- , EB5
Since the beginning of this year, we’ve received a number of inquiries from prospective clients seeking to understand better the difference between EB5 regional center and direct EB5 investments. In response, we’re sharing the info below explaining the key differences between the two types of EB5 projects.
EB5 Basics
Congress created the employment-based fifth preference (EB5) immigrant visa category in 1990 for immigrants who invest in and manage U.S. companies that benefit the U.S. economy and create or save at least 10 full-time jobs per foreign investor for U.S. workers. The basic amount required to invest is $1.8 million, although that amount is reduced to $900,000 if the investment is made in a high unemployment area or rural region.
Following the investment and an approval of the EB5 petition, investors apply for an immigrant visa and obtain a conditional, 2-year permanent resident status (i.e., green card status). At the end of that period, the investor must prove to USCIS that she/he has maintained the investment and created or saved at least 10 full-time jobs. If these conditions are met, the investor’s conditional status will be removed and they become permanent residents.
There are two types of EB5 projects: direct and regional center-sponsored. The key characteristics of each are discussed below.
EB5 Regional Center or a Direct Investment Project?
USCIS statistics show that EB5 investments through Regional Centers make up more than 90% of all EB5 investments. Here is a comparison of EB5 Regional Center vs. Direct requirements:
In addition to the above differences in legal requirements, the choice between Direct vs. Regional Center investment has practical implications on Management & Operations, Marketability, Job Creation Monitoring, Risk Management & Exit strategy.
A common misconception regarding Direct EB5 investments is that they do not qualify for a reduced investment amount in a TEA or that the EB5 investment amount is dependent upon the type of business. Direct EB5 investments, like regional center investments, are subject to the minimum investment of $900,000 and the required investment amount depends on the geographic location of the business.
Direct vs. Regional Center Considerations for Businesses
The decision to accept EB5 funds as a direct or a regional center investment is driven by several factors unique to each business. Your inquiry should begin with a qualified EB5 Immigration Attorney who can guide you in evaluating which structure is best for your business. Some of the key considerations include:
A business can contract with an existing regional center for project sponsorship and the creation of a new regional center is not required.
Considerations for Businesses seeking to utilize “direct” EB5 Funds?
US-based new businesses (defined as those established after November 29, 1990) can accept foreign investors’ funds if they meet certain EB5 criteria. A single investor may fund a US-based business or many investors may pool investments into a single business.
The majority of businesses seek EB5 funding due to its low cost. To accept the foreign investors’ funds, businesses must be in compliance with EB5 regulations and provide the investor with the necessary documents for filing of the investor’s I-526, Immigrant Petition by Alien Entrepreneur. The businesses are required to place the investor’s funds at risk (there can be no guarantee of investment return and funds must be used for job-creating economic activities), sustain the investment in the business during a certain time period (5-7 years) and create at least 10 new, full time jobs per each investor.
Key considerations for accepting foreign investments through the EB-5 program:
Immigration General Counsel can guide you in determining if financing through EB5 is appropriate and beneficial for your business model. When financing through EB5 is advantageous to a business, we will guide you in structuring your business so it is compliant with EB5 rules and attractive to foreign investors.
In this process, you would work with a team consisting of an EB5 immigration attorney, corporate counsel and a business plan writer. Services of a securities counsel may be necessary. If you decide to affiliate with a Regional Center – or form your own EB5 Regional Center – you may also need services of an economist and a securities counsel. Immigration General Counsel will coordinate the process on your behalf and manage the work of all third-party professionals in preparation of the business and investment documents that are compliant with EB5 rules and regulations.
EB5 Basics
Congress created the employment-based fifth preference (EB5) immigrant visa category in 1990 for immigrants who invest in and manage U.S. companies that benefit the U.S. economy and create or save at least 10 full-time jobs per foreign investor for U.S. workers. The basic amount required to invest is $1.8 million, although that amount is reduced to $900,000 if the investment is made in a high unemployment area or rural region.
