What is the difference between an indirect and a direct EB-5 job?
A lot of people have said that it is better to invest in an EB-5 regional center because you can count indirect jobs, and if you do a direct EB-5 investment, you can only count direct jobs. But why is it better? What is an indirect job and what is a direct job?
It is an advantage to count indirect jobs in an EB-5 regional center project when there is a large number of EB-5 investors. In a direct EB-5 project, EB-5 investors are usually owning and managing their own U.S. business and the creation of direct full-time jobs is easier to show.
Direct jobs are those employees hired by the actual new commercial enterprise/job creating entity. Indirect jobs are calculated using the EB-5 expenditures and econometric modeling. One form is not better than the other, but certain projects are more appropriate for one over the other.
One is not better than the other. They are just different. Some people want to run and manage their own investment, because they are good at such things. For many of them, the direct investment is the best EB-5, if they can hire 10 or more people in their business. For those who have money but are not necessarily great business people, perhaps the regional center EB-5 serves them best, and in that type of EB-5, both direct and indirect jobs will count towards the 10 for each investor. This is why you need individualized immigration advise from an experienced practitioner to help guide your decision-making process.
One of the basic principles for the EB-5 program is job creation. A foreign national investor must be able to demonstrate that his/her investment created 10 full-time jobs. In the direct investment program, only those jobs in which the individuals will work directly for the company will be counted. For example, if the investment is a restaurant, chefs, kitchen personnel, wait staff, managers, etc. are counted in the employee count. In the regional center investment, indirect employment may be counted. Using the restaurant example above, an independent valet company that needs additional workers now that the restaurant is operational or the restaurant uses a cleaning service for its linens and additional employees are hired by the cleaning company - these additional jobs would be considered indirect growth. (This is a very simplified example to be used only for illustration purposes.) It is not a question of whether indirect employment is better - it is a matter of which is acceptable for EB-5 purposes.
As the term "direct jobs" implies, for EB-5 investment purposes each investor must demonstrate that their $500,000 or $1 million investment has created at least 10 direct jobs for U.S. workers. However, there is an exception for regional centers. If you invest through an EB-5 regional center, they can count indirect jobs as well. This is a tremendous advantage for regional centers since they can obtain more investors by counting indirect jobs. In fact, the vast majority of jobs created through investment in EB-5 regional centers are jobs that are considered indirect. Thus, this is a significant advantage to the project developers who want and need to attract more investors, and they are not limited by the number of direct jobs created. The vast majority of all investors today invest through an EB-5 regional center.
John J Downey
A direct job is where you employ the person, pay their salary and provide them with a W-2 form. An indirect job is a job generated by your business; if, for example, you opened a restaurant, your business would need supplies and the vendor selling them to you may need to add employees because of the new account. An induced job would be jobs in your region that might be generated by your employees spending their money on groceries, services, etc.
In order for the investor to obtain the conditional green card and then remove that condition two years later, 10+ full-time and permanent jobs must be created. The regional center indirect jobs provision of the law allows them to use an economic model to calculate jobs that it is projected to create for locating the project at the location. As long as the economic model is an accepted model approved by USCIS in the past, the jobs are deemed to be created whether they are actually created or not, and proving it at the removal of condition (I-829) stage could be easy. However, with direct EB-5, the business must be in operation and the jobs must be created in-house for that business and evidenced by W-2s and I-9s at the I-829 stage to show that there are real U.S. workers who occupy those jobs you created. If, for some reason, your business does not perform as well as you hoped and you do not have 10+ jobs created, then the removal of condition could be delayed or denied.
An "indirect job" is a "job" that is calculated by a reasonable economic job creation methodology report. The report is prepared by an economist, who studies how many indirect jobs will occur downstream from the point of the infusion of capital on the project. Indirect jobs are typically the ones that vendors and other independent contractors may provide to a company. For example, in direct EB-5 projects, if you are investing in a restaurant, then either at the time you file your first EB-5 petition (or a few years later when you petition to remove the conditions on your residence) you will need to document with payroll records (I-9s, W-4s, W-2s, etc.) that at least 10 full-time jobs have been created. In regional center projects, each project will have an economic impact study report that forecasts how many indirect jobs will occur. The method of how those indirect jobs are calculated is typically tied to factors such as: (a) the construction expenses, (b) operations costs and revenues, and (c) other factors. So, the reason why a regional center investment may be better than a direct one is that if - for example - the project only needs to document that it has spent the funds needed for construction, then only construction expenses will need to be proven. Even if the construction employees, or the project's other employees, are employed less than two years, you can still get credit for jobs created as a result of the impact of indirect jobs.
With a direct job, you are counting individual employees and need 10 U.S. workers to qualify. With indirect, you are counting, for example, expenditure, in which case you only need to prove the money was spent on construction, for example, and then it can be presumed the jobs were created.
One is not better or worse, just different. If you do your own project, then you can control everything, but you will need 10 of your own full-time employees within a couple of years. With a regional center project, you give up control, but they can count some indirect jobs to meet the job requirement. E.g. if the project is a hotel, a neighboring business such as a car rental or dry cleaner that sprouted up to support the hotel could count their jobs based on an economic model.