Non-U.S. nationals seeking ways to immigrate to the United States face a series of complex laws and policies. To become a lawful permanent resident, a foreign national must have some type of qualifying skill or relationship, either with a close family member or with an employer, or be able and willing to make a substantial investment in a for-profit enterprise that will create a minimum of ten (10) jobs for U.S. workers.
EB-5: An Immigration Option for the High Net Worth Individual
High Net Worth (“HNW”) individuals have the option of immigrating under the EB-5 category. “EB-5” stands for “employment-based fifth preference,” which is a reference to the Immigration and Nationality Act section authorizing this immigration option. EB-5 allows permanent resident status to individuals who invest $1,000,0001 in a for-profit business that creates ten (10) permanent, full-time (minimum 35 hours per week) jobs for U.S. workers. One of the main advantages for this immigrant category is that an applicant may “self-petition,” meaning there is no need for an employer sponsor or a government certification acknowledging the lack of U.S. workers for a position. In addition, the EB-5 visa availability is “current” as of this writing2, meaning that once an EB-5 petition has been approved, the applicant may begin processing for his or her green card immediately.
Because of the high amount of the required investment, this option is only open to those few who can afford to place $1,000,000 or $500,000 at risk in a business or capital project. For this reason, it is employed mostly by HNW individuals.
Two EB-5 Options: Direct Investment or Regional Center Investment
An EB-5 investment may be made either directly by the HNW individual into a business that will hire ten U.S. workers on its payroll, or it may be made by contributing the investment funds to a project under an EB-5 “Regional Center.” Each option has its own requirements and each has advantages and disadvantages.
EB-5 Direct Investment
EB-5 direct investment requires a HNW individual to place personal investment funds at risk in a for-profit business that will create the necessary ten new jobs. The business must be “new,” which is defined as one that was established after November 30, 19903. Direct investment EB-5 businesses may accept capital contributions from more than one foreign investor; however, there must be ten (10) new jobs for each foreign investor.
Investment in a direct EB-5 business may take the form of cash, equipment, inventory, cash equivalents, or indebtedness secured by the investor’s personal assets. In all cases it will be necessary to prove that (a) the investment funds are personally owned by the foreign investor; and (b) that the funds were acquired lawfully. The investment must be “at risk,” meaning that it is subject to loss or seizure in the case of default. There cannot be any guarantee of repayment of investment capital (redemption agreement), and capital contributed as debt to the new commercial enterprise is impermissible in direct investments. An EB-5 investor must participate to some extent in the day-to-day operations of the business or, if the business is a partnership or limited liability company, he or she must be involved in management or policy making activities.
Each foreign investor, whether in a direct EB-5 investment or a regional center project, must prove the valid path and source of investment funds. The burden is on the investor to prove that the source of investment capital was legitimate and was not obtained through unlawful means. In addition, the investor must demonstrate the path of the investment funds from his or her control into the new commercial enterprise.
3 For businesses that were established before this date, an applicant must show that the infusion of investment funds effected a restructured or reorganized business; or that it has been expanded so that a substantial change in net worth or number of employees has resulted.
Job creation in direct investment EB-5 projects must consist of newly-hired, full-time (minimum 35 hours per week) employees who receive wages directly from the new commercial enterprise. It is proven in direct investments by producing W-2’s, I-9 forms, and payroll records. The jobs must be created within two and one half years following the approval of the applicant’s initial EB-5 petition.
In addition, all potential immigrants and their family members must be admissible to the United States as immigrants. This requires that no intending immigrant has been convicted of a “crime involving moral turpitude,” (crimes that involve dishonesty or baseness) or an “aggravated felony.” A competent immigration attorney can evaluate whether any past convictions would render an intending immigrant inadmissible.
