Understanding EB-5

A program under the immigration laws known as EB-5, funds projects through foreign investment capital. EB-5 (short for the fifth preference employment based category for immigrant investors) has been around since 1990. Coined as the “Million Dollar” visa, Congress created the program to stimulate the U.S. economy and to generate U.S. jobs. The creation of this program marked the first time in the history of immigration law that a foreign national could acquire Lawful Permanent Resident Status (“Green Card”) through investment. 


In order for a foreign national to qualify under the EB-5 Program, the investor must demonstrate that he or she has invested, or is actively in the process of investing in a new commercial enterprise within a government-designated Regional Center. The required investment is $1.8 million of foreign capital unless the investment is made in an area experiencing high unemployment or in a rural area (collectively known as Targeted Employment Areas (TEA.) Investments located in a TEA are reduced to $900,000. Additionally, whether the area is a TEA area or not, the investment must be shown to benefit the U.S. economy and create at least 10 full-time (35 hours) jobs. 


As an adjunct to the EB-5 program, Congress later created a Pilot Program under the EB-5 mantle allowing foreign nationals to invest the required capital in government-designated commercial enterprises known as “Regional Centers.” A Regional Center is any economic unit, public or private, engaged in the promotion of economic growth, improved regional productivity, job creation, and increased domestic capital investment Fortunately, EB-5 Regional Centers (as opposed to the basic EB-5 program where jobs must be direct jobs only), have significant latitude in calculating job creation. That is, jobs may be either direct (those jobs that establish an employer-employee relationship; indirect jobs (these jobs include employees of the producers of materials, equipment, and services that are used by the commercial enterprise) or induced jobs (those jobs created when direct and indirect employees go out and spend their increased incomes on consumer goods and services.)


All EB-5 investors must prove the source of the investment funds, and put those funds at total risk. If the project fails, the investor’s loses the investment. Or, if the investment does not result in creation of the required ten jobs, the investor does not obtain the green card.There are a variety of ways to structure a Regional Center. In the typical structure, investors are offered the opportunity to purchase a Limited Partnership interest in the new commercial enterprise within the Regional Center. As a Limited Partner, the investor receives all the rights and obligations entitled under the Uniform Limited Partnership Act of the particular state where the investment is made. In reality, without a Limited Partnership arrangement, it would be difficult, if not impossible, for a group of EB-5 investors to participate in large EB-5 projects. Essentially, without the presence and participation of a General Partner and the structures imposed by a Limited Partnership, nothing would get accomplished. This is common practice in commercial settings. Rights of Limited Partners are, in fact, limited, and the EB-5 law specifically acknowledges this arrangement because of Congress’ recognition that without such partnerships, large EB-5 Regional Centers would be dysfunctional and would ultimately fail. 


A point to be made is when a Regional Center forms a Limited Partnership; the Regional Center must comply with federal and state laws in conducting the offering of securities. In light of the fact that the investor’s focus is on the EB-5 for the purpose of attaining the green card, often the parties involved, including the investor and the principals within the Regional Center, have no idea that the Regional Center is offering a security with implications under the Securities Exchange Commission (SEC.) The Securities Act requires that al securities sold must be registered with the SEC, unless exempted by the rules. The good news is the Limited Partners may claim exemption from SEC registration requirements so that no formal registration statement needs to be filed with the SEC in connection with the EB-5 offering. This exemption is found in what is known as Regulation D, which says that if all investors are “accredited” investors then there are no informational requirements. An accredited investor is defined as a person whose: (1) individual net worth, or joint net worth including that person’s spouse, at the time of the purchase of the securities exceeds $1 million; (2) individual income exceeds $200,000 in each of the two most recent years and who expects to reach that income level in the current year; or (3) joint income including that person’s spouse exceeded $300,000 in each year of the two most recent years and who expects to reach that income level in the current year. 


Notwithstanding the benefit of the exemption, foreign investors should recognize that the investment does involve a securities offering and that not every investment in a Regional Center is safe, and that not every investment will actually result in a green card. Because of this and due to the large amount of capital to be put at total risk, prospective investors are strongly encouraged to make an independent examination of the books, records, and other documents of the Limited Partnership, alongside of questioning the appropriate officers and directors to the extent necessary so they may analyze the risk elements and clearly understand each and every element of the offering presented to them. In fact, the wise EB-5 investor should turn to independent professional advisors before taking any action whatsoever or making any final decisions with respect to the Limited Partnership.Upon weighing the risk of financial loss against the immigration benefits to be derived, investors are increasingly opting to immigrate through EB-5 Regional Centers so long as they are well structured, sound, and low risk. 


Upon notification of approval of the Form I-526, the foreign investor will proceed through the U.S. Embassy located in his or her country of nationality for issuance of the immigrant visa allowing the investor to be admitted to the U.S. as a Conditional U.S. Lawful Permanent Resident. Investors already present in the U.S. pursuant to an unexpired work permit, or other lawful nonimmigrant status, may petition for the conditional green card directly in the U.S. on what is called the Form I-485. Whether the investor processes inside or outside the U.S., spouses and unmarried children under the age of 21 will also receive conditional green cards. Thereafter the investor has two years to meet the pertinent requirements to have the condition removed. In other words, no sooner than 90 days prior to reaching the two-year mark as a conditional permanent resident, the now Conditional Permanent Resident must file for removal of the condition so that their immigrant status becomes permanent. The removal of the condition is accomplished by filing the Form I-829 with the USCIS. It is at this point in time that the investor must demonstrate that their investment was sustained over the full two year period and that the promised jobs were created.


Initial participation in the EB-5 program was low because of a combination of investor uncertainty and a flawed adjudication system. Even after the creation of Regional Centers, the program meandered for years until positive amendments in the law allowed Regional Centers to comport with real work commercial requirements. The year 2009 saw a sharp increase in the number of Regional Centers alongside of an increase in approved investor petitions. In the year 2010, we are likely to see the program blossom as Projects reap the benefits of foreign capital over bank financing, as investors experience the program as a viable path to the green card, and as United States citizens enjoy the creation of much needed jobs.