 if they are doing so in a high-unemployment area.) Comprehensive business plans and proof of irrevocable investment and risk must be prepared before petition submittal. For immigrants wishing to move to the U.S. to work (and not to invest), they must prove to the U.S. Department of Labor that they are not displacing American workers by either lowering the average wages or taking a job that one of them is seeking. In the case of investors, they must show that they are helping American workers by improving the job market with their investment.