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. The overall advantage of the EB-5 visa category is that it allows the beneficiary to engage in commercial enterprise anywhere in the US subject only to some restriction in the pilot program targeting certain areas. There are 10,000 visas available in the category each year, one-half of which are reserved for people who participate in a Pilot Program option designed for targeted investments in approved regional areas.    Although the investment requirement is less, the Pilot Program will expire September 30, 2008 .  This article addresses the requirements and issues for both options available under the EB-5 visa category.

What are the filing procedures for the EB-5 visa?

An applicant for the EB-5 visa must file Form I-526, Immigrant Petition by Alien Entrepreneur with the appropriate regional USCIS Service Center including fees and evidence supporting the application as described in this article. 

What are the basic requirements for the EB-5 visa?

There are three basic requirements as follows:

• First, the alien must establish a business or invest in an existing business that was created or restructured after November 19,1990
• 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 USCIS 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 (Siskind Susser covered this in our April 1998 newsletter at http://www.visalaw.com/98apr/23apr98.html). Second, the USCIS 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). Congress stepped in, however, and in 2002 it ordered the INS to reconsider its decision.

How does the EB-5 investor meet the requirement for a qualifying business?

There are three ways of meeting the requirement a qualifying business:

• The creation of an original business;
• The purchase of an existing business with simultaneous restructuring or             reorganization such that a new commercial organization results; or

• Expansion of an existing business created after November 1990 through the investment of the required amount and the creation of ten new jobs.

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.

What types of investments meet the requirements for the EB-5 investor?

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.

How much investment is required to be an EB-5 investor?

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.

For a Pilot Program investment, the threshold is a $500,000 capital contribution to a designated Regional Center which allocates portions of the capital in the form of business loans to small business within the targeted area.

What entities qualify as Regional Centers for the purposes of the Pilot Program?

Any economic unit, public or private, involved with the promotion of economic growth of a particular region may qualify as a Regional Center .  Proposals for participation in the Immigrant Investor Pilot Program should be submitted to the Assistant Commissioner for Adjudications and should include the following documentation:

• A description of the regional focus of the Regional Center and how it will promote economic growth
• Details on how jobs will be created indirectly through increased exports, but not necessarily exports directly generated by the activities promoted through the regional center.
• A description of capital, both sources and amounts, committed to the Regional Center as well as the promotional efforts both employed and projected by the sponsors of the Regional Center .
• Forecasts of the positive impact on the regional and national economy.

What happens if the Regional Center is terminated?

If the Regional Center is terminated within any investor’s two-year qualifying period, a formal notice will be sent to any alien granted lawful permanent residence on a conditional basis under the Pilot Program for investment within the Regional Center .

How may the EB-5 Investor invest in a qualifying new enterprise?

There are several ways an EB-5 applicant can qualify by investing in a new enterprise. The EB-5 investor can create an original business purchase an existing business or expand an existing business. Investment in an existing business must result in a substantial change in the business’ net worth or number of employees by at least 40%.  The EB-5 investor must meet the required investment amounts of $1,000,000. Furthermore, the EB-5 investor must demonstrate that the investment capital was obtained form a legal source and the required capital is at risk for investment purposes.

What evidence is required for an application for the EB-5 investor investing in a new enterprise?

The EB-5 investor should provide evidence of creation of a new enterprise, or investment in an existing enterprise including, but not limited to the following:

·         Articles of incorporation, partnership agreements, organizational documents

·         Evidence of lease agreements for the qualifying enterprise

·         State business licenses

·         Evidence that the required amount of capital has been transferred

·         Evidence that investment has resulted in the substantial increase of net worth

·         Documentation of sources of capital

·         Documentation of intent to invest or actual commitment to invest capital

·         Documentation of assets purchased or transferred from abroad for the qualifying enterprise

How many full-time jobs must be created by the EB-5 qualifying investment?

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 . Full-time employees are defined to include workers working at least thirty-five hours per week. 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.

Can a commercial enterprise involving multiple investors be used as a basis for classification as an EB-5 investor?

Yes.  Multiple investors may establish a new commercial enterprise which can be the basis for the EB-5 classification.  However, each investor applying for the classification must meet the requirements for the EB-5 classification separately. For example, each investor must create 10 jobs for US workers.

Must the EB-5 Investor be involved in the management of the qualifying enterprise?

Yes.  An EB-5 investor must be engaged in the management of enterprise either through day-to-day managerial control or through policy formulation.  A purely passive role is not permitted.  An EB-5 should submit documentation verifying such a role which may include the following:

• A statement of position or title and a description of duties
• Evidence EB-5 investor is a corporate officer or member of the board of corporate officers
• Evidence demonstrating management role of EB-5 investor if qualifying enterprise is a partnership