Following the investment and an approval of the EB5 petition, investors apply for an immigrant visa and obtain a conditional, 2-year permanent resident status (i.e., green card status). At the end of that period, the investor must prove to USCIS that she/he has maintained the investment and created or saved at least 10 full-time jobs. If these conditions are met, the investor’s conditional status will be removed and they become permanent residents.
There are two types of EB5 projects: direct and regional center-sponsored. The key characteristics of each are discussed below.
EB5 Regional Center or a Direct Investment Project?
USCIS statistics show that EB5 investments through Regional Centers make up more than 90% of all EB5 investments. Here is a comparison of EB5 Regional Center vs. Direct requirements:
- Job Creation: Direct vs. Indirect
- EB5 Direct: Direct Job Creation only = W-2, permanent, full time employees (35+ hrs per week)
- EB5 Regional Center: Direct, Indirect, Induced = Job creation calculated by expenditures, revenues, combination thereof as well as direct hires. An EB5 economic impacts reports is required.
- Investment Structure
- EB5 Direct: Equity model only = Investors directly or indirectly own the Job Creating Entity
- EB5 Regional Center: Equity and Loan model
In addition to the above differences in legal requirements, the choice between Direct vs. Regional Center investment has practical implications on Management & Operations, Marketability, Job Creation Monitoring, Risk Management & Exit strategy.
A common misconception regarding Direct EB5 investments is that they do not qualify for a reduced investment amount in a TEA or that the EB5 investment amount is dependent upon the type of business. Direct EB5 investments, like regional center investments, are subject to the minimum investment of $900,000 and the required investment amount depends on the geographic location of the business.
Direct vs. Regional Center Considerations for Businesses
The decision to accept EB5 funds as a direct or a regional center investment is driven by several factors unique to each business. Your inquiry should begin with a qualified EB5 Immigration Attorney who can guide you in evaluating which structure is best for your business. Some of the key considerations include:
- The amount of EB5 funds you would like to raise
- How will you source investors
- Nature of the business and job creation
A business can contract with an existing regional center for project sponsorship and the creation of a new regional center is not required.
Considerations for Businesses seeking to utilize “direct” EB5 Funds?
US-based new businesses (defined as those established after November 29, 1990) can accept foreign investors’ funds if they meet certain EB5 criteria. A single investor may fund a US-based business or many investors may pool investments into a single business.
The majority of businesses seek EB5 funding due to its low cost. To accept the foreign investors’ funds, businesses must be in compliance with EB5 regulations and provide the investor with the necessary documents for filing of the investor’s I-526, Immigrant Petition by Alien Entrepreneur. The businesses are required to place the investor’s funds at risk (there can be no guarantee of investment return and funds must be used for job-creating economic activities), sustain the investment in the business during a certain time period (5-7 years) and create at least 10 new, full time jobs per each investor.
Key considerations for accepting foreign investments through the EB-5 program:
- “New” business status – establishment after November 29, 1990;
- A business plan calling for at-risk investment of the EB5 capital that will create at least 10 permanent jobs per EB5 investor within a 2–4-year period from the date of investment;
- Location in a Targeted Employment Area if seeking to qualify for a reduced investment amount of $900,000;
- EB5 compliant record keeping of investment funds and employment records.
Immigration General Counsel can guide you in determining if financing through EB5 is appropriate and beneficial for your business model. When financing through EB5 is advantageous to a business, we will guide you in structuring your business so it is compliant with EB5 rules and attractive to foreign investors.
In this process, you would work with a team consisting of an EB5 immigration attorney, corporate counsel and a business plan writer. Services of a securities counsel may be necessary. If you decide to affiliate with a Regional Center – or form your own EB5 Regional Center – you may also need services of an economist and a securities counsel. Immigration General Counsel will coordinate the process on your behalf and manage the work of all third-party professionals in preparation of the business and investment documents that are compliant with EB5 rules and regulations.