EB-5 Regional Center Investment
A Regional Center is simply a business entity, public or private, that has received “regional center” designation by the United States Citizenship and Immigration Service. Regional Centers must demonstrate prospectively that investments in certain types of industries in certain defined geographic regions will result in the creation of direct, indirect and induced jobs. Job creation may thus include “indirect” as well as direct jobs, meaning that it is not necessary to prove that each job consists of an additional employee on the business’s payroll. The job creation element for Regional Center projects is proven using econometric analysis, which normally requires a formal study by a PhD regional economist. Thus, job creation is a much easier burden for the individual EB-5 Regional Center investors. Project managers submit an EB-5 compliant business plan that outlines the plan for capital spending and, together with the econometric analysis, the only proof that is necessary for final approval is a showing that the business plan was complied with and the funds were expended in accordance therewith. This burden is carried by the EB-5 Regional Center or project manager, not the individual investor.
Another advantage to a Regional Center project is the more passive nature of the investment. While the regulations still require some form of involvement in indirect management or policy setting, this is usually demonstrated by showing that the individual foreign investors have some type of advisory role rather than actual management authority over the enterprise. As a result, the HNW foreign investor can enjoy the benefits of investing in an EB-5 business without having the burden of operating it.
EB-5 Regional Center investments are a convenient way for the HNW individual to obtain permanent resident status in the United States. For those who qualify, this vehicle permits a foreign national to invest in a project anywhere in the United States and to reside elsewhere. It allows a more passive investment and relieves the HNW foreign national of the burden of proving the job creation element. For this reason, the EB-5 Regional Center investment has been employed by growing numbers of HNW foreign nationals in recent years.
Qualifying for a Regional Center Investment
Most Regional Center projects involve multiple investors who contribute their capital to an aggregate fund consisting of several million dollars. These offerings normally rely on certain exemptions from the usual requirement to register with the United States Securities and Exchange Commission (SEC). One of these exemptions includes extending the offering only to “accredited investors” with whom the offeror has a relationship.
To qualify as an “accredited investor” under Rule 501 of Regulation D of the Securities Act of 1933, an individual must have a net worth, either individually or jointly with his or her spouse, of at least one million US dollars ($USD 1,000,000), exclusive of the value of the investor’s personal residence. Alternatively, the investor must have earned individual income in excess of two hundred thousand US dollars ($USD 200,000), or joint income with his or her spouse in excess of three hundred thousand US dollars ($USD 300,000) in each of the two years preceding the determination of accredited investor.
Most Regional Center projects will require a potential investor to complete a questionnaire that addresses both the accredited investor status and an individual’s admissibility as an intending immigrant.
Comparing and Contrasting the Direct EB5 Investment versus the Regional Center Investment
EB5 Regional Centers became an attractive source of alternative financing for capital projects during the 2008 financial crisis and ensuing recession, when traditional institutional financing became scarce. Regional Center financing is usually used for large-scale capital projects in which investors pool their investment funds into an entity that lends the capital to the “Job Creating Enterprise,” which proves indirect employment by means of econometric modeling using input/output analyses.
Two disadvantages to Regional Center investments are (1) the relative risk and lack of control in committing funds to a large building project that may be subject to delays or budget constraints; and (2) the longer timeline for adjudication of EB5 Regional Center investments. Because Regional Center projects depend on sophisticated econometric modeling to prove job creation, they are often subject to higher scrutiny by the USCIS to ensure both the potential success of the project and the soundness of the job creation methodology. As a result, adjudications often take a very long time.
Regional Center projects do have the significant advantage of being able to rely on both indirect job creation and a debt model, rather than straight equity in a job-creating enterprise. Many potential EB5 investors feel more secure in a debt position.
Direct investment EB5 applications can be faster to adjudicate because they always involve smaller projects. In addition, because they may rely only on direct job creation, a USCIS adjudicator does not need to analyze an econometric study. However, because a direct investment must show ten new, permanent jobs on the payroll of the job-creating entity. This limits the number of investors, since each investor must prove ten direct jobs.
Employment-based Immigration: An Overview
Most employment-based immigration options require a United States employer to sponsor an intending immigrant. In most cases, the sponsorship requires both a job offer and a “labor certification,” a process that requires the employer to undertake a lengthy and costly test of the labor market in order to try and first recruit a qualified U.S. worker for the job. In addition, most of the categories for employment-based immigration are not “current.” Since there are only a limited number of immigrant visas available each year for each employment-based preference, the surplus applications pile up and are allocated to the next year. This creates a visa retrogression which, in some cases, exceeds ten years.
