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What incentives can regional centers offer EB-5 investors?

Are regional centers allowed to offer EB-5 investors any incentives to join their projects? For example, if we wanted to offer free hotel stay once the project is complete, is this acceptable? Or would it violate the at risk requirement?

Answers

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    Barbara Suri

    Immigration Attorney
    Answered on

    It is the investment that must be and remain at risk during the tenure of the project.

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    A Olusanjo Omoniyi

    Immigration Attorney
    Answered on

    This is not really an incentive per se; it is an unnecessary loss of revenue. Generally, a limited partnership agreement governing a project like this one must comply with the rule of the bottom line - which is, you are in business to make money and whether you are in business for long or not depends on how much you make. Also, considering that the investor funds must be paid back whenever they choose to either exit the project or when the partnership is supposed to end, how would you account for the losses incurred as a result of non-collection of payments from the investors. Lastly, by all accounts, the free lodgings are sales and think about how these freebies/incentives expenses are going to be accounted for in terms of cash flow analysis for the project and taxation. Thus, in the long run, this idea may not work. Advisably, seek further financial analysis and counseling on this idea before putting it into practice.

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    Anthony Korda

    Immigration Attorney
    Answered on

    Reasonable incentives are permissible so long as they are not equity redemption disguised as incentives.

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    Richard A Gump, Jr

    Immigration Attorney
    Answered on

    Interesting question! We would need to research this particular issue. It is clear that every dollar of the $500,000 needs to be put at risk in the project. How administrative fees are handled as well as incentives for investors are entirely different matters.

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    Salvatore Picataggio

    Immigration Attorney
    Answered on

    That may likely violate the at risk requirement. The conservative approach is that any asset offered will have its value counted against the required investment amount, so that should be avoided. The classic example is indeed a unit in a residential development being offered to one of the investors. Incentives to investors can take the form of better returns ON investment rather than return OF the investment (all caps for emphasis).

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    Fredrick W Voigtmann

    Immigration Attorney
    Answered on

    It is not a good idea for regional centers to offer incentives, although there is nothing in the EB-5 law or regulations that explicitly prohibits such practice. The problem might be exactly what you mentioned, i.e., that the USCIS might consider the value of the incentive to reduce the risk of the investment capital by a commensurate amount. On the other hand, the regional center could deduct the value from any return or profit that the investor is due later in the course of the project development. As long as it does not reduce the investor's principal/capital at risk, it should not be a problem. It is more of an accounting question, and a matter of documenting what is going on so that USCIS can clearly see all of the investor's capital remains at risk. Why take the chance? If the investment project is so good, then additional incentives should not be needed. It sounds like a cheap marketing ploy at best.

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    Robert Cornish

    Securities Attorney
    Answered on

    I would be very wary of any project promotion that treats prospective investors like time-share recipients. Further, there are numerous FINRA regulations (and parallel SEC decisions) on the use of "free lunch" type of promotions. I suppose after a project is completed and everyone has their green card, you are free to run your business the way you choose.

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    Xiaosheng Huang

    Immigration Attorney
    Answered on

    It is acceptable if you offer many benefits to your EB-5 investors. It does not violate the risk requirements.

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    John J Downey

    Immigration Attorney
    Answered on

    Regional centers are free to negotiate incentives as long as there are no guarantees. This is where the "at risk" requirement comes into play.

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    Bernard P Wolfsdorf

    Immigration Attorney
    Answered on

    To my knowledge, USCIS has not opined on this issue of offering "perks." If this was a reasonable perk offered to investors, as opposed to offering an unlimited substantial stay, that would appear to be a guaranteed return such that the investment is not sufficiently at risk, then it would appear to be permissible. It really is a matter of degree.

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