Congress created the EB-5 immigrant visa category in 1990 for immigrants seeking permanent residency (“green card”) to engage in a commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. The basic amount required to invest is $1 million, although that amount may be $500,000 if the investment is made in a “targeted employment area.” Of the approximately 10,000 numbers available for this preference each year, 3,000 are reserved for entrepreneurs who invest in targeted employment areas. A separate allocation of 3,000 visas is set aside for entrepreneurs who immigrate through a Regional Center Pilot program discussed below.

Only about 1,000 to 1,500 people a year have immigrated in this category, just one-tenth of the visas available. In 2003, Congress asked the U.S. Government Accountability Office (GAO) to study the EB-5 program. The GAO report concluded that the program has been under-used for a variety of reasons, including the rigorous application process and the failure to issue regulations implementing the 2002 law. The report found that even though few people have used the EB-5 category, EB-5 participants have invested an estimated $1 billion in a variety of U.S. businesses.

The Regular Program

Immigration and Nationality Act (INA) §203(b)(5) provides a yearly maximum of approximately 10,000 visas for applicants to invest in a new commercial enterprise employing at lea t 10 full-time U.S. workers. To qualify under the EB-5 category, the new enterprise must: (1) be one in which the person has invested (or is in the process of investing) at least $1 million (or at least $500,000 if investing in a “targeted employment area,” discussed below) after November 29, 1990; (2) benefit the U.S. economy; and (3) create full-time employment for at least 10 U.S. workers. Moreover, the investor must have at least a policy-making role in the management of the enterprise.

Two or more individuals may join to make an EB-5 investment. A single new commercial enterprise may be used for investor/employment-creation classification by more than one investor, provided that: (1) each petitioning investor has invested (or is actively in the process of investing) the required amount; and (2) the creation of at least 10 qualifying full-time jobs may be attributable to each investor. In fact, a new commercial enterprise may be used for investor/employment creation classification even though there are several owners of the enterprise, including persons not seeking classification, if: (1) the source(s) of all capital invested is (are) identified; and (2) all invested capital has been derived by lawful means.

There are two basic requirements for showing a new commercial enterprise. First, the enterprise must be “new,” second, it must be a “commercial” enterprise. Any for-profit entity formed for the ongoing conduct of lawful business may serve as a commercial enterprise. Regardless of the forms used to create a new enterprise, the focus of the law is on the creation of at least 10 new employment opportunities. Investments creating a new enterprise but failing to create 10 new jobs will also fail to qualify for EB-5 classification. An investor also can create a new enterprise by expanding an existing business. Only an expansion resulting in an increase of at least 40 percent in the net worth of the business or in the number of employees of the business will satisfy the visa requirements. An investor must be involved in the management of the commercial enterprise. Ownership and operation of real estate property does not qualify as commercial enterprise.

USCIS effectively requires the entire capital amount to be already invested and at risk in the commercial enterprise at the time the petition is filed. The term “invest” means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the entrepreneur and the new commercial enterprise does not constitute a contribution of capital and will not constitute an investment. The regulations define “capital” as cash and cash equivalents, equipment, inventory, and other tangible property. Retained earnings cannot count as “capital.”

To qualify for EB-5 status, an investment normally must create full-time employment for at least 10 U.S. citizens, lawful permanent residents, or other immigrants lawfully authorized to be employed in the United States. Neither the investor nor the investor’s spouse and children count toward the 10-employee minimum. The regulations define an “employee” for EB-5 purposes as an individual who (1) provides services or labor for the new commercial enterprise and (2) receives wages or other remuneration directly from the new commercial enterprise. This definition excludes independent contractors. The jobs created must be full-time.

When enacting the EB-5 program, Congress took an affirmative step toward creating jobs in the geographic areas that need them most. The statute set aside 3,000 of the approximately 10,000 EB-5 visas available annually for foreign citizens who invest in “targeted employment areas.” The statute defines a “targeted employment area” as a rural area or an area that has experienced high unemployment of at least 150 percent of the national average. An area not within a metropolitan statistical area (as designated by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more is considered a rural area. Each state notifies USCIS which state agency will apply these guidelines, and determines targeted employment areas for that state.

