EB5: Regional Center or Direct Investment?

 

By Maud Poudat | US Immigration Attorney
Posted: April 5, 2016

EB5: Regional Center or Direct Investment? - The Pros and Cons of investing through a Regional Center for your EB5 Visa.

Two options are available for immigrant investors looking to invest from half a million up to a million dollars in the U.S. in order to receive their green card through an EB5. You can choose to either buy or start your own qualifying business, or invest the funds through the Regional Center (RC) of your choice. There are pros and cons to each option, so the choice depends on your preferences as an investor. With either option, the investor will receive a conditional green card valid for two years, which will have to be renewed prior to its expiration before the investor can be granted permanent residence.

Investment Amount

• Direct Investment: whether you decide to buy an existing activity or start your own, you will have the option to invest $1,000,000 or the lower amount of $500,000 if your business is located in a Targeted Employment Area (TEA), defined as 1) A rural area or 2) A non-rural area that has experienced high unemployment (150.0 percent of the national average unemployment rate during a comparable 12-month period).
• Regional Center: the amount that is generally invested will be $500,000 since the project the RC run often take place in TEA, thus limiting the amount which is to be invested to obtain your green card.

In either case, the investor will have to prove the legitimate source of funds. The investment can take the form of a loan secured by personal assets, gift, inheritance, or personal funds emanating from the sale of real estate, personal property, business, savings or stocks. The U.S. Citizenship and Immigration Services (USCIS) will want to see documentation tracing the funds from its origin to the actual transaction evidencing the investments in the new enterprise.

RB-5 Visa: Types of Investment

Direct Investment: An investor opting for a direct investment will need to invest in a “for profit” new commercial enterprise, which is a commercial enterprise:

• Established after Nov. 29, 1990, or
• Established on or before Nov. 29, 1990, that is:
  1. Purchased and the existing business is restructured or reorganized in such a way that a new commercial enterprise results, or
  2. Expanded through the investment so that a 40-percent increase in the net worth or number of employees occurs

Note that enterprises established before November 29, 1990 can also be considered new enterprises if they have gone through re-organization or substantial change.

A commercial enterprise is any for profit organization that is a corporation, partnership, or limited liability company.

Regional Center: The investor will not set up a company in order to invest into a Regional Center project. The funds will be invested and placed into an escrow account which is held by a third party chosen by the RC, and subsequently disbursed to the RC.

Management

• Direct Investment: The EB5 process through direct investment requires that the investor be actively involved in the management of the business day-to-day or through policy.
• Regional Center: The investor will not have any control over the decisions of the company in which he or she has invested as a Limited Liability Partner, nor be involved in the management or policies of the company. However, some investors may prefer this type of investment as they are free of any obligations and they can live anywhere in the United States.

Job Creation

• Direct Investment: At least 10 jobs for eligible U.S. citizens or permanent residents must be created or preserved over the following 2 year period as a result of the investment. This will have to be proven at the time the investor is ready to renew his permanent residency. If the investor invests in a troubled business, the investor must prove that the number of existing jobs is being or will be maintained at no less than the pre-investment level for a period of at least two years.
• Regional Center: The investor does not need to create 10 direct jobs, but his/her investment should create either 10 direct or indirect jobs. The job creation criteria is addressed in the business plan presented by the Regional Center to USCIS.

Risks

• Direct Investment: This option is preferable for those looking to be directly involved in their investment, as it will allow them to be in charge of the business being created. That being said, there is still no guarantee that the investment will hold in value. If the investment is made in a TEA, there are additional risks of having invested in an area of high unemployment or distress.
• Regional Center: The investment will often take the form of either a loan (in which case interest may be paid out) or a capital investment (in which case dividends). Either way, it will have to be maintained for at least the 5-year period leading to Permanent Residency, and there is no guarantee that it will hold value in full.

Ease of the EB-5 Visa Process

• Direct Investment: Applying through your own enterprise is more difficult and time-consuming, but it provides you with closer control of your investment and a wider range of options to invest in, as you are not bound by the pre-determined list of projects chosen by the Regional Center. A business plan is required showing that at least 10 jobs will be created within the next 2-year period; unlike through a Regional Center, which allows for the tallying of indirect jobs created, these jobs must be positions directly being created by the investment.
• Regional Center: The main advantage of investing through a Regional Center is the relative ease of the process. Instead of having to jump through the hoops of creating your own enterprise or locating an investment opportunity, you will simply invest in your choice of a number of pre-approved projects directed by the Regional Center. There is therefore no obligation to come up with a business plan or to show that the requisite number of jobs will be directly or indirectly created; that responsibility will fall to the Regional Center when determining the approved list of projects.

Whichever option you would prefer, our office is prepared to assist you in the course of your application. Please do not hesitate to contact us should you have any questions about this or any other immigration process.