Congress created the EB-5 immigrant investor visa category in the Immigration Act of 1990 in the hopes of attracting foreign capital to the US and creating jobs for American workers in the process. There are 10,000 visas available in the category each year, 3,000 of which are reserved for people who participate in a pilot program designed to target low employment areas. There are three basic requirements for an EB-5 visa:

• First, the alien must establish a business
• Second, the alien must have invested $1 million ($500,000 in some cases) in the business
• Third, the business must create full-time employment for at least 10 US workers

Since its creation, the INS created the category very harshly, taking a series of actions that have severely limited its use. For example, in 1998 the INS General Counsel issued a highly restrictive interpretation regarding the validity of certain types of programs commonly used to set up the required business enterprises (SSHD covered this in our April 1998 newsletter: http://www.visalaw.com/98apr/23apr98.html). Second, the INS has launched a series of investigations against companies that assist people in setting up their investments (covered in January 1999: http://www.visalaw.com/99jan/35jan99.html). Lawsuits were filed to attempt to force the INS into reversing its position, but they did not succeed (covered in February 2000: http://www.visalaw.com/00feb3/10feb300.html). Nevertheless, with careful planning, the EB-5 investment visa can still be obtained.

Establishing a Business

There are three ways of establishing a qualifying business:

1. the creation of an original business;
2. the purchase of an existing business with simultaneous restructuring or reorganization such that a new commercial organization results; or
3. expansion of an existing business through the investment of the required amount.

Any for-profit entity formed for the ongoing conduct of lawful business may serve as a commercial enterprise, including sole proprietorships, partnerships, holding companies, joint ventures, corporations, business trusts, etc. A holding company with its subsidiaries would also qualify if each subsidiary is engaged in the active conduct of business. Noncommercial activities, such as home ownership, do not qualify. Also, the alien must be actively involved in the business, and cannot be a passive investor.

Investment

The investment can be in the form of cash, equipment, inventory, other tangible property, cash equivalents and indebtedness secured by assets owned by the alien provided that he or she is personally and primarily liable and the assets of the new commercial enterprise are not used to secure any of the indebtedness. The definition specifically excludes capital acquired by unlawful means.

The basic investment amount is $1 million. The required investment is $500,000 for a business established in a "targeted employment area." Targeted employment areas include:

1. rural areas, defined as any area other than one within a metropolitan statistical area or within the boundary of a city or town with a population of 20,000 or more; and
2. areas having an unemployment rate that is at least 150% of the national average.

Each state notifies the INS of the qualifying areas within the state. The current regulations set the required investment for a targeted employment area at $500,000.00.

Aliens can invest the required amount alone, create the qualifying business with another immigrant investor, or even create the business with US citizens or other people not seeking classification as an immigrant investor. In such cases, each person seeking classification as an immigrant investor must have invested the required amount, but each person can use the same employees to reach the required 10 new positions.

Job Creation

The investment must create at least 10 full-time jobs for US citizens, lawful permanent residents or other immigrants lawfully authorized to be employed in the United States. This includes conditional residents, temporary residents, asylees, refugees, and recipients of suspension of deportation, but does not include nonimmigrants. In calculating the required number of employment positions, the investor may not include spouses or children, but may include other family members who are employed by the business.

The 10 positions must be full time. This means employment of a qualified employee in a position that requires a minimum of 35 working hours per week. Although two employees may share a full-time position, part-time employment is specifically excluded. Therefore, a combination of two or more part-time positions will not qualify, even if they collectively meet the 35-hour per week requirement.

Immigrant Investor Pilot Program

As a result of a disappointing response to the basic immigrant investor program, Congress enacted a five-year immigrant investor pilot program, which commenced on October 1, 1993. Originally there were only 300 visas available for the pilot program, but it was recently increased to 3000.

The requirements of the pilot program are essentially the same as in the basic investor program, with certain exceptions. In order to qualify under the pilot program, an investment of at least $500,000 must be made in a commercial enterprise located within an approved "regional center," defined by the regulations as "any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation and increased domestic capital investment."

The immigrant investor pilot program was recently extended through September 30, 2003.

Conditional Permanent Residence

In order to deter fraud, immigrant investors, their spouses and dependent children are subject to conditional permanent residence for a two-year period. The alien must file a petition to remove the conditions during a 90-day period prior to the second anniversary of the alien’s lawful admission as a permanent resident. The INS will examine the business at the end of the two-year period to determine whether or not the alien has complied with all of the requirements.

When the immigrant investor application is submitted to the INS, it must include the following:

• Evidence to show that a new commercial enterprise has been established, such as articles of incorporation, business license, or evidence of the transfer of the required amount of capital when purchasing an existing business.
• Evidence that the proper amount of capital has been placed at risk, such as bank statements showing the deposit of funds into the business’s account, evidence of equipment purchased for use in the business; evidence of property transferred to the business, and evidence of money transferred to the business in exchange for shares of stock. This stock cannot include terms requiring the business to redeem the stock at the holder’s request.
• Evidence demonstrating that the capital invested was lawfully gained, such as foreign business registrations, tax returns, or certified copies of criminal or civil judgments, where appropriate.
• Evidence that the investment has created at least ten full-time jobs, such as tax records, Forms I-9, or if employees have not yet been hired, a detailed business plan demonstrating that the nature of the business will require the hiring of ten employees within two years. If the business is a troubled business, the applicant must submit evidence that the currently existing number of employees will be maintained for at least two years.
• Evidence that the investor will be engaged in the management of the enterprise, such as evidence that the applicant is a corporate officer or member of the board of directors. If the business is a limited partnership, the applicant will be considered to have a management position only if the partnership agreement provides that the applicant will have the rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act.

If the application is granted, the alien is given conditional permanent residence and after two years is eligible to file for removal of the conditions. The alien must also show that he or she "sustained the actions required for removal of the conditions" during his or her residence in the United States. An alien entrepreneur will have met this requirement if he or she has "substantially met" the capital investment requirement and has continuously maintained this investment during the conditional residence period. The entrepreneur’s residence may be terminated at the end of the two-year period or earlier if it is found that the business was not established, or was established solely to evade immigration laws or that the requirements were otherwise violated. If, in the application to removed conditions, the alien demonstrates that the business was established, that the required amount of capital was invested, and that 10 full-time jobs either have been or will be created, the conditions will be removed and the alien granted full permanent residence.