The regulations require submitting evidence to establish that capital used in the new enterprise was acquired by legitimate means. It could be shown by: foreign business registration records; personal and business tax returns, or other tax returns of any kind filed anywhere in the world within the previous five years; documents identifying any other source of money, i.e. inheritance, disposition of real estate or other assets; long-term saving activities; and others.  Each foreign jurisdiction usually presents its own unique challenges to legalization of capital requirements.

The regular EB-5 program and the pilot program have similar requirements to begin the process. The distinction between the two processes is that the former require the petitioner to submit all of the described evidence; the latter requires the designated regional center to certify that the investor has met its criteria.

The Pilot Program – Regional Centers

To encourage immigration through the EB-5 category, Congress created a temporary pilot program in 1993. The Immigrant Investor Pilot Program directs the Attorney General and Secretary of State to set aside 3,000 visas each year for people who invest in “Designated Regional Centers.” The Pilot Program has been renewed several times, and efforts are underway in Congress to make it permanent. USCIS estimates that approximately 90% of EB-5 visas are based on regional center investments.

The Pilot program does not require that the immigrant investor’s enterprise itself employ 10 U.S. workers. Instead, it is enough if 10 or more jobs will be created directly or indirectly as a result of the investment. This program also differs from the regular EB-5 provisions in that it permits private and governmental agencies to be certified as regional centers if they meet certain criteria.  It also allows the immigrant investor not be involved in management of the enterprise and thus reside anywhere in the United States regardless of the location of the enterprise.

An investment under the EB-5 pilot program must be made in a commercial enterprise located within a “Regional Center,” defined as “any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment.” A center seeking USCIS approval must submit a proposal showing how it plans to focus on a geographical region within the United State and to achieve the required growth by the means specified. The proposal must show “in verifiable detail how jobs will be created indirectly through increased exports,” as well as the amount and source of capital committed and the promotional effort made and planned. USCIS should approve applications for EB-5 regional center status as long as the applications are based on a general prediction concerning: (1) the kinds of commercial enterprises that will receive capital from investor; (2) the jobs that will be created directly or indirectly as a result of the investment of capital; and (3) the other positive economic impacts that will result from the investment of capital.

Assuming a Regional Center application has been approved, an applicant seeking EB-5 status under the pilot program must make the qualifying investment (i.e., the amount required under the regular program) within an approved regional center. However, the requirement of creating at least 10 new jobs is met by a showing that as a result of the new enterprise, such jobs will be created directly or indirectly.

The petitioner’s new commercial enterprise must be within the area specified in that letter. If the commercial enterprise is involved directly or indirectly in lending money to job-creating businesses, it may only lend money to businesses located within targeted employment area to take advantage of the lesser capital requirement ($500,000). The businesses receiving the loans must be within the geographic limits of the regional center if the enterprise is to qualify under the pilot program. Otherwise the enterprise is not promoting economic growth through “improved regional activity” as required by the regulations. In 2003 Congress gave USCIS discretion to “give priority” to EB-5 petition filed through a regional center.

Before an investor can participate in a Regional Center’s EB-5 investment program, each investor must independently petition USCIS for an EB-5 visa.  USCIS solely determines whether the investor qualifies for the EB-5 visa.  USCIS’ diligence includes a detailed review of the sources of the investor’s funds, family history, and other representations of the head of household and his immediate family member under the age of 21.

Assuming USCIS approves an investor’s petition under either the regular or pilot program, he or she becomes a conditional resident for two years following the approval of an adjustment application or admission under an immigrant visa. The application to remove the conditions is accompanied by evidence that the individual invested or was in the process of investing the required capital, and that the investment created or will create 10 full-time jobs. The individual should show that he or she has “substantially met” the capital investment requirement and has continuously maintained this investment during the conditional period.