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Grey Areas and Potential Pitfalls of Direct EB-5

January 17, 2015

Sign EB-5 is an option for employment based immigration to the United States. To gain permanent residence by it, immigrant investors must invest in U.S. economic development and save or create at least 10 jobs. Within it, there are two sub-options. An immigrant may (1) use a regional center or (2) undergo “direct” EB-5. When using a regional center, the process is more stable, but the immigrant has less control over the investment. Conversely, when using EB-5 Direct, the immigrant has more control, but the process is less clear-cut. In fact, it involves several legal grey areas and potential immigration pitfalls. However, EB-5 direct investors have an advantage: a greater apparent capacity to profit from their investment. The option is thus, perhaps rightfully, seen as high-risk-high-reward. In order to illuminate some concerns our law firm has with the process, we have compiled this list of things EB-5 direct investors should take into consideration before committing to investment.

1. When an immigrant is acquiring a company for direct EB-5, there are cases in which the business will need to grow by at least 40% in either employees or net worth for the immigrant to be eligible for permanent residence. This seems clear enough until one attempts to actually calculate the company’s growth. The present total amount of employees and net worth can be easily calculable (the former more so than the latter). However, in order to show a change over time, one needs two points of time. It is obvious that the present is one of those times, but the other is guesswork. There are several potential options, including past tax returns and quarterly reports.

2. It is possible for immigrant investors to pool the investment with each other (if each immigrant invests at least the minimum amount and saves or creates ten jobs). It is also possible for non-immigrant foreign investors to be involved in this as well, so long as their invested funds are shown to have been lawfully acquired. However, it has not been officially specified what evidence the USCIS is looking for in this regard.

3. It is said in many places that immigrant investors need to create (or save, in the case of a “troubled business,”) 10 jobs within two years of the start of conditional residence. But there is a significant caveat to this: when the two years have elapsed, the immigrant needs only to show that the jobs were created or that they can be expected to exist within a reasonable period of time. What is reasonable in this case? It is accepted as sufficient for the immigrant to show that the jobs will exist within one year of the end of the conditional two-years, but the upper limit of this reasonableness us unknown.

4. It is unclear how early the immigrant investor can liquidate (all or part of) the investment. In theory, he or she should be able to do so as the petition to remove residence conditions is pending. If at least 10 permanent jobs already exist (meaning the immigrant will not need to take advantage of the extra time mentioned in the prior point), the immigrant should be able to completely liquidate the investment. If the immigrant can show that the jobs will exist within a reasonable amount of time, he or she should be able to begin divesting. (This assumes the divestment won’t delay the job creation.) These moves seem incautious at best, but in theory they shouldn’t harm the immigrant investor’s chance at permanent residence. In other words, they probably can be done–but shouldn’t be if there isn’t much to gain from it.

5. The immigrant investor can be paid a salary for his or her role in the business, but, put bluntly, the USCIS finds this suspicious. It appears the agency is quick to decide that the funds are divestment rather than being a fair salary. The minimum investment must be maintained throughout the conditional residence for permanent residence eligibility, so caution is necessary here. Immigrant investors that are taking a salary would thus be wise to have a lower one than average (for their role in a company of their size) and/or to not take a salary when the company is experiencing a loss.

6. When the investment is made in a Target Employment Area (rural or a place with 1.5 times the national unemployment rate), the minimum investment requirement falls to $500,000. However, when some of the investment is made in these areas while some is not, taking advantage of the lower minimum while not endangering one’s pathway to permanent residence becomes difficult. The guidance given by the USCIS is not sufficient to apply to many circumstances, so immigrants should consult with an attorney before deciding that they can use the $500,000 minimum (rather than $1,000,000).

7. If an alien invests in a U.S. business on a non-immigrant visa and makes money from that investment, it is unclear if this money could be reinvested to count toward EB-5 requirements. Attempting to do so is not recommended if it can be avoided.

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