Why you should invest in the EB-5 Program now?
Created by the U.S. Congress in 1990, the EB-5 program provides a clear pathway to permanent residency and citizenship. Tens of thousands of families from nearly every country have successfully immigrated by making qualifying investments in U.S. projects and business enterprises. The EB-5 visa is popular among people currently living abroad and those already working in the United States on nonimmigrant visas.
The EB-5 Program is composed of two different pathways. The first pathway, known today as “EB-5 Direct”, was created in 1990 through the Immigration Act of 1990 (IMMACT90), which is a permanent part of the Immigration and Nationality Act (INA). Because of how it was created, EB-5 Direct does not have an expiration date and it does not require any congressional action to keep the program running. In 1992, Congress created the Immigrant Investor Pilot Program to increase interest in the EB-5 visa program. This new pilot program established the second pathway, through EB-5 Regional Centers. Since its creation, the program has been reauthorized 32 times. It has historically been reauthorized in one-year increments, as part of annual government budgetary resolutions. In 2021, Congress took the unusual step of decoupling the program extensions from appropriations legislation, which usually secured the program’s reauthorization. To date, an agreement on a permanent EB-5 Regional Center Program bill has not been made and the program is currently suspended until Congress takes the necessary steps for reauthorization.
In recent times, Direct Investment has received a lot of attention, due to the sunset of the Regional Center Pilot Program. The Regional Center Program was a popular choice among the investors globally because of the easy job creation, as indirect and induced jobs were also accounted for and secondly because it was a passive investment and the investor did not have to be involved in the day to day management of the project.
The I-526 application filed through the Direct Investment only compromises 3% -4% of the total number of applications filed.
Direct EB-5 investors need not be entrepreneurs and need not have day-to-day managerial responsibility. A big myth is that regional center investors can be passive, whereas direct EB-5 investors must operate the business in which they invest. In reality, EB-5 has a single set of generally applicable requirements for EB-5 investor participation in new commercial enterprises. Any investor, whether direct or regional, can fulfill the management requirement by:
- exercising day-to-day managerial responsibility
- participating in policy formation, which can mean as little having the rights, powers, and duties normally granted to limited partners
There is one practical difference in management: regional center deals can place investors in a special-purpose entity with nothing but a loan to manage, whereas direct EB-5 deals cannot. Direct EB-5 investors must play a leadership or policy-making role in the job-creating enterprise. This can be advantageous for the investor, but it can also complicate matters for the business owner. Foreign investors who are simply members of a regional center lender do not need to worry about the investment project’s US partners, bank lender, franchisor, or licensing board. When foreign investors are directly involved in project ownership, they may be concerned.
When it comes to investment management, however, this is the extent of the difference between direct and regional center EB-5. Direct EB-5 investors can be entrepreneurs, but they are more often than the investors who support American entrepreneurs. The fact that direct and regional center EB-5 does not limit immigrant investment to majority-immigrant-owned businesses is a significant advantage.
Some of the key differences between the Direct Investment Model and Regional Center Model are:
On 22nd June’21, Judge Jacqueline Scott Corley of the U.S. District Court of the Northern District of California issued an order granting summary judgment in Plaintiff’s favor in the matter of Behring Regional Center LLC V. Chad Wolf, et al. EB-5 Final Rule on $500K to $900K increase was Invalidated by Federal Court Without Injunction Preventing Rule Reinstatement by Secretary Mayorkas, which gave the EB-5 Investors a short window to file for the I-526 at the reduced minimum investment of $500,000. But, this was followed by the sunset of the Regional Center pilot program on the 31st of June, as the U.S Congress failed to reauthorize the program.
But, the Direct Investment route is permanent as defined in the law, is still available for investment at the reduced minimum investment amount of $500,000 in the TEA area. The investors who would like to take advantage of the reduced amount should invest in the Direct Pool projects available and file for the I-526.
Direct Pool investment is very similar to the Regional Center route, the major key difference between them is the Direct Pool Investment is an equity-based model, whereas the Regional Center is a Debt-based model.
Investment options available under the Direct Route will usually be small projects, with limited slots available for the EB-5 Investors, this is due to the requirement of the 10 full-time direct jobs per investor.
The EB-5 Direct Pooled Investment projects would usually include:
- Specialty Restaurants
- Quick Service Restaurants
- Senior Living Home
Investors who had abandoned their plans of the EB-5 Program, after the change in the investment amount in November 2019, can take advantage of this opportunity and file for their EB-5 Visa at the reduced investment amount of $500,000 and take their first step towards achieving their American Dream.
In, October’20, Mr. Verma, who was looking to invest in the EB-5 Visa for his son, who was already in America pursuing his master’s on an F1 Visa. He was in the process of enquiring about the program and was arranging the funds to invest in the EB-5 Program. By the time he was able to arrange the funds, the minimum investment amount was increased from $500,000 to $900,000. He had to halt his plans and his son had to return from the US as he had completed his Master’s and could not get sponsorship. He was still in the process of acquiring the additional funds required and also appointed an Immigration Attorney who helped him with his Source of Funds. He was already ready to file the application , but on 22 June’21 the court ruling came and reduced the investment amount, he was able to file the I-526 application for his son at the reduced amounts.
Similarly, one can take advantage of the reduction in the investment amount and file for their EB-5 Application through the EB-5 Direct Pooled Investment Projects.
Due diligence must be conducted on all prospective EB-5 projects, whether direct or regional center, in order to make an informed investment decision that takes into account all financial and immigration risk aspects of the investment.
