For foreign entrepreneurs and investors, the EB-5 visaoffers a flexible, albeit indirect, pathway to earning permanent U.S. residency. Generally speaking, the three requirements these aliens must meet are:
Investing a qualifying amount of capital (i.e. $500,000 or $1 million, depending on where the investment is made) in an enterprise;
Proving that the funds used to this end are legitimate; and
Creating at least 10 full-time jobs for qualifying U.S. workers.
In this article, we delve into the nuances of the first requirement.
For purposes of an EB-5, petitioners are permitted to invest in essentially any type of lawful for-profit business entity. The business entity can conform to any of the following for-profit business categories.
New Commercial Enterprise
Any for-profit lawful business entity is considered a “commercial enterprise.” Four subgroups exist in this category, each of which, in the context of an EB-5 petition, is a type of new commercial enterprise (NCE).
Starting from Scratch
U.S. Citizenship and Immigration Services (USCIS) characterizes a “new” enterprise as one that was established after November 29, 1990. Immigrant investors can accordingly infuse the required amount of capital into a commercial enterprise that was in existence after November 29, 1990, and thereby be investing in an NCE.
Included among a series of four precedents set in 1998 was the requirement that an EB-5 investor be present when his or her enterprise was established. However, as the adjudicating process at the time highlighted, this was problematic for businesses created under a partnership. In most partnerships, the business is first created among main partners, and thereafter additional limited partners are brought on. Because of the 1998 precedent, such limited partners were ineligible for an EB-5. As a result, in 2002, Congress overruled this decision, simplifying the requirement to a petitioner’s only having to demonstrate that he or she invested the requisite amount of capital.
Restructuring or Reorganizing an Existing Business
An EB-5 investor can purchase and thereafter restructure an existing business, but merely changing the legal structure of an already established enterprise is not sufficient. In one of the 1998 precedent-setting decisions, Matter of Soffici, the USCIS Administrative Appeals Office (AAO) ruled that an investor who had purchased a Howard Johnson hotel and continued to run it as a Howard Johnson hotel ultimately failed to meet the requisite criterion of adequately restructuring or reorganizing an existing business. According to the AAO decision, “a few cosmetic changes to the décor and a new marketing strategy for success do not constitute the kind of restructuring contemplated by the regulations, nor does a simple change of ownership.” Examples of meeting the requirement would be, for instance, a restaurant that is converted into a nightclub, or a plan that adds substantial crop production on an existing livestock farm.
Expanding an Existing Business
An EB-5 investor can also create a “new” business by expanding an existing one. Two options that would fulfill this requirement are available to foreign investors: they can either expand the net worth of an existing business by 40 percent, or they can alternatively increase the number of employees by 40 percent. If an investor chooses to increase the number of employees, he or she could therefore be required to create more than that minimum of 10 jobs needed for an EB-5, and in general, the larger the number of existing employees, the more of a burden expanding the workforce could become.
Joint Enterprises: Pooling Funds
A last subcategory of NCEs is a joint venture, with multiple EB-5 investors pooling their capital to invest in an enterprise. Each individual investor in the group is still required to infuse the minimum qualifying amount into the enterprise, and each individual’s investment is still required to create at least 10 jobs. The total number of jobs created by a pooling arrangement is distributed evenly among investors, so, for example, if there are three investors and only 21 jobs are created as a result of their joint enterprise, each investor created seven jobs; such a situation would allow only two investors to claim they created 10 jobs each, with the third able to claim only one.
General Requirements for Investing in an NCE
Regardless of which of the four types of NCEs above investors supply their funds to, they must meet the following general investment requirements:
Rather than create an NCE, an investor may invest in a troubled business. USCIS characterizes a troubled business as one that has existed for at least two years and that has incurred a net loss over the 12- to 24-month period prior to the investor’s filing Form I-526. Further, USCIS quantifies this net loss, stipulating that it must amount to at least 20 percent of the business’s total net worth.
General Requirements for Investing in a Troubled Business
If EB-5 petitioners choose to invest in a troubled business, they must satisfy the following requirements:
-For example, say an entrepreneur invested her capital into a troubled business that employed four people. Through her investment, she preserved all four pre-existing jobs, and additionally created another six full-time positions that were assumed by qualifying U.S. workers. This investor would meet the numerical requirement.
Foreign investors can alternatively make their investments in regional centers. In order to direct foreign capital and investment into specific regions experiencing economic hardship, Congress earmarked 3,000 visas of the 10,000 EB-5 visas allocated annually for regional center investors. USCIS designates a regional center on the basis of proposals submitted, in which they demonstrate their potential for promoting economic growth in the particular geographic area where they’re located. The vast majority of EB-5 petitioners choose to make their investments in regional centers; in fact, in 2016 alone, more than 9,000 of the total EB-5 investments were made in regional centers. Originally, Congress intended for the regional center program to sunset in March 2009. However, that date has been extended several times, most recently through September 30, 2017. As of June 2017, USCIS designated more than 850 regional centers.
The types of enterprises that can be found in regional center programs include such businesses as a real estate limited partnership program that offers investment in industrial properties in a specified major city in the Midwest; a limited partnership program that makes low-interest loans to businesses in a specified city in the Rust Belt; and ownership of an 80-acre almond farm in a specified location in California.
If applicants make their investments in a regional center, then they’ll need to meet the following requirements:
-Direct jobs are those that establish an employer-employee relationship between the business and the people it employs.
-Indirect jobs are ancillary to the business but are created in other companies as a result of the business’s ongoing commercial activity.
-Induced jobs are created as a result of the economic impact of the commercial enterprise in its community.
-Regional centers do not require the investor's day-to-day management or involvement in running an active business, nor do they require investors to live in the place of investment. For those investors who have no management knowledge or experience, investing in a regional center programs is thus often the most practical route.
We’re Here to Help
For aliens interested in making a minimum investment as a pathway to permanent residency with an EB-5, we have compiled a brief comparison of the benefits and risks associated with each of the three investment options in an article you can find here. Don’t forget: our experienced immigration attorneys are always available to help you if you have questions or require guidance. You can find our contact information here.
For more detailed information about the EB-5 visa, refer to the following links: