INTRODUCTION TO THE EB-5 LAW ON INVESTMENT FOR U.S. PERMANENT RESIDENCE
In 1990 the United States Congress created a permanent residence category for investors who invest in a commercial enterprise that will benefit the United States economy and create at least ten full-time jobs. The minimum investment amount is $1 million of capital, although the minimum may be reduced to $500,000 if the investment is made in a “targeted employment area.” Congress set aside 10,000 immigrant visas annually for investors and their immediate family members. The following is an introduction to the law on investment for United States permanent residence.
I. General Requirements and Procedures
The law authorizes issuance of an immigrant visa to an investor who is coming to the United States to engage in a new commercial enterprise in which the investor has invested or is in the process of investing the requisite capital and which will benefit the United States economy and create full-time employment for at least ten United States workers.
An investor must file a petition, Form I-526, with the United States Citizenship and Immigration Services (“USCIS”). Upon approval of the petition by the USCIS, the investor and the immediate family (spouse, and unmarried children under 21 years of age as of the date of filing Form I-526) may apply for permanent residence by processing at a United States consulate, or at a local USCIS office if the investor is in the United States.
The United States Congress stipulated that the initial permanent residence status shall be conditional for two years. Prior to the expiration of the two-year period, the conditional resident investor must file a petition, Form I-829, with the USCIS to request removal of the conditions on permanent residence. The petition should be granted if the investor demonstrates that the investor invested or was actively in the process of investing the requisite capital; the investor sustained the enterprise and the investment throughout the two-year period of conditional residence; and the investment created the requisite employment.
II. Invest in a New Commercial Enterprise
The law requires the investor-petitioner to invest in a new commercial enterprise. The enterprise must be “new,” i.e., established after November 29, 1990, the date the law was enacted. However, an investor’s contribution of capital to an existing business that was formed prior to November 29, 1990 may be acceptable in two situations.
First, the investor may invest in an existing business, and substantially reorganize or restructure the existing business. The USCIS has stated, however, that the mere change in ownership, cosmetic changes to the decor of the business site and implementation of a new marketing strategy are insufficient changes to constitute establishment of a new commercial enterprise. On the other hand, a complete transformation of the nature of the business is likely to be considered sufficient.
Second, an investor may invest and expand an existing business, resulting either in an increase of at least forty percent in the net worth of the business or in the number of employees in the business. The USCIS may require evidence in the form of income tax returns, audited financial statements, and employment tax returns.
The investment must be in a “commercial” enterprise. Any for-profit entity formed for the ongoing conduct of lawful business may serve as a commercial enterprise. This includes sole proprietorships, partnerships (whether limited or general), holding companies, joint ventures, corporations, business trusts, or other entities publicly or privately owned. This definition includes a holding company and its wholly-owned subsidiaries, if each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. However, the term new commercial enterprise does not include noncommercial activity such as owning a personal residence.
III. Engage in a New Commercial Enterprise
The law requires the investor to engage in a new commercial enterprise. A passive investor cannot qualify for permanent residence in this visa category. The investor must be involved either in the day-to-day managerial control of the commercial enterprise, or in the management of the enterprise through policy formulation. The USCIS regulations state that if the investor is a corporate officer or board member, or, in the case of a limited partnership, is a limited partner with the rights and responsibilities typically provided under the provisions of the Uniform Limited Partnership Act, then the investor satisfies the requirement of engaging in the management of the new commercial enterprise. The USCIS has stated that the investor must actually engage in management rather than just carry the title.
IV. Investment of Capital
The law requires an investor-petitioner to have invested or be in the process of investing the required capital. This requirement has several elements that require separate consideration.
A. Amount of Capital
First, the amount of required capital is a minimum $1 million. The minimum amount is reduced to $500,000 in cases of investment in “targeted employment areas,” which are rural areas and areas which experience unemployment of at least 150 percent of the national average. A “rural area” is an area not within either a metropolitan statistical area or the outer boundary of any city or town having a population of 20,000 or more. The assessment of whether the investment is in a targeted employment area is based on statistical information relating to the time of investment, and is based on the location where the enterprise is principally doing business.
B. Equity Capital
Next, to “invest” is to contribute equity capital to the enterprise. The individual investor cannot receive any bond, note, or other debt arrangement from the enterprise in exchange for the contribution of capital. This includes any stock redeemable at the holder’s request. Provision for guaranteed returns and redemptions might be classified by the USCIS as impermissible debt arrangements. Also, the petitioner’s personal guarantee of a loan that is the primary obligation of the enterprise does not constitute an equity investment of capital by the petitioner.
C. Kinds of Capital
“Capital” may include cash and cash equivalents, equipment, inventory, and other tangible property. Although capital does not include loans made by the petitioner to the enterprise, the investor’s contribution to the enterprise of the cash proceeds of indebtedness secured by assets owned by the investor may be considered capital, provided the investor is personally and primarily liable for repayment of the debt, and the assets of the enterprise upon which the petition is based are not used to secure any of the indebtedness.
Separately, the use of a promissory note payable by the investor to the enterprise – as a present commitment to contribute cash to the enterprise in the future – may be considered capital in limited circumstances where the promissory note is secured by the assets of the petitioner, the obligation is a perfected security interest, and the promissory note is valued in fair market United States dollars at the time it is contributed to the enterprise. Valuation of the promissory note requires consideration of the value of the assets securing the note, the amenability of the assets to seizure, and the expenses of enforcing a foreign judgment if necessary. An investor also may use a schedule of payments or a promissory note as evidence of being “in the process of investing” the required capital, however, the USCIS requires that payments of the minimum-required capital must be substantially completed before the end of the two-year conditional residence period.
The investor may use an escrow, conditioning release of funds to the enterprise on approval of conditional residence status or approval of Form I-526. However, the USCIS has advised that the escrow must release funds directly into the enterprise’s accounts for job-creation purposes.
E. “At Risk”
The USCIS requires proof that the capital invested is “at risk.” The USCIS focuses on actual and intended uses of capital to confirm that it will be used for job creation and profit-generating activity. The USCIS requires more than a deposit of funds into a business account, instead requiring evidence of the actual undertaking of business activity. The USCIS has held that use of capital for partnership expenses and reserve accounts unrelated to job creation eliminates consideration of that capital in counting the amount invested by the petitioner.
F. Tracing and Lawful Source
The law requires proof that capital is invested by the petitioner. Thus, an investor-petitioner should present evidence that traces capital from the enterprise back to the petitioner as a source.
The USCIS also has required that a petitioner present evidence that the source of the capital is a lawful one. Regulations specify evidence requirements such as five years of income tax returns. The USCIS also has required evidence of the investor’s level of income or other evidence to prove the investor has sufficient lawful sources for the capital invested. Where the investor’s funds have been received by gift or loan, substantial evidence concerning the bona fides of the donor or lender may be required.
V. Benefit the U.S. Economy
The investment must “benefit the United States economy” in order to qualify the investor for permanent residence status. Arguably, the petitioner has benefited the economy by meeting the employment and investment requirements of the visa classification. No additional evidence is required in the typical case. However, considering that federal regulation of foreign investment is extensive (for example, in aviation, banking, communications and energy resources) and local economic factors vary widely, it is possible that an investment may not be deemed beneficial to the United States economy if it is made in a regulated industry sector or in a volatile local economy sector that protests the foreign investment.
VI. Create or Save Jobs
The investor must create full-time employment positions for at least ten United States citizens, lawful permanent residents or other immigrants lawfully authorized to be employed in the United States. The investor, his or her spouse and children do not count toward the ten employee minimum. Nonimmigrants (i.e., those with E, H, L and other temporary worker visas) are also excluded from the count. An “employee” is an individual who provides services or labor for the new commercial enterprise, and receives wages or other remuneration directly from the new commercial enterprise. This definition excludes independent contractors. Under the investor Pilot Program the job creation is not restricted to employees of the new commercial enterprise, but rather the investor’s petition may include evidence of indirect creation of jobs throughout the economy.
A. Types of Jobs
The jobs created must be full-time, i.e., a position that requires a minimum of thirty five working hours per week. Part-time jobs do not count. However, job sharing arrangements, where two or more qualifying employees share one full-time position, will be counted.
B. When Jobs Must Exist
The petitioner may base the Form I-526 on proof that the required jobs have been created, or on proof that the required jobs will be created before the end of the two-year conditional residence period. In the latter case the investor must support the Form I-526 with a comprehensive business plan demonstrating a need for at least ten employees before the end of the conditional residence period. The plan must describe the business, its products and services; must include a marketing analysis, including an analysis of the competition’s products and pricing; must include a marketing strategy; must identify the organizational structure and specific plans for hiring of staffing; and must provide financial projections.
C. Troubled Business/Saving Jobs
Special rules govern investments in a “troubled” businesses. A troubled business is one that has been in existence for at least two years, has incurred a net loss for accounting purposes during the twelve or twenty four month period before the petition was filed, and the loss for such period is at least equal to twenty percent of the business’s net worth before the loss. If the petition is based on investment in a troubled business, the investor is not required to create ten new jobs. Instead, the petition may be based on proof that the business will maintain the number of existing employees during the conditional status period.
D. Regional Center/Indirect Jobs
To encourage immigration through investment, and to concentrate investment in specific regions, Congress created a temporary Pilot Program in 1993, directing the USCIS to set aside visas for people who invest in a designated “Regional Center.” The Pilot Program currently sets aside 3,000 visas annually. The Pilot Program does not require that the commercial enterprise employ ten United States workers, as long as the investor can reasonably demonstrate that the investment has created ten or more jobs indirectly. The USCIS has designated more than 140 Regional Centers located throughout the country.
VII. Conditional Permanent Residence Status
An investor obtains permanent residence status on a conditional basis. The rights, privileges, responsibilities and duties that apply to all other lawful permanent residents, including the right to enter and live in the United States as a resident, to apply for naturalization and to petition for qualifying relatives, apply equally to conditional permanent residents. The investor must apply for removal of the conditions within the ninety days immediately preceding the second anniversary of obtaining resident status.
As with other permanent residents, the investor should establish family and economic ties to the United States and must be careful not to be absent from the United States for a continuous period exceeding 180 days, unless the investor has obtained a reentry permit.
VIII. Removal of Conditions
Within the ninety days immediately preceding the second anniversary of obtaining conditional permanent residence status an immigrant investor must file a petition, Form I-829, to remove the conditions. The petition must be accompanied by evidence that the alien invested or was in the process of investing the required capital, that the enterprise and investment were sustained throughout the two-year conditional period, and that the investor created or can be expected to create within a reasonable period of time ten full-time jobs. The USCIS will issue a receipt notice for the filing of the I-829 petition. The receipt notice typically is valid for one year, and can be used as a travel document. Thereafter, if the I-829 petition remains pending the investor must obtain a stamp in the passport to document continuing lawful status.
A. Failure to File Form I-829
Failure to file the I-829 petition timely will result in automatic termination of the conditional resident’s status and initiation of removal proceedings.
B. Adjudication of Form I-829
A USCIS service center may approve an I-829 petition without a request for additional information, issue a request for further evidence, or deny the petition.
A USCIS service center may approve an I-829 petition if the petition establishes the requirements for removing the conditions, as outlined above. If approved, the service center director will remove the conditions on the conditional resident’s status as of the second anniversary of his or her admission as a conditional resident. The approval notice may instruct the conditional resident to report to the appropriate USCIS district office for processing of a new permanent resident card (Form I-551). At the district office, the conditional resident may receive in their unexpired foreign passport a temporary I-551 stamp valid for up to twelve months.
A district director must deny an I-829 petition if the petition does not establish the requirements for removing the conditions. There is no appeal from this decision. The conditional resident may seek review of the district director’s decision in removal proceedings before an immigration judge.
C. Status of Conditional Residents While I-829 is Pending
Immigrant investors and immediate family members remain in conditional permanent residence status while the I-829 petition is pending. Status should be extended automatically in one-year increments until the USCIS acts on the I-829 petition. During this time, the investor and family members are authorized to travel abroad and work in the United States. In practice, the USCIS will stamp the passports of the investor and qualified family members to document the continuing resident status.