By Anayat Durrani
To get a green card, foreign investors must invest in a U.S. business and create 10 full-time jobs for U.S. employees. The job creation aspect is often one area EB-5 investors may have some confusion, but it is an important part of the EB-5 program.
To classify as foreign investors, EB-5 regulations require they submit a petition showing proof that they invested or are in the process of investing “lawfully obtained capital in a new commercial enterprise (NCE) in the United States, which will create full-time positions for not fewer than 10 qualifying employees.”
That means U.S. citizens, permanent residents, or other immigrants legally authorized to work in the country are all considered qualifying employees, per EB-5 regulation. However, the investor, spouse, and children cannot be any of the 10 qualifying employees, nor can non-immigrants. Also, a full-time job requires regularly working at least 35 hours weekly.
Difference between a new enterprise and an existing business
Most EB-5 investment entities were established after November 1990 and comprise a new enterprise. Where it may get confusing for some investors is with pre-existing jobs when purchasing a business that already exists and has established workers working in those jobs.
The U.S. Citizenship and Immigration Services (USCIS) states that purchase of a business created on or before Nov. 29, 1990, may be considered a new enterprise if the existing business is restructured or reorganized, resulting in an NCE or is expanded through the investment and creates at least a 40% increase in net worth or number of employees.
“In most cases, pre-existing jobs do not count because EB-5 job creation should be as result of the investor’s EB-5 investment,” says Yiting Hu, senior attorney at Foster LLP in Texas.
EB-5 specialists say jobs created by an NCE are typically required to be newly created. For example, when an investor invests in an NCE, all the jobs that are directly created as a result of their investment are jobs counted towards the 10 full-time job requirement.
“The exception to the requirement of creating 10 new jobs for qualifying workers is observed when investing in a troubled business,” says Tadeu Ferreira, a partner at Leaf, Ferreira, de Araujo LLC in Florida.
How is job creation affected by EB-5 investment in a troubled business?
In an existing business existing jobs don’t count, except if it’s a troubled business. But what is a troubled business?
Vivek Tandon, founder and CEO of EB5 BRICS, LLC in California, explains it is “a business making losses and in danger of shutting down if it wasn't for intervention by the EB-5 investor(s), i.e., if they 'rescue' the business.”
Hu notes that the “EB-5 regulatory definition of a troubled business is a business in existence for at least two years and incurred a net loss equal to or greater than 20% of the troubled business’ net worth prior to the loss, during the 12- or 24-month period prior to the filing of the EB-5 investor’s Form I-526 petition.”
During the COVID-19 pandemic and subsequent lockdowns and travel restrictions, many businesses experienced heavy declines in profit. The situation created more U.S. businesses in trouble, giving way to opportunities for EB-5 investors to invest in a troubled business.
The USCIS states that when determining whether the troubled business has existed for two years, the agency “will consider successors in interest to the troubled business when evaluating whether they have been in existence for the same period of time as the business they succeeded.”
When purchasing a troubled business, investors may not have to create new jobs.
Hu says an exception “may apply when the investor’s EB-5 capital is used to preserve a troubled business’ existing jobs, where careful analysis is required on the financial condition of the business before and after the EB-5 investment.”
For example, in those situations, an investor may be able to take credit for jobs that remain intact. For a troubled business, the USCIS states that the EB-5 investor can rely on job maintenance and “must show that the number of existing employees is, or will be, no less than the pre-investment level for a period of at least two years,” Hu says.
Jennifer Sherer, senior vice president of FirstPathway Partners LLC in Wisconsin explains that an investor “who invests in a troubled business must still demonstrate that 10 jobs have been preserved, created, or some combination of the two.”
For example, if the troubled business already had eight full-time employees, they would not have to create eight more jobs.
“In this scenario, the pre-existing jobs may count as they would be 'saving' eight jobs but they would still have to create two more 'new' jobs,” says Tandon.
In the case of a troubled business, Hu says “10 full-time job creation does not decrease while EB-5 investors may satisfy job creation through a combination of preservation and creation of pre-existing and new jobs.”
Purchasing a troubled business for an EB-5 direct investment can help boost the U.S. economy by creating new jobs, but also help save jobs in a failing business. However, it can be a complex process and investors should carefully consult with an immigration attorney.