Shahriar Zamanian, Legal Director of the American Legal Center
Shahriar Zamanian, Legal Director of the American Legal Center Image Credit: Supplied

The U.S. EB-5 immigrant investor program provides families with an opportunity to obtain permanent U.S. residency and Green Card through an investment of $500,000 into an approved commercial enterprise. To be eligible, investors must prove that the capital investment is obtained legally and that it legally belongs to them. Congress initially designed the program to increase investment opportunity in the U.S., specifically the rural areas with low economic opportunities and those areas with high unemployment rate. Two years after the initial introduction of the program, Congress launched the EB-5 Regional Center pilot program which allowed investors to use Regional Center projects to pool in their investments. The addition of the regional center pilot program did not invalidate the original direct investment route; it merely provided an alternative route for those investors that do not have the key requirements needed to meet the direct investment option.

The Regional Center pilot program has continued to thrive over the years accounting for over 90% of the EB-5 applications. Whether Regional Center route or Direct investment, the EB-5 investor category requires investment capital in a new commercial enterprise, which will generate 10 jobs for U.S. persons.

Regional Center vs Direct Investment

Regional Center projects are created in areas which are considered to be Targeted Employment Areas (TEA), this means that the area in which the project will be constructed and operational has been deemed a low employment rate area or a rural area with little economic development. This allows for investors to invest $500,000 capital investment. Under the Direct Investment route, investors have the option of either investing $500,000 in a TEA approved area or $1 million in an urban area, so long as the project meets the key objectives of job creation.

Job creation is primarily where the major distinction between Regional Center and Direct Investment lies. Under the Regional Center route a commercial enterprise may create jobs directly and indirectly through multiple investments in corporate affiliates or in unrelated entities. By virtue of the Regional Center’s project being in that particular location new developments in the area such as a cafe would constitute as indirect full-time positions and those jobs can be allocated to that Regional Center’s job creation count. However, the same cannot be said about the Direct investment route, job creation counts only for the jobs directly created by the project, these are jobs with direct employee-employment relationships with the project. If a project wants to consider multiple job creation entities they would have to have invested a portion of the investment to one business that is wholly owned by the commercial enterprise and another business that is wholly owned by that same commercial enterprise. This means that the capital can be injected through a single commercial enterprise into a portfolio of businesses and the full-time positions must be created and maintained by the new commercial enterprise. This alone makes it difficult for investors to create and maintain the required jobs to keep up with the EB-5 program requirements and allows little flexibility for employers to downscale if the business is not doing as well as initially projected.

Furthermore, the EB-5 program requires that jobs created be maintained for 2 years. This period is calculated 6 months after the approval of the applicants Form I-526. Since the average processing time for Form I-526 approval is 16 months, the investor must pay employee salaries, taxes and other costs related to maintaining employment from the time they submit their application to United States Citizenship and Immigration Services (USCIS) until well after they receive their initial approval. This undoubtedly creates an extra cost requirement for the investor. Holistically the investor is no longer looking at merely investing $500,000 or $1 million, but the costs increased tremendously to account for the maintenance of the 10 U.S. jobs. Notwithstanding the costs of day to day runnings of the business.

Regional Centers can use both direct and indirect calculations to measure job creation. By investing in the Regional Center option, investors are not concerned with job creation as approved Regional Centers take that liability on and ensure that each investor meets their job creation quota. To show that 10 or more jobs are created indirectly by the business, reasonable methodologies may be used. Such as multiplier tables, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and other economically or statistically valid forecasting devices which indicate the likelihood that the business will result in increased employment.

Direct Investment Businesses

Most Direct Investment business models are geared towards restaurants or franchising. From a distance these business models seem to be the best way for investors to ensure that jobs are created and other key EB-5 requirements are met. However, when looking at the operational feasibility of restaurants up to 90 percent of new restaurants fail within the first year. Now it must be noted that the success or failure of any business is directly linked to the immigration portion for the investor. Therefore if their business is part of the 90% that fails within the first year then their application gets rejected and their investment fails.One may argue that franchising presents a better option for an investor and chances of success are greater as there is an existing business model. However, the investor has not accounted for franchising start up costs and other monthly payments required to be paid to the franchiser. Will the investor be able to sell their shares after a 5-year investment cycle or are they stuck with the franchise forever? These are pertinent questions investors must explore prior to choosing the Direct Investment route.

There certainly are other businesses that will present a smaller risk to the investor than resturanting would. However, the fact still remains that until the immigration process is complete, the business will always be linked to the investors business. Shahriar Zamanian (known as Shai Zamanian), the Legal Director of the American Legal Center, says “investors must look at the immigration benefit and not the possible earnings, because a bad investment could end up costing both their investment and Green Card.”

Direct Investment Processing Times

For new commercial enterprises to be eligible to be part of the EB-5 program they must be approved by USCIS. This requires the owners of the project to submit business plans, economic projections and analysis, tax records etc. This informs USCIS of the business projections and whether they fulfil the EB-5 requirements and also whether the business will be sustainable for a long period of time. Under the Direct Investment route investors cannot file their Form I-526 prior to the commercial enterprise being approved and this can take several months. Ultimately adding to the amount of time the investor will have to wait until his Form I-526 is approved and until they can relocate to the U.S.

Regional Center Investment Today

As of June 30, 2021, Congress has not yet reauthorized the EB-5 Regional Center program. Therefore, all prospective investors that want to participate