Direct EB-5 Investment Visa may be a better option

Due to the complexities of the EB-5 Regional Centers applications and the back log of processing at USCIS there has been an increased interest in direct EB-5 investments.

Why have the Regional Center Programs been falling off recently?

It has become far more difficult to create a new regional center and even then only at great expense and great delay. If a regional center already exists, the timing to amend the regional center to add industry codes or geography may be unrealistic. The alternative always exists of having a business or project sponsored by an existing regional center, but that action comes at a cost that may be prohibitive and potentially a loss of control of at least some aspect of the project.

From the investor’s point of view, fewer and fewer exemplar I-526 “project preapprovals” are coming to market because the timeframe to obtain the project preapproval has become unrealistic. In addition, USCIS has backed off of the original concept of project preapproval and has stated clearly that it does not consider itself bound by such a “preapproval”. The net result is that regional center projects have lost some of their luster.

As a result, we now regularly advice our clients who are seeking to immigrate under the EB-5 program to consider the option of EB-5 direct investment as opposed to the Regional Center. The EB-5 direct offers the same criteria with regards to a $500,000 in a TEA to qualify but with no “indirect” jobs only “direct” jobs, however there is no rigorous proof of funds or securities involved and EB-5 investments can be pooled for larger businesses and development projects with clients maintaining valuable equity.

Most importantly direct EB-5 option allows the applicant and or business or developer to market the project to investors virtually immediately without having to obtain any USCIS preapproval. Another advantage is the elimination of the need for an economic report to project indirect and induced jobs. However, the need for a comprehensive business plan to present direct job creation projection in a credible manner is still critical.

There are some advantages and disadvantages from the investor’s perspective. Unlike with the regional center loan model, the investor must be an equity investor in the job-creating enterprise. This could be common shares or preferred equity. In either event, the investor’s chances for a more substantial return could be enhanced but at the expense of a less certain exit strategy.

Another issue is the need for an investor to be something other than a purely passive investor. This legal obligation is met in the regional center context by granting the investor all of the rights and responsibilities of a limited partner under the Uniform Limited Partnership Act. In the context of a direct EB-5 investment, if the investor is not going to be employed by the investment enterprise, at the very least the investor should be placed in an advisory capacity similar to the capacity he would have as a limited partner. The USCIS training materials for EB-5 make clear that USCIS is very flexible in adjudications relating to this requirement.

One of the attractions of the direct EB-5 is the elimination of the plethora of issues that have arisen recently in the adjudication of regional center applications and regional center project adjudications. Tenant occupancy jobs, guest expenditure jobs, NAICS codes, bridge financing…these are just some of the issues involved in regional center project adjudications that do not have to be surmounted with a direct EB-5.

However, while there may be fewer issues, the I-829 condition removal process may be more problematic. Whereas there may be no need to count actual workers in regional center I-829 adjudications, there is a need to do so with direct EB-5 adjudications. This means that the business or developer must document, through W-2 forms, I-9 forms and quarterly tax returns, the actual number of employees. In addition, unlike with indirect and induced jobs, there is a need to prove that each employee is a U.S. citizen or a permanent resident or other qualifying employee. This requires obtaining documentation not normally obtained in the I-9 process, which could put the commercial enterprise at risk of a national origin or citizenship discrimination charge if not handled properly.

 

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