Because of the necessity for an employer sponsor, in addition to the cost and the visa retrogression for many employment-based categories, this option is less than attractive for many who qualify for other alternatives.
The employment-based first preference (EB-1) is available for individuals who have worked overseas for an international company in the capacity of an executive or manager, who transfers to a wholly-owned U.S. subsidiary. HNW individuals who
occupy a high level managerial or executive position may qualify for this option. EB-1 does not require a labor certification, and the visa availability is current. To qualify, the U.S. subsidiary must have been in existence for at least one year and the foreign national must have worked in the job position overseas for the parent company for at least one out of the three years preceding the application. In addition, the U.S. subsidiary must be able to demonstrate the need for an executive position or high-level managerial position, and it must be able to pay the beneficiary’s salary.
Employment-based second preference (EB-2) is another “current” category4. This category is for members of the professions holding advanced degrees or persons of “exceptional” ability5. An employer sponsor and a labor certification is required, unless the individual can demonstrate that his or her admission as an immigrant in this category will prospectively benefit the United States national interest.
Employment-based third preference (EB-3) is for professionals holding a four-year degree, skilled workers and other workers. This category requires an employer sponsor and a labor certification, and is overly subscribed for most countries, meaning that there is a significant waiting period (between one and eleven years, depending on the country).
The above is intended as an overview of the major employment-based categories that require employer sponsors. Many of these involve stringent requirements and costly recruitment periods, as well as lengthy waiting times for immigrant visa processing. For these reasons, some foreign nationals look to other options to pursue their dream of U.S. permanent residence and citizenship. For those fortunate individuals who are able to make an investment of between $500,000 and $1,000,000 in an employment-creating venture, the EB-5 visa may be the easiest and most expedient means of acquiring U.S. lawful permanent resident status.
Nonimmigrant Visa Options
The L-1A visa is a temporary, nonimmigrant version of the Intracompany Transferee manager or executive of a multinational company. It is frequently used by overseas parent companies desiring to open a United States subsidiary, to transfer a high-level manager or executive to a U.S. startup subsidiary.
The requirements for the L-1A are essentially the same as for the EB-1, Intracompany Transferee Manager or Executive. The overseas parent company must have been in existence for a minimum of one year, and the prospective transferee must have worked for the overseas company for at least one out of the previous three years prior to the filing of the petition. In addition, the requirements for a “Manager” are stringent, requiring management of either (1) other managers (personnel managers); (2) management of professionals (minimum four year degree); or (3) management of an essential function of the business.
The startup L-1A visa is valid for one year, after which, if the U.S. company is successfully doing business and has hired U.S. workers, it can renew the L-1A for an additional two years. After the renewal, assuming the U.S. subsidiary is able to demonstrate the ability to pay the salary of the Intracompany Transferee, it can petition for the employee to receive EB-1 immigrant status.
Thus, the L-1A may be used as a stepping stone for companies wishing to transfer a worker to a new U.S. business, to the ultimate goal of obtaining lawful permanent residence for him or her.
Other nonimmigrant working visa options include the H-1B for specialty occupations, the O (for persons of “extraordinary ability” in the sciences, arts, education, business or athletics) and the P visas (for athletes or group entertainers).
With determination and creativity, it is possible for non U.S. nationals without close family ties to U.S. citizens to obtain lawful permanent residence in the United States through a variety of means. With the support of a U.S. employer sponsor, the overseas national can gain permanent residence, in some cases without the need for a labor certification. Nonimmigrant visa options often allow the foreign national to enter the United States on a temporary worker visa and then pursue permanent residence through a separate application. Finally, the EB-5 investment visa is an excellent option for the High Net Worth individual with the means to make a substantial investment in a new, for-profit U.S. venture that will create jobs for U.S. workers.