By Mitch Wexler and Kristi Ngo
Under the EB-5 Immigrant Investor Program, foreign nationals can apply for U.S. permanent residence by investing capital in a U.S. commercial enterprise, which is used to create at least 10 full-time jobs for U.S. workers. Depending on the location of the EB-5 project, the required investment amount is either $900,000 or $1.8 million. The spouse and unmarried children under 21 of the EB-5 investor are also eligible to receive U.S. permanent residence.
“EB-5” refers to the Employment-Based Fifth Preference category of visas. In the United States, there are multiple avenues to gain visa status and permanent or temporary U.S. residence.
Basic EB-5 Requirements:
- The applicant must be an accredited investor;
- The capital investment is at least $900,000 or $1.8 million, depending on the location of the EB-5 project;
- The EB-5 capital derives from lawful sources, as evidenced by detailed documentation;
- The at-risk EB-5 investment must create at least 10 permanent, full-time jobs for qualified U.S. workers in a period of two years, generally viewed from the date the applicant receives conditional permanent residence; and
- The applicant must engage in the management of the new commercial enterprise, either through the exercise of day-to-day managerial responsibility or through policy formation.
What does an accredited investor mean for EB-5?
An accredited investor is a person or entity that is allowed to invest in securities that are not registered with the Securities and Exchange Commission. To qualify as an accredited investor, the applicant must meet one of the following requirements:
- The applicant has a net worth exceeding $1 million, either individually or jointly with spouse (excluding the value of the primary residence);
- The applicant has earned an annual income exceeding $200,000 (or $300,000 if combining income with spouse) in each of the preceding two calendar years, with the expectation of maintaining the same income in the current year; or
- The applicant has certain professional certifications, designations, or credentials.
There is generally no nationality restriction—an investor from any country may apply for an EB-5 visa. There is also no formal age limitation. A minor under 18 years of age is eligible to become an EB-5 investor under the Uniform Transfers to Minors Act (UTMA). UTMA authorizes a minor to receive a gift, such as cash, without the supervisor of a guardian or trustee. Through UTMA, an individual may transfer funds to his or her minor child to allow the child to be the primary investor in an EB-5 petition.
What is the minimum capital investment for EB-5?
The standard minimum EB-5 investment is $1,8 million. If the investment is in a designated targeted employment area (“TEA”), then the minimum investment requirement is $900,000. A TEA is defined as a rural area or an area that has experienced high unemployment of at least 150% of the national average.
The EB-5 Immigrant Investor Program Modernization regulation (“EB-5 Modernization Rule”), published by the Department of Homeland Security (“DHS”) and took effect on Nov. 21, 2019, changed the way TEAs are designated. The EB-5 Modernization Rule eliminated the long-standing practice of state designations of TEAs and reserves exclusive authority to delegate TEAs to DHS. Accordingly, investor petitions must contain sufficient evidence demonstrating that the EB-5 project location meets the definition of a TEA to qualify for the reduced investment threshold. The EB-5 Modernization Rule also restricted how census tracts could be aggregated to qualify as a high-unemployment TEA.
Source of funds for EB-5 applications
The biggest hurdle for many applicants is evidencing the lawful source of their EB-5 investment funds. The source of funds analysis requires the applicant to demonstrate that their investment capital, including any administrative fees paid to regional centers, were obtained through lawful means. Additionally, the applicant must trace the path of the funds from the point of acquirement to when they are deposited in the new commercial enterprise’s bank or escrow account.
Examples of common source of funds sources and documentation include:
- High Earnings: If the investment is based on accumulated wealth, the applicant should submit an accountant’s statement, bank statements, and tax returns for at least the preceding 5 years. The applicant’s bank statements must show the accumulation of capital over the relevant period of time. The applicant should also evidence their employment through employment verification letters, labor contracts, and payroll records.
- Sale of Assets: If the investment is from the sale of an asset, the applicant should isolate the related transactions and include supporting documentation evidencing the sale (e.g., receipts, contracts, stock ledgers, deeds, purchase agreements, bank statements showing the receipt of the proceeds). The applicant should further evidence the original acquisition of the asset.
- Gifts or Personal Loans: The lawful source of the gift funds must be demonstrated. Gifts must then be traced from the donor to the receiver, and the gift circumstances should be explained in a supplementary statement. Similarly, personal loans require a showing of a lawful source. Conservatively, the loan should be secured by personal assets of the borrower.
- Company Loan or Profit Distribution: If the investment funds derive from a company, the applicant should evidence the company’s business operations and finances (e.g. business formation documents, company financial statements and tax records, and business contracts and invoices). It is also important to establish that the company authorized the profit distribution or loan, and that such profit distribution or loan was predicated on the applicant’s equity interest in the company.
EB-5 Regional Center or Direct EB-5 Investment option?
There are two options for an EB-5 investment: 1) direct or 2) regional center investment. Regional Center investments are substantially more popular than direct investments. To illustrate, for fiscal 2019, there were 414 direct EB-5 investments and 9,064 regional center EB-5 investments.
