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Standard EB-5 vs. Regional Center EB-5

I would prefer to qualify for the EB-5 green card through investing in and operating my own business under the EB-5 program. How would that differ from investing under an EB-5 Regional Center?

There are several key differences between the regional center version of the EB-5 program (officially known as the Immigrant Investor Pilot Program) and the standard EB-5 program.

Difference 1: Job Creation

The basic requirements

Under the standard EB-5 program, the investor must create 10 new, full-time jobs for U.S. workers (must be U.S. citizens or legal permanent residents) directly employed by the new commercial enterprise in which the investor invests. USCIS does not require that all the jobs be in place before filing the I-526 petition, since it is possible to prove, based on a business plan with projections, how many jobs will be created during the two-year period of conditional residence. However, USCIS can doubt the projections, and therefore it is best to have as many jobs as possible already created.

Alternatively, under the standard EB-5 program, the investor can acquire an existing, failing business with 10 or more full-time employees, that is, a business that has lost 20% of its net worth during the previous 12-24 months. Under this scenario, if the investor maintains the same number of employees as the business had prior to the investor’s investment in the business, then the investor does not need to create 10 new jobs, but rather he/she can just maintain all the jobs that existed prior to his/her acquisition of the business.

Under the regional center version of the EB-5 program, the new commercial enterprise in which the investor invests does not need to employ any workers directly. Instead, the new commercial enterprise can invest in or loan money to a completely unrelated business, which will create jobs directly or indirectly. As long as the jobs created directly or indirectly amount to 10 jobs per EB-5 investor, then that satisfies the job creation requirement. Indirect job creation by a business other than the one belonging to the EB-5 investor applies only under the regional center EB-5 program, not under the standard EB-5 program.

Documentation of job creation

Under the standard EB-5 program, very detailed immigration documentation and time records must be maintained. In order for the 10 new, full-time jobs to qualify under the EB-5 program, they must be filled by U.S. citizens or U.S. legal permanent residents. Therefore, USCIS examines very closely the I-9 immigration forms for verification of authorization to work in the U.S. In the event that a worker presented a false immigration document, USCIS will not count the job occupied by that worker. As a result, the EB-5 investor will have to invest in professional advice in developing I-9 compliance procedures that will ensure satisfaction of USCIS’s requirements.

Under the standard EB-5 program, USCIS will also closely examine the time records of the employees, to determine whether they are working at least 35 hours per week. If the time records are incomplete, USCIS can deny the application for not proving that all the 10 new jobs are full-time.

Under the regional center EB-5 program, the type and amount of documentation varies depending on the regional center’s job creation methodology for the given project. Some regional centers calculate the creation of “direct jobs” based on projections of the number of employees that tenants can employ per square foot of space depending on the use of the rented space, such as retail sales, office, light industrial, or warehouse, among others. The resulting number of employees/jobs is plugged into the economist’s model to produce the calculation of direct and indirect jobs created by virtue of the business consuming goods and services in the local economy.

Other regional centers determine the job creation by calculating all indirect job creation with an expenditure-based economic model. An example of this would be a regional center that loans the EB-5 investors’ funds to private companies that carry out large-scale construction projects The job creation figure is calculated using a multiplier times the total amount of money spent on construction and/or renovation, including not only the regional center project’s loan funds, but also other money spent, which originated from outside capital sources.

Under the expenditure-based, indirect job creation methodology, the calculation of the job creation is much simpler. It is a matter of multiplying the total amount of money spent by the multiplier under the economist’s model. USCIS might wish to verify the amount of money actually spent under the terms of the project, but there is no head count for determining the number of direct jobs created, since there are only indirect jobs in the calculation.

Difference 2: The Investment

Under all EB-5 programs, if the investment is made in a high-unemployment area called a “Targeted Employment Area” (“TEA”), an investment of $500,000 suffices to qualify the investor. If the investment is made in an area that is economically stronger and does not qualify as a TEA, the investment must be $1 million in order to qualify under any EB-5 program.

