The EB-5 Green Card through investment is currently receiving a great deal of attention in the media. Unfortunately, “attention” in this context is analogous to “noise,” not “information.” Many of you out there may be thinking “I want to pursue this option but I’m very confused…where do I start?”
While we obviously recommend contacting an immigration attorney for a thorough evaluation of your specific situation, the following post can help you gain a grasp on the kinds of issues you should consider prior to meeting with your attorney.
Question #1: Do I really want to be an immigrant?
Do you really want to live in the US long-term? Are you planning on travelling or living outside of the US for a significant period of time over the next several years? Have you thoroughly discussed the tax consequences of this move with your accountant or financial advisor?
You should be aware of the substantial presence test, requirements involved in sustaining your legal permanent resident (LPR) status and implications if you “constructively abandon” your LPR status.
Is your primary motivation for pursuing this option securing a green card for your children? For example, Chinese investors pursuing EB-5 on behalf of children near the age of 18 are strongly encouraged to gift the funds to their child and have them apply as the main petitioner. This is due to lengthy visa backlog investors from mainland China currently face and the associated risks with the child aging out once they turn 21.
There are also several alternatives to the EB-5 that you should discuss with your immigration attorney. If you are a citizen of a treaty country, you might seriously want to consider the E-2 investor visa as an alternative to the EB-5. This option allows you to enter the US to manage or direct a business and can include visas for dependents and “essential employees.”
Question #2: Can I come up with the funds?
The minimum investment amount for an EB-5 green card is currently $500,000 if the project is in a “targeted employment area,” $1,000,000 if not. I say “currently” because it is widely believed that those amounts will go up in September. This investment has to be placed “at risk” in a qualifying “New Commercial Enterprise,” and be linked to the creation of 10, full-time US jobs.
It turns out that you don’t literally need half-a-million dollars in cash sitting in your bank account to pursue this option.
The word “capital” obviously includes cash, but also includes a broad list of other methods in which an individual can contribute financial value to a business.
This list includes inventory, equipment, cash equivalents, loan proceeds, and indebtedness secured by assets owned by the immigrant investor. This last option is only permitted if the immigrant investor is personally and primarily liable, and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. Gifts are another very common permissible source of capital.
The most important aspect of the capital used is that it has been obtained through lawful means.
In the case of both gifts and loans, an additional layer of “source of funds” analysis is required, where the investor will need to provide evidence that the funds were derived from lawful means. The source of funds evidence for the debtor/giftor is this case will need to be just as thorough and detailed as if they were the immigrant investor themselves.
If the immigrant investor is using funds, gifted to them by a parent, using a loan secured by real estate they own, evidence will need to be submitted establishing that the funds used to purchase the real estate was itself derived from a lawful source.
Question #3: Do I want to be actively involved in the management of the business?
Are you looking to start a business that you actively manage or direct? Or are you seeking to obtain immigration benefits and the business/investment are simply a means to an end?
The general rule is that an immigrant investor must be engaged in the management of the “New Commercial Enterprise,” either through the exercise of day-to-day managerial responsibility or through policy formulation. It is not enough that the immigrant investor maintain a purely passive role concerning his or her investment.
There are generally three “New Commercial Enterprise” options:
- start a new business;
- expand/restructure/invest in an existing or troubled business; or
- invest in a Regional Center project.
However, when it comes to whether or not you wish to be actively engaged in the management of the NCE, the question really becomes: regional center or direct investment.
If an investor simply wants to invest their capital in a project that will produce the 10 jobs necessary for their approval, without having to spend time managing or being involved in running the business, investing in a regional center project is the best option. This is allowed because an investor in a regional center is usually a limited partner with rights, powers and duties under the Uniform Limited Partnership Act.
If the limited partnership is an investment fund investing in unrelated companies, then the investor’s management is related to the fund, not the companies. “Direct Investment” EB-5s require day-to-day management of the NCE, unless the corporate structure allows for a limited partner or member role.
Many clients start out wanting to pursue the EB-5 via a direct investment in a business they will start and run on their own. We always advise our clients to carefully consider the risks associated with this route, and point out that the vast majority of successful EB-5 petitions use the regional center option.
To show that an immigrant investor is or will be engaged in the exercise of day-to-day managerial control or policy formulation, they must submit of a complete description of the position they will occupy and how it relates to the management of the NCE, and evidence that the immigrant investor is a corporate officer or a member of the corporate board of directors.