Since the beginning of this year, we’ve received several inquiries from prospective clients seeking to understand better the difference between EB-5 regional center and direct EB-5 investments. In response, we’re sharing the info below explaining the key differences between the two types of EB-5 projects.
EB-5 Basics
Congress created the employment-based fifth preference (EB-5)immigrant visa category in 1990 for immigrants who invest in and manage US companies that benefit the US economy and create or save at least 10 full-time jobs per foreign investor for US workers. The minimum investment amount is $1,050,000, although that amount is reduced to $800,000 if the investment is made in a high unemployment area, rural area, or into an infrastructure project.
Following the investment and an approval of the EB-5 petition (Form I-525 or I-526E), investors located outside the US apply for an immigrant visa through a US Consulate and obtain an immigrant visa and conditional, 2-year permanent resident status (i.e., green card status). Investors in the US in lawful nonimmigrant status at the time of I-526 or I-526E filing may apply for residence at the same time they submit Form I-526/I-526E, if an immigrant visa is immediately available. At the end of conditional residence period, the investor must prove to USCIS that they have maintained their 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 a permanent resident card will be issued.
There are two types of EB-5 projects: direct and regional center-sponsored. The key characteristics of each are discussed below.
EB-5 Regional Center or a Direct Investment Project?
USCIS statistics show that EB-5 investments through Regional Centers make up more than 90% of all EB-5 investments. Here is a comparison of EB-5 requirements for Regional Center vs. Direct projects:
Job Creation: Direct vs. Indirect
- EB-5 Direct: Direct Job Creation only = W-2, permanent, full-time employees (35+ hrs per week)
- EB-5 Regional Center: Direct, Indirect, Induced = Job creation calculated by expenditures, revenues, combination thereof as well as direct hires. An EB-5 economic impacts reports is required.
Investment Structure
- EB-5 Direct: Equity model only = Investors directly or indirectly own the Job Creating Entity
- EB-5 Regional Center: Equity and Loan model
In addition to the above differences in legalrequirements, the choice between Direct vs. Regional Center investment has practical implications on Management & Operations, Job Creation Monitoring, Risk Management & Exit Strategy.
A common misconception regarding Direct EB-5 investments is that they do not qualify for a reduced investment amount in a Targeted Employment Area (TEA)/rural area or that the EB-5 investment amount is dependent upon the type of business. Direct EB-5 investments, like regional center investments, are subject to the minimum investment of $800,000 and the required investment amount depends on the geographic location of the business.
Direct vs. Regional Center Considerations for Businesses
The decision to accept EB-5 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 EB-5 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 you plan to source EB-5 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” EB-5 Funds?
A new US-based business (defined as an entity established after November 29, 1990) can accept a foreign investor’s funds if they meet certain EB-5 criteria. Per the 2022 EB-5 Reform and Integrity Act, only one EB-5 investor can invest into a direct EB-5 project.
The majority of businesses seek EB-5 funding due to its low cost. To accept the foreign investors’ funds, businesses must comply with EB-5 regulations and provide the investor with the necessary documents for filing of the investor’s Form I-526/I-526E Petition. The EB-5 entity is 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 (usually 3-5 years) and create at least 10 new, full time jobs for the EB-5 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 EB-5 capital that will create at least 10 permanent jobs for an EB-5 investor within 2-4 years from the date of investment;
- Location in a rural or a Targeted Employment Area if seeking to qualify for a reduced investment of $800,000;
- EB-5 compliant record keeping of investment funds and employment records.
Immigration General Counsel can guide you in determining if financing through EB-5 is appropriate and beneficial for your business model. When financing through EB-5 is advantageous to a business, we will guide you in structuring your business so it is compliant with EB-5 rules and attractive to foreign investors.
In this process, you would work with a team consisting of an EB-5 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 EB-5 Regional Center – you would also need the 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 EB-5 rules and regulations.