EB5 Investment Risk and Advice
You have several options when it comes to making your EB-5 investment. You can invest in a project designed for immigrant investors, called a regional center. Or you can buy, invest in, or start your own business. Each option has unique EB5 investment criteria You are advised to seek the advice of a business analyst in exploring your investment options. Your immigration lawyer can also assist with this process, and can refer you to additional experts.
When you invest in an existing company or create your own, you must invest in a commercial enterprise, which excludes purchasing stock or personal property. The commercial enterprise in which you invest can be a business trust, joint venture, holding company, sole proprietorship, general or limited partnership, or corporation, either public or private. However, it cannot be a non-profit enterprise. The same restrictions apply to regional centers. Consult your business analyst and immigration lawyer in selecting a business model for your EB-5 visa investment.
If you invest in or buy an existing business, it must have been started after November 29, 1990. Otherwise, you must restructure and expand, so that the net worth of the company, or the number of employees, increases by at least 40 percent.
Keep in mind that meeting this guideline may require creating more than 10 jobs to qualify for an EB5 green card, depending on how many jobs existed prior to your investment. You can, however, increase the net worth of an older business by encouraging increased investment from others, including international and American investors who are not interested in obtaining EB-5 green cards.
When it comes to revamping an older business to participate in the EB5 investor visa program, merely altering the marketing strategy or making superficial changes to the business will not satisfy USCIS. In order to obtain an EB-5 green card after expanding an existing business, you will need to submit audited financial statements to USCIS, including income and employment data for the business. You will also require documentation of the net worth of the enterprise prior to your investment, as well as after your expansion. You immigration lawyer will help you prepare and submit all required documentation correctly.
Keep in mind that restructuring an old business to the satisfaction of USCIS is difficult to achieve; this accomplishment has only one successful precedent.
You can only invest in one project, rather than several. By adhering to USCIS requirements, you ensure that your EB-5 US investment reinvigorates the economy, increasing domestic capital and promoting growth.
At Risk Funds and EB5 Investment
To qualify for an EB-5 green card, the funds you invest must be “at risk,” meaning in most situations you cannot merely deposit capital into the bank account of the enterprise. EB-5 regulations define an at risk investment as “the placing of funds or other capital assets at risk for the purpose of generating a return on the funds placed at risk.” In other words, you cannot get a guaranteed return on your EB5 investment, due to precedents set by cases of previous EB5 investors. Your EB-5 investment must be subject to gain and loss.
If you invest in a regional center, however, you will have an easier time proving to USCIS that your EB5 investment is at risk than if you start, rescue, or retrofit another business. Once you deposit EB-5 investment funds in a regional center, they are considered at risk. Similarly, if you deposit funds in the regional center escrow account, USCIS will most likely recognize your EB5 investment as at risk.
USCIS determines whether an EB5 investment is at risk based on three fundamental criteria:
- Capital used for EB5 investment must belong to you, the investor, and not a business entity. You can invest a loan, but you must ensure that the loan is secured by your personal assets. This way USCIS will feel confident that the EB5 investment is at risk, since if the investment fails, you lose your assets.
- You must stand to lose or gain from your EB5 investment capital. Capital placed in reserve accounts or invested in the stock market do not qualify as an EB5 investment since these funds are not considered at risk. Also, simply placing the investment in the company bank account if you are the sole owner of the business does not qualify the funds as at risk, since you can remove them easily.
- You must select a for-profit enterprise for your EB-5 investment to qualify as at risk. Your EB5 investment must contribute directly to creating jobs and generating profit. Therefore, you must invest in a business or regional center.
This is just an overview of guidelines that can be much more complicated. USCIS does not approach at risk requirements in the same way for every EB-5 investor. It is essential that you work with an immigration lawyer experienced in navigating the complications of at risk EB5 investment, who will understand exactly what evidence you must present to USCIS to prove that your investment is at risk and being used directly for job creation.
Several additional guidelines exist which are often cited by USCIS adjudicators in denying an EB5 petitions.
Your investment must be actively at risk when you file your I-526 petition for a conditional EB5 investor visa. If you merely present USCIS with a plan for future investment rather than evidence that you have already invested, or begun investing, capital which immediately becomes at risk, your petition to participate in the EB-5 program will most likely be denied. This is due to a failure to demonstrate “actual commitment,” as well as a violation of the at risk requirement.
Similarly, If USCIS is to consider your EB-5 investment at risk, you must commit your capital with no method of revoking your investment. You cannot invest money to obtain an EB5 visa with guaranteed returns or redemption rights, which allow you a guaranteed gain from that investment, or a guaranteed path to getting that investment capital back. Also, you may not receive interest on your investment, as if you are merely loaning it to the enterprise. You cannot create an arrangement in which you obtain annual returns on your investment, and still qualify for an EB-5 green card. If you start a business with your EB5 investment, you must set it up as a corporation so you are not getting guaranteed returns.
Keep in mind that most methods through which an investor minimizes risk will prevent you from qualifying for an EB-5 green card. Risk minimization options that will disqualify you from participating in the EB5 investor visa program include limits placed on how much of the invested capital can be used to create jobs.
Your immigration attorney will understand what prompts USCIS to deny an EB-5 petition, and can help you select the best at risk EB5 investment option for you. Your immigration attorney can also guide you as you avoid non-permissible investment structures, ensure that your EB5 investment is at risk, and help you make the best investment decision, taking into account your unique interests and financial situation.
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