Under all EB-5 programs, the full investment must be made prior to filing the I-526 petition, which is the first step in the EB-5 process. This can include paying the full investment amount into an escrow account, typically held by a bank, with the investment funds to be disbursed at the time when the I-526 petition is approved.

The process of investing the funds is where the difference between the two EB-5 programs arises.

The self-directed EB-5 investor must spend the $500,000 or $1 million in full prior to filing the I-526 petition. The escrow option would come into play only where the full qualifying amount of investment funds would be spent in just one transaction, such as for the purchase of a real estate property, which will serve as the business premises or for the purchase of an existing business for $1 million. In the vast majority of cases, this will not work, since the set-up of a new business typically consists of many smaller purchases of the business premises, inventory, various tools, equipment, vehicles, etc., of which the business will consist. This necessitates a longer period for the investor to put the investment in place.

The investor in a regional center EB-5 program usually places the $500,000 investment into an escrow account with a bank just prior to filing the I-526, based on the regional center having already set up the project ahead of time, and that suffices as far as the investor putting the investment funds in place.

Difference 3: Management and Organization of the EB-5 Business

As previously discussed, a self-directed project under the standard EB-5 program requires extensive hands-on preparation and organization by the EB-5 investor, including the following steps:

  1. Work with an immigration attorney to obtain a temporary work visa such as an E-2 investor visa, L-1A manager transfer visa, or H-1B specialist visa, since the investor will need the better part of a year or more in order to set up the business, manage its operation, and make all the legal arrangements in order to be in a position to start the EB-5 immigration process by filing the I-526 petition.
  2. The EB-5 investor must figure out a business activity to serve as the basis for the EB-5 investment, find a suitable location, make arrangements to purchase or rent the premises, deal with any build-out, acquire all necessary inventory, tools, equipment, etc., in order to start the business.
  3. The investor needs to work with a business attorney, in coordination with an immigration attorney, to set up the legal entities under which the business will operate and structure them in a way that will work for immigration, tax, and a liability protection purposes.
  4. As previously mentioned, the EB-5 investor will have to invest in immigration legal advice on developing I-9 compliance procedures that will ensure satisfaction of USCIS’s requirements.
  5. The EB-5 investor will need to work with a professional business plan writer to produce a convincing business plan written in accordance with the established guidelines. It will need to explain the projections of job creation, particularly if the jobs are not yet in place. It must also define the business activity in which the new commercial enterprise will engage, and develop the stages and milestones for the projected business growth.
  6. From beginning to end, the EB-5 investor must work closely with an immigration attorney, who provides guidance to the investor and the other professional advisors at all stages of setting up the business and preparing the I-526 petition. The lawful source of funds must be well documented.

For the investor in an EB-5 regional center, the regional center will have already made all the preparations, and thus the investor needs only to sign up with the regional center, pay the funds into escrow, and work with the immigration attorney on documenting his lawful source of funds. The regional center will provide all the documentation regarding the project to the immigration attorney to enable the immigration attorney to prepare the I-526 petition.

Difference 4: Compliance with Immigration Requirements and Preparation of Documentation for the I-829 Petition to Remove Conditions

Investors under all versions of the EB-5 program first obtain conditional permanent residence, and to remove the condition they must file another petition (I-829) with USCIS to prove that they have:

  1. sustained the investment,
  2. created the 10 jobs per EB-5 investor, and
  3. not strayed in any substantial way from the business activity for which USCIS approved the I-526 petition.

The stand-alone EB-5 investor must prove fulfillment of all immigration legal requirements. With regard to the job creation requirements, this means hiring and maintaining 10 new, full-time jobs for U.S. citizens and U.S. legal permanent residents. This means maintaining detailed time records for the employees and elaborate I-9 compliance procedures for proving the immigration status of the employees, possibly including I-9 audits by an immigration attorney.

The investor also has to work closely with his tax accountant in order 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, and therefore the petition could be denied.

