Permanent residence is permissible for investors who invest in a commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. The minimum investment is $1 million of capital, which may be reduced to $500,000 if the investment is made in a “targeted employment area”.
An investor must file a petition with U.S. Citizenship and Immigration Services (“CIS”). Upon approval of the petition, the investor and immediate family (spouse plus single children under 21 years of age) may apply for an Immigrant Visa at a U.S. consulate or apply for Adjustment of Status at a regional CIS office if the investor is already in the United States.
The initial resident status is “conditional” for two years. Prior to the expiration of the two-year period, the conditional resident investor must file a petition with the CIS to request removal of the condition on permanent residence. The petition should be granted if the investor demonstrates that he/she invested or was actively in the process of investing the requisite capital; the investor maintained the investment throughout the two-year period of conditional residence; and the investment created the requisite employment.
Investing in a new commercial enterprise
The law requires the investor-petitioner is investing in a “new” commercial enterprise, which must have been one established after November 29, 1990. However, contribution of capital to an “existing” business (that was formed prior to November 29, 1990) may be acceptable in two situations:
First, the investor may substantially reorganize or restructure the existing business. The mere change in ownership, cosmetic changes to the decor of the business site, and implementation of a new marketing strategy are insufficient changes to constitute establishment of a new commercial enterprise. A complete transformation of the nature of the business is likely to be considered sufficient.
Second, the investor may expand an existing business resulting in an increase of at least 40 percent of the net worth or number of employees of the business. CIS requires evidence of the change in business in the form of income tax returns, audited financial statements, and employment tax returns.
The investment must be in a “commercial” enterprise. Any for-profit entity formed for the ongoing conduct of lawful business may serve as a commercial enterprise. This includes sole proprietorships, partnerships (whether limited or general), holding companies, joint ventures, corporations, business trusts, or other entities publicly or privately owned. This definition includes a holding company and its wholly owned subsidiaries, if each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. However, the term new commercial enterprise does not include noncommercial activity such as owning and operating a personal residence or buying stock on the stock exchange.
Engaging in a new commercial enterprise
While the law requires the investor to be engaged in a new commercial enterprise, CIS regulations state that if the investor is a corporate officer or board member or, in the case of a limited partnership, a limited partner, then the investor satisfies the management criteria.
The law requires an investor-petitioner to have invested in or be in the process of investing the required capital.
A. Amount of capital
The amount of required capital is at least $1 million. The minimum investment is reduced to $500,000 in cases of investment in “targeted employment areas,” which are rural areas or areas which have experienced unemployment of at least 150 percent of the national average rate. A “rural area” is an area not within either a metropolitan statistical area or the outer boundary of any city or town having a population of 20,000 or more. The assessment of whether the investment is in a targeted employment area is based on statistical information relating to the time of investment and the location where the enterprise is principally doing business.
B. Equity capital
To “invest” is to contribute equity capital to the enterprise. Loans of capital by the investor to the enterprise do not qualify as an appropriate investment. The investor cannot receive any bond, note, or other debt arrangement from the enterprise in exchange for the contribution of capital.
C. Kinds of capital
“Capital” may include cash and cash equivalents, equipment, inventory, and other tangible property. Although capital does not include loans made by the petitioner to the enterprise, the investor may borrow the investment money if it is secured by assets owned by the investor, provided the investor is personally and primarily liable for repayment of the loan, and the assets of the enterprise upon which the petition is based are not used to secure any of the indebtedness.1
D. “At risk”
CIS requires proof that the capital invested is “at risk.” CIS focuses on actual and intended uses of capital to confirm that it will be used for job creation and profit-generating activity. CIS requires more than a deposit of funds into a business account; it also requires evidence of the actual undertaking of business activity. CIS has held that use of capital for partnership expenses and reserve accounts unrelated to job creation is insufficient.
E. Tracing and lawful source
Documenting proof is needed that capital is invested by the investor petitioner. Thus, an investor petitioner should present evidence that traces capital from the petitioner directly to the enterprise.
CIS also requires that an investor petitioner provide evidence to prove that the source of funds was procurred by legal means. CIS requires evidence of the investor’s past five years of income tax returns and financial statements to prove the investor has sufficient lawful sources for the capital invested.
F. Gifted Funds
The applicant may receive a gift of the funds, provided the proper gift taxes are paid, if required by law.
Creating or saving jobs
The investor must create full-time employment for at least 10 U.S. workers. The investor and his or her spouse and children do not count toward the 10-employee minimum. Note that non-immigrants (i.e., those with E, H, L, and other temporary worker visas) are also excluded from the 10-employee requirement. An “employee” is an individual who provides services or labor for the new commercial enterprise and receives wages or other remuneration directly from the new commercial enterprise. Independent contractors are excluded under this definition.
A. Types of jobs
The jobs created must be full-time, i.e., positions that require a minimum of 35 working hours per week. Part-time jobs do not count. However, job-sharing arrangements where two or more qualifying employees share one full-time position will be counted.
B. When jobs must exist
The petitioner may base the petition on proof that the required jobs have been created or on proof that the required jobs will be created before the end of the two-year period of conditional residence. In the latter case the investor must support the petition with a comprehensive business plan demonstrating a need for at least 10 employees before the end of the conditional residence period.
C. Troubled business/saving jobs
Special rules govern investments in “troubled” businesses. A troubled business is one that has been in existence for at least two years, has incurred a net loss for accounting purposes during the 12 or 24 month period before the petition was filed, and the loss for such period is equal to at least 20 percent of the businessÌs net worth before the loss. If the petition is based on investment in a troubled business, the investor is not required to create 10 new jobs. Instead, the petition may be based on proof that the business will maintain the number of existing employees during the conditional status period.
D. Regional Center/indirect jobs
To encourage immigration through investment, and to concentrate investment in specific regions, Congress created a temporary Pilot Program in 1993, directing CIS to set aside visas for people who invest in a designated “Regional Center.” The Pilot Program does not require that the immigrant investor enterprise employ 10 U.S. workers as long as the investor can reasonably demonstrate that the investment in the Regional Center has indirectly created 10 or more jobs and has resulted in improved regional productivity. The CIS has designated a number of Regional Centers located throughout the country.
It is currently taking about two months for CIS to process an EB-5 petition. Prior to filing the petition, time is required to conduct due diligence, make the investment, and prepare the documentation in support of the petition. If an individual is in lawful status upon approval of the EB-5 petition, he/she can apply for Adjustment of Status to Conditional resident without departing the United States. This application can take six months or longer to be decided. If not in the United States, he/she will apply for an Immigrant Visa at a U.S. Consulate which typically takes six months or longer depending on the country.
1 Separately, the use of a promissory note payable by the investor to the enterprise – as a present commitment to contribute cash to the enterprise in the future – may be considered capital in limited circumstances where the promissory note is secured by the assets of the petitioner, the obligation is a perfected security interest, and the promissory note is valued in fair market U.S. dollars at the time it is contributed to the enterprise. Valuation of the promissory note requires consideration of the value of the assets securing the note, the amenability of the assets to seizure, and the expenses of enforcing a foreign judgment if necessary. An investor also may use a schedule of payments or a promissory note as evidence of being “in the process of investing” the required capital; however, CIS requires that payments of the minimum-required capital must be substantially completed before the end of the two-year Conditional Residence period.