The EB-5 visa application process is complex, and it can become even more complicated when investors enter the process with misconceptions or incorrect information.
Their EB-5 attorneys must promptly identify and address these misunderstandings, as they can impact the stages before applying or during the waiting period for USCIS to review their petitions.
Source of funds and project selection for EB-5
Immigration attorney Carolyn Lee shares two key misconceptions she had to address throughout this year with her clients regarding the source of funds. “A prospective client was planning to use the sale of his U.S. business for his EB-5 investment. While discussing the source of funds with him, we learned that he may have started the business while potentially out of status in the U.S. The funds may, therefore, not qualify as ‘lawful.’ This discussion prompts a further inquiry into whether the initially intended source of funds is viable. This individual may have stumbled forward only to discover too late that his source of funds had an incurable defect.”
Lee also remembers when a client was adamant about investing in a particular project that offered a lower administrative fee and partial investment. “Incidentally, it also had I-956F approval. We conducted our due diligence on the project and discovered potentially impermissible redemption features that were not readily apparent. At our advice, the client did not pursue that EB-5 project and is currently considering another.”
Meanwhile, EB-5 visa lawyer Farah Abbas continues dealing with the misreading about the recent U.S. elections’ impact on the EB-5 program. “With all the rhetoric surrounding immigration, many clients were under the impression that a new administration may abolish the program. However, the EB-5 program has been enacted by federal law. No administration can unilaterally strike it down. Instead, it requires an act of Congress to repeal the EB-5 program. Furthermore, the EB-5 program has been around in some form or the other since the 1990s. It has survived on both sides of the aisle.”
Attorney Ying Lu has also had to deal with misunderstandings involving her Chinese clients’ source of funds (SOF). “Many investors are unaware that they need to confirm the source before transferring their funds. For example, I’ve had Chinese investors call me to say they borrowed money from their own business and had already started wiring the proceeds to their U.S. bank account. When I asked how they initially established the business and funded its large registration capital shown on the business registration record—say, RMB 5,000,000 (about $700,000)—they often couldn’t provide sufficient evidence of their financial ability at the time.”
Lu adds: “I describe this situation as a ‘chicken-and-egg’ problem. The loan is the egg, but it comes from the chicken—the company. A well-documented SOF requires a plausible explanation of how the ‘chicken’ was acquired. For investors from China, foreign currency control policies further complicate matters, as individuals can only exchange $50,000 per year. Moving funds prematurely, before tracing the source properly, can waste their annual foreign currency exchange quota if the loan turns out to be an unsuitable source of funds for their case. They probably need to re-do everything. That’s why it’s crucial for investors to consult an experienced attorney to determine the right asset to use for their SOF before transferring any funds.”
Because confusion can cost the EB-5 investors their application, we gathered and explained the most common ones our EB-5 verified attorneys have addressed in EB5Investors.com’s Q&A section.
Investors must have a minimum of $800,000 in cash to apply
The EB-5 program allows potential investors to combine capital from different fund sources such as income, savings, inheritances, gifts, property sales, loans, and the sale of market investments to build the EB-5 capital amount required to invest in the program.
Also, the program allows partial payment, allowing investors to place an initial amount while obtaining the rest of the capital within an appropriate period, often giving them enough time to liquidate the rest of their assets and transfer. Abbas says: “People often assume that they must have the entire amount of EB-5 investment available, in cash, before submitting the EB-5 petition. For many, this could delay a potential EB-5 petition for months, unnecessarily. The EB-5 Reform and Integrity Act explicitly allows for partial investments, and it has become a popular method to apply. Without this in place, clients would otherwise be rushing to make the full investment and file the EB-5 petition ASAP, so they can secure their priority date. I can now explain that you can make a partial investment into the EB-5 enterprise, and then if you wish you may keep the remaining funds in other investment vehicles, wait for property sales to close, or take more time to transfer funds from your home country. It takes a lot of pressure out of the process”
Lu adds that another common misconception about the minimum investment amounts for EB-5 is that $800,000 is required for regional center projects only, while standalone/direct projects require $1.05 million. “However, the minimum investment is actually determined by whether the project is in a Targeted Employment Area (TEA) or an infrastructure project. TEAs are defined as rural areas or regions with high unemployment. Direct EB-5 projects located in TEAs qualify for the lower $800,000 investment threshold.”
The EB-5 project must return the investment
It’s not mandatory for EB-5 investments, whether directly or through a regional center, to return the invested capital. Immigration legislation does not require returning the funds as an EB-5 requirement. The ability to retrieve funds after withdrawal depends on the terms outlined in the project’s subscription agreement and other documents, and the Private Placement Memorandum.
The regional center redeploys the money to prevent investors from leaving
Many investors do not understand the concept of redeployment, its importance, and how it works. Because EB-5 law mandates that the money remains invested “at risk” of loss until at least the end of the investor’s two-year conditional residency period, many regional centers must redeploy the capital into another investment if the initial project is completed before the end of the two years.
All projects that create 10 jobs and qualify for EB-5
Not all businesses work as an EB-5 project. The key misconception is that investing in a U.S. business that creates a minimum of 10 jobs is enough. However, these jobs must last throughout the two-year sustainment period, as per EB-5 regulation. For example, in the case of a direct investment, purchasing property is not enough. The funds must be invested to allow the business to grow.
Investing in an already-created business is easier and faster
Directly related to the previous misconception, the EB-5 legislation allows investing in an ongoing business provided the investment creates new jobs and growth. Just buying the business or becoming a stakeholder is not enough.
If the applicant invests in a rural project, they will get the EB-5 visa faster
Rural projects do receive expedited processing and a larger allocation of EB-5 visas. However, potential investors should also consider the other set-aside categories: high-unemployment areas and infrastructure projects, and projects that qualify as Unreserved. It’s important to base investment decisions on location, experience, and the project developer’s and regional center’s track record.
Investors can’t leave the U.S. while their EB-5 application is being reviewed
Some investors believe there will be travel limitations or restrictions while applying for the EB-5 visa, especially if they must travel frequently to and from the U.S. for business or personal reasons. Those individuals already living in the U.S. who applied using the concurrent filing pathway are granted work and travel permits while they wait for their applications to be processed. Those who did not concurrently apply can still travel with the I-131 travel petition.
Family and friends’ money is unsafe
Receiving a gift from a family member or a loan from a friend is acceptable and suitable for meeting the investment requirements of the EB-5 visa program. Provided the money’s origin is documented and legally tracked.
DISCLAIMER: The views expressed in this article are solely the views of the author and do not necessarily represent the views of the publisher, its employees. or its affiliates. The information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal, immigration, and financial experts prior to participating in the EB-5 program Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.
