EB-5 Requirements

Because it invites a narrow pool of applicants—i.e. rich, foreign entrepreneurs—and in light of high-profile episodes of fraud and abuse associated with lax regulation of the program, theEB-5 visa has a relatively strict set of requirements that petitioners must meet. Notably, these requirements are not the typical conditions placed on other employment-based visas, which include permanent job offers, labor certifications, and minimal educational, experience, or accomplishment levels.

In theory, any alien with the money to invest in a for-profit commercial enterprise is eligible to apply. This broadness is traded for restrictiveness with respect to the EB-5 visa’s three basic requirements: the nature of the investment funds, the type of enterprise invested in, and the fulfillment of job creation. We explore these requirements in depth below.

INVESTMENT FUNDS

Minimum Amount

To qualify, applicants need to invest or be in the process of investing $1 million in a new commercial enterprise (NCE). If applicants choose to invest in targeted employment areas (TEAs) or in regional centers approved by U.S. Citizenship and Immigration Services (USCIS), the minimum investment amount is lowered to $500,000.

TEAs include two types of locations: rural areas, which are defined as areas both outside a municipality with a population of 20,000 or more (based on the most current U.S. Census), and outside a metropolitan statistical area; and areas with unemployment rates at or exceeding 150 percent of the U.S. national average. Unemployment rates for localities can be found at the Local Area Unemployment Statistics database.

Regional centers, almost all of which are located in rural or otherwise high-unemployment areas (hence the lower investment required), are typically privately run enterprises that USCIS approves on the basis of proposals demonstrating their ability to promote economic growth, create jobs, and increase capital investment. As of June 2017, USCIS designated more than 850 regional centers. An important caveat to regional centers: EB-5 investors are prone to assuming that merely because USCIS itself designates regional centers, their risk of losing investment is diminished. This is not the case.

In addition to the minimum qualifying amount, investments must also be at risk: foreign entrepreneurs are required to invest the full amount of at-risk capital into their enterprises. Accordingly, if there is, for example, a redemption clause in an applicant’s business agreement guaranteeing him or her a return, such an investment would generally not qualify for EB-5 purposes.

Legitimate Source and Path of Funds

Assets acquired directly or indirectly by unlawful means, such as by way of criminal activities, are not acceptable forms of capital. In practice, USCIS is very strict about reviewing the legitimacy of funds.

Further, applicants are required to submit evidence demonstrating a direct link from the original lawful source of funds to the investors themselves, and from the investors themselves to their NCEs. Again, USCIS is strict about this aspect of the investment.  

(For the full relevant statutory text describing source and path of funds, see 8 C.F.R. § 204.6(e).)

Acceptable Types of Investment

Cash, cash equivalents, and indebtedness secured by investor-owned assets, as well as equipment, inventory, and other tangible property are all acceptable investments for an EB-5. A loan to the enterprise or any other debt between the enterprise and investor would not constitute an investment, however; such a monetary transfer does not bear any investment risk (some exceptions do apply, so continue reading below). Purely passive investments, such as the purchase of a property without any commercial or job-creating function, would similarly not qualify. All acceptable forms of capital are valued at fair-market price in U.S. dollars. Further, note that investors need not commit the entire amount of capital, irrespective of the type, immediately, but must have done so by the end of their two-year conditional residency period.

Depending on the type of capital invested, EB-5 regulations require specific documentary evidence to substantiate lawfulness of the source and path of the funds.

  1. Evidence required for investment funds from an applicant’s own income:

    • Five years of personal income tax returns
    • Personal bank account statements for the past two or more years
    • Salary reports
    • Salary verification letter from previous employers
    • Five years of business income tax returns (if income was generated from the operation of your own business)
    • Business registration documents and ownership (if funding is from the operation of your own business)
    • Articles of incorporation, share certificates, and other similar documentation (if funding is from the operation of your own business)
    • Business bank account reports for the past two or more years (if funding is from the operation of your own business)
  2.  Evidence required for investment funds from a gift:

    • Documentation proving funds from the donor to the investor
    • Statement explaining the surrounding circumstances of the gift and why the gift was made
    • Gift tax return, if any
    • Documentation such as personal and/or business income tax returns and records of ownership of business proving the donor’s financial background; such information is intended to demonstrate how the donor (lawfully) derived the funds that were gifted
  3. Evidence required for investment funds from an inheritance:

    • Statement of the relationship between the investor and the decedent
    • A death certificate
    • Documentation of the investor’s receipt of inherited funds
    • Certification of payment of inheritance tax, if any
    • If there is a lack of documentation tracing funds from the decedent’s estate to the investor, then what is required is a statement thoroughly explaining the relationship between the decedent and investor, the amount inherited by the investor, and other circumstances concerning the inheritance
  4. Evidence required for investment funds from transactions:

    • Sale of a business

    -Deeds

    -Closing statements

    -Bank account statements

    -Documentation tracing funds from the closing of the transaction to the investor’s individual account(s)

    -Copy of the business registration before the sale and immediately after the sale

    -Letter from the accounting firm that represented the investor in the sale, which should indicate the sale, the selling price, and the identity of the buyer

    -Business financial information such as an evaluation from a certified financial expert or accountant attesting to the value of the business pre-sale

    • Sale of real estate

    -Purchase agreement

    -Final settlement statement

    -Receipt of funds from the buyer to the investor

    -Payment of real estate tax obligations

    -Title transfer evidence

    -Past five years of personal income tax returns proving funds in the purchase of the real estate sold

    • Sale of stock

    -Company’s incorporation documents or other company registration documents

    -Stock purchase agreement

    -Evidence of the transfer of proceeds of the stock sale from the brokerage company to the investor’s account(s)

    -Payment of tax obligations owed on the proceeds of the stock sale

    -Stock transaction record

    • Investment funds from a loan (Note that only a loan secured by an investor’s own assets, as opposed to property of the commercial enterprise that he or she invested in, is eligible.)

    -Terms of the loan agreement

    -Documentation proving that the loan transferred from the lender to you

    -Lender’s business registration records, as well as business income tax returns (if the lender is a business) or personal income tax return (if the lender is an individual)

COMMERCIAL ENTERPRISE

Type of Enterprise

In investing their capital into a commercial enterprise, foreign investors must keep in mind several factors. First, there’s the nominal requirement, i.e. that the enterprise be a “new commercial enterprise” (NCE). Precise definitions govern what USCIS considers “new” and what it considers a “commercial enterprise.”

A new enterprise is one that was:

  1. Established after November 29, 1990; or

  2. Established on or before November 29, 1990, that is either:

    • Purchased and the existing business is restructured or reorganized in such a way that an NCE results, or
    • Expanded through the investment so that at least a 40-percent increase in the net worth or in the number of employees occurs

A commercial enterprise is defined as any for-profit activity formed for the ongoing conduct of lawful business, including, but not limited to:

  1. A sole proprietorship

  2. Partnership (limited or general)

  3. Holding company

  4. Joint venture

  5. Corporation

  6. Business trust

  7. Or another entity (publicly or privately owned)

Noncommercial activities, such as owning and operating a personal residence, fail to meet the EB-5 requirements for an enterprise. Nonprofits are ineligible. In contrast, a commercial enterprise consisting of a holding company and its wholly owned subsidiaries, if each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business, is eligible.

Corporations and other non-individuals are barred from being investors in an EB-5 petition. However, USCIS does permit multiple investors to jointly establish an NCE for EB-5 classification. Note that each investor is still required to meet the individual EB-5 visa requirements. In other words, each individual must invest the requisite amount of capital, and each individual investment must create at least 10 full-time jobs for qualifying U.S. workers.

If they choose, immigrant investors can direct their capital to a “troubled business.” USCIS defines a troubled business as one in existence for at least two years that has incurred a net loss during the 12- or 24-month period prior to the priority date of the immigrant investor’s Form I-526. The loss must be at least 20 percent of the business’s net worth prior to the loss.

The Importance of Choosing an Enterprise Wisely

While there is no specific type of enterprise required for an EB-5, the choice of business is nonetheless critically important for tax and management reasons. Except for regional center investors, EB-5 applicants are required to participate in the operations of the enterprise either through day-to-day management or through planning and policy formulation. In practice, this can be satisfied by, for example, the investor’s taking a managing role, participating in the decision-making process, or serving as a limited partner in a Limited Liability Partnership. In some cases, the participation requirement can be waived.