A direct EB-5 investment is best suited for an investor who wants to own and be directly involved in the operation of the new commercial enterprise. The investor should be well-versed in business practices, since this option requires more time and effort. The investor should also formulate a business plan that will project the creation of ten full-time jobs for qualified U.S. workers within two years after becoming a conditional lawful permanent resident. A qualified U.S. worker is a U.S. citizen, lawful permanent resident, asylee, or refugee. Jobs created for nonimmigrant workers or members of the applicant’s family do not qualify.
An applicant may instead opt to invest in a regional center project. A regional center is a business entity, designated by USCIS, that coordinates foreign EB-5 investments within an area in compliance with EB-5 statutory, regulatory, and precedent decision framework.
A regional center investment is best suited for an investor who prefers a primarily passive equity investment instead of managing the day-to-day activities of the business. The biggest appeal of a regional center investment relates to job creation. To meet the requisite ten full-time jobs, the regional center is allowed to count not only jobs directly created by the EB-5 project but also all indirect or induced jobs created as a result of the project. EB-5 projects sponsored by a regional center calculate job creation with the assistance of an economist, who generates a report using specific economic or statistical methodologies. In contrast, with a direct EB-5 investment, only jobs created directly by the business may count towards the ten jobs creation requirement and must be shown through business and payroll records.
EB-5 Related Costs
The EB-5 investment is an equity investment that must be sustained for a period of time defined by EB-5 regulations and the project agreements. The plan is for the project to return the investment capital once certain conditions are met.
The USCIS fee to file the initial Form I-526, Immigrant Petition by Alien Investor, is $3,675. To remove conditions on the applicant’s conditional residence, the applicant must file Form I-829, Petition by Investor to Remove Conditions on Permanent Resident Status, during months 21-24 of the applicant’s two-year conditional green card period. The USCIS filing fee for the I-829 petition is $3,750. USCIS filing fees are subject to change.
Regional Centers typically charge an administrative fee to manage the EB-5 project funds. Administrative fees vary among regional centers and projects, but typically in the $50,000 range.
EB-5 Visa Cap and Retrogression
Each fiscal year, 7.1% of all employment-based visas, approximately 10,000 visas, are allocated to EB-5 foreign investors. This results in approximately 3,000 visas issued annually to EB-5 investors, as visas allotted to family members count towards annual visa numbers.
Of the visas allocated to EB-5, no more than 7% are available to any single country. Visas are charged to the applicant’s country of birth, and not the country of citizenship. However, there are certain circumstances in which the applicant is able to charge their visa to another country’s quota. The concept is called “cross-chargeability.” A spouse may be charged to his or her spouse’s country of chargeability. Additionally, a minor child may be charged to the country of chargeability of either parent.
Once the number of EB-5 based residency is accorded to applicants from a particular country exceeds the supply of available visas, applicants must wait until a visa number is available. The case filing date becomes the priority date, which is used to determine visa availability. Countries like Mainland China and Vietnam, where the EB-5 program is a particularly popular vehicle to U.S. permanent residency, currently experience a severe visa backlog.
Congress has repeatedly targeted the EB-5 visa backlog as an area for reform. A number of potential legislation changes have been proposed to address the drastically increasing visa backlog. Proposed solutions include increasing available visa numbers, eliminating per country quotas, and counting only the principal investor against the annual limit on visas.
EB-5 Visa Timeline
The amount of time from the commencement of the EB-5 process to visa receipt varies widely among applicants. Due to visa retrogression, the biggest factor affecting the EB-5 timeline is the applicant’s country of birth.
The average preparation time for an I-526 petition span from two to eight weeks, depending on the complexity of the applicant’s source of funds scenario. Once the I-526 petition is filed, the estimated USCIS processing time range from 35 to 52.5 months. USCIS prioritizes adjudication of I-526 petitions based on visa availability. Applicants experiencing unreasonably delayed I-526 processing may seek a writ for mandamus. A writ for mandamus is a legal action brought in federal court to compel USCIS to adjudicate the long pending petition.
Once the I-526 petition is approved and a visa number is available, the applicant may apply for a visa with the United States Consulate or Embassy abroad. Normal consular processing takes roughly six months, but visa interviews and issuance are currently delayed by the COVID-19 pandemic. If the applicant is legally in the United States, he or she may apply to adjust status without leaving the country. Adjustment of status may take 6-24 months, but the applicant may apply and receive employment and travel authorization within several months. The applicant will initially receive a two-year conditional green card. As mentioned above, within the three months prior to the expiration of the conditional green card, the applicant must file Form I-829 to remove conditions and receive a permanent, ten-year green card. The current USCIS processing time for an I-829 petition range from 33 to 54 months. The applicant will remain in lawful permanent residence status until the I-829 petition is adjudicated. USCIS processing times are subject to change.
Read about the next step in the EB-5 process: How to Select an EB-5 Project