EB-5 Program: Direct vs Regional Center
EB-5 dates back to 1990. It allowed people to get Green Cards to invest directly in US businesses and create at least 10 jobs. Another pilot program, EB-5 regional center, was introduced in 1992 and was the most popular.
Originally the EB-5 program required an investor to invest $1million and create 10 full-time jobs for 2 years. But the prospect of running a business in a foreign country and also creating 10 full-time jobs was probably too much for somebody who by definition was new to the US and as a result, the program didn’t get much traction.
So, in 1992, congress introduced the two variations to the original program, the first variation was to introduce the concept of TEA, so the new rule said if the job creation happens to be in a TEA, then the minimum investment would be reduced from $1 million to half a million dollars.
TEA are either rural areas or higher unemployment areas based on the census tract data, the second variation was the introduction of the concept of the regional center, a regional center is a company that receives a designation from the USCIS to sponsor projects that create jobs that qualify for EB-5 immigrant visa, the biggest difference between a direct and regional center project is, that in fact in direct projects you need to create and maintain 10 full-time jobs, while in the regional center projects you are allowed to use the economic impact of the entire project to calculate indirect jobs, the regional center is then allowed to allocate the indirect jobs among the different investors usually in the order the investor receive their green cards, that allows the project to have many more jobs than only counting the direct jobs, which is why regional center project tend to be larger than the direct EB-5 projects.
The majority of the regional center projects are located in the TEA, the amount is often used as synonymous with the regional center amount. The direct investment could also qualify as long as the project is located in a TEA. The investment amount differs from location to location and not on whether the type of investment is direct or through a regional center. In the direct investment, the investor has to identify the business, fund, prepare a business plan, and file I-526, once the application is approved, the investor needs to create 10 permanent jobs during the 2 years conditional residency period, the complete process is expensive and also the job creation cost is high, whereas in the regional center program the regional center takes care of finding the business, creation of the business plan and the job creation process. The regional centers charge administrative fees for the service, but the chances of the condition of the 10 full- time job creation during the 2-year conditional residency are slightly high as the indirect jobs and the induced jobs are also calculated apart from the direct jobs created, as in comparison to the direct investment route where only the direct jobs created are accounted for.
Direct investment in EB-5 was generally favored by an investor who wants more control over the business and looking to expand their business operations into the US and increase their profits, which typically means that the investor is looking to make an investment in a more urban, business-friendly area that may or may not qualify as a TEA, due to local unemployment rate. The regional center investment method is a more popular method as it allows each investor with minimal to no daily management responsibilities.
The direct investment follows a more active approach, whereas the regional center is passive.
Finally, investors often ask which is a better regional center or direct investment route for the EB-5 program, there is nothing inherently better or worse about a regional center or direct investment deal, both methods have their own benefits and drawbacks and investors must thoroughly explore their options before committing to one or the other.