As noted above, commercial enterprises can take various forms. Different factors influence a business’s decision to take on a particular form. The organizational structure of a business is important not least because it can potentially affect the business’s success. In EB-5 visa applications, we most frequently encounter three types of commercial enterprises:

Corporations

Corporations are arguably the most familiar business structure. A corporation exists as a discrete legal entity. This means that when an individual incorporates his or her business in a particular state, the corporation assumes responsibility for the business’s actions and liabilities, including taxes and debt. As a result, in most instances, corporate officers and shareholders cannot be held personally liable for the actions of the corporation. An incorporated business may buy, sell, or hold property under the corporation’s name and enjoy unlimited life, meaning that the business remains unaffected by the death of any individual director, officer, or shareholder. However, some types of corporations are subject to “double taxation”: profit is first taxed at the corporate level and then again at the personal level. Ownership of corporate stock may be freely transferred by sale or by gift, subject to certain corporate restrictions.

Limited Liability Companies

A limited liability company (LLC) exists as a discrete legal entity. This structure combines some of the limited liability advantages of a corporation with the benefits associated with a partnership. One of the major advantages of an LLC is that the business can choose how it would like to be taxed—as a corporation or as a partnership. Additionally, there is no limit to the number of shareholders that can exist in an LLC structure. An LLC can be managed either through “member management,” in which all members of the LLC have a say, or through “manager management,” in which members appoint a manager to operate and direct the business. Many states have implemented “franchise taxes” for LLCs, which serve as fees the company pays in order to enjoy limited liability and other flexibility.

Limited Partnerships

A limited partnership occurs when two or more individuals join together to form a business by contributing capital, property, labor, or skills in exchange for part of the profits (or losses) of a business. In a limited partnership, there is usually only one general partner and one or more limited partners with limited duties and liabilities. In this structure, the general partner(s) have full management responsibilities and control over daily business functions. The limited partner is typically a passive investor. Limited partnerships enjoy the tax benefit of avoiding double taxation on their profit. However, partners are personally liable, and not all partners share liability equally. A common example of a limited partnership is a large law firm.

For more information on this EB-5 enterprise requirement, click here and here.

JOB CREATION

The core policy goal of the EB-5 visa program is to increase foreign capital investment in the U.S. and, in so doing, stimulate job creation and economic growth. As such, the central requirementof a qualifying investment under this category is the creation of at least 10 full-time employment opportunities for U.S. workers. The specific job creation requirements are contingent on the type of enterprise.

  1. For direct investment in an NCE, the full-time jobs must be created directly by the business. In other words, the NCE (or its wholly owned subsidiaries) must itself be the employer.

    • Direct jobs are those that establish an employer-employee relationship between the NCE and the people it employs.
  2. For investment in a regional center, the full-time positions can be created directly or indirectly by the commercial enterprise. They can also be induced by the commercial enterprise.

    • Indirect jobs are ancillary to the commercial enterprise but are created as a result of the enterprise.
    • Induced jobs are employment opportunities created within the greater community where the commercial enterprise is located, which come about as a result of, for instance, income spent by EB-5 project employees.
  3. For a troubled business, an immigrant investor can rely on job preservation. To this end, the investor must demonstrate that the number of existing employees has been, or will be, maintained at no less than the pre-investment level for a period of no fewer than two years. The numerical requirement of at least 10 (preserved) jobs holds.

For an in-depth discussion of this requirement, click here.

ADDITIONAL CONSIDERATIONS

Notably, USCIS has not defined any age requirements for the EB-5 category. Instead, restrictions are essentially a function of the state where the enterprise will be located, since some states require people to be of a certain age to enter into certain contracts. Further, many EB-5 regional centers welcome investors of all ages. In other words, 18-year-old potential investors may just be out of high school, but as long as they have the funding and foresight, they’re eligible to apply.

For more detailed information about the EB-5 visa, refer to the following links:

Updated 06/09/2017