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. If the investor changes the business activity by going into a completely different line of business, USCIS requires that he file an “amended petition” in order for USCIS to evaluate and hopefully approve the business’ new activity as the basis for the EB-5 green card.

With the EB-5 regional center, the burden is on the regional center to maintain compliance with the immigration requirements and then to provide the investor’s immigration attorney with the necessary documentation to file the I-829 petition. The more established regional centers, which have handled more projects and immigration cases, have extensive experience with satisfying the immigration legal requirements. They have grown adept at keeping their projects in compliance with USCIS’s requirements and making sure that they will have all the necessary documentation on hand, when the time comes for their investors to file the I-829 petition.

Can you combine the positive aspects of both the regional center and standard EB-5 programs?

Yes. This can be accomplished through a self-directed business partnering with an existing regional center. However, the regional center must be approved by USCIS to cover the geographic region where the business is located and to cover the field of business in which the business operates. Partnering with an existing regional center will obviously cost some amount of fee, which would have to be negotiated with the regional center. It is a fee that would probably measure in the tens of thousands of dollars. Also, if the regional center is not already approved to cover the geographic region and the business activity, the EB-5 investor will also have to pay for the additional legal fees, government fees, and other expenses of applying for and obtaining an amendment to the regional center’s designation from USCIS in order to cover the appropriate geographic area or the business activity.

Partnering with the regional center would present the possibility of counting indirectly created jobs. As a result, the business would not have to hire and employ directly the 10 new, full-time workers. Also, this would make it easier to include additional EB-5 investors in the project. Due to the extensive additional expenses, this scenario of partnering with a regional center would make sense only in the event that the EB-5 investor plans to bring in additional EB-5 investors.

Which EB-5 program is best for me?

Your Capability to Succeed in the Business

It is very important to assess realistically and carefully your own management skills, experience from running your own business, entrepreneurial instincts and resourcefulness, skill in marketing your own business, organization and record keeping skills, your capital reserves for sustaining the business and its staff, even if the business does not grow and develop as planned. Also, you have to ask yourself, and research the matter objectively, whether you have found a business that will offer goods or services that are truly in demand and will provide a basis for future growth. Finally, since you need to manage the business yourself, are you looking to live in a location in the U.S. that is conducive to developing a business of the type that you are considering to create. If you are not strong in all these areas, then you should consider investing, instead, in the regional center EB-5 program.

Other factors in the Choice of EB-5 Program

Aging Out Child

If you have children who will soon reach 21 years of age, the regional center EB-5 program would be the better option, because it takes time to develop a business that will serve as a good basis for qualifying under the standard EB-5 program, and it could take more time than you have available before your child turns 21. Also, when you are developing your own EB-5 business, you are doing so without the experience that an established EB-5 regional center has, and so there is a greater possibility that your case might not succeed the first time, but then your child or children may have reached 21 and aged out, thus, not allowing you a second chance to get it right.

Where do you want to live?

Under the standard EB-5 program, you need to live in the area where the business will be located, since you will need to manage it yourself. Under the regional center EB-5 program, you can live anywhere, since you will not need to be involved in the day-to-day management of the business.

Do you want just to be retired and not work?

If you want to be retired, the standard EB-5 program is not for you, since you have to be committed to managing the business actively on a daily basis. The regional center EB-5 program is more suitable, since you do not need to be involved in the daily management of the business.

Do you want to be in control of your own destiny?

The standard EB-5 program, under which you are actively engaged in the daily management and make all the decisions yourself would be a better fit. Nevertheless, as previously stated, you should examine your own “qualifications” to succeed in the business.

Summary

If you are considering to immigrate under the EB-5 program, possibly through your own business, you should think carefully through all the implications discussed here before you make your decision. Our firm is gladly available to assist you in the EB-5 process, regardless of which approach you choose.

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Anthony Olson, P.A. - Sarasota Immigration Attorney 
2020 Cattlemen Road, Suite 100, Sarasota, FL 34232 See map 
Telephone:  +1 (941) 362-7100 
Website address: http://www.immigrationvisausa.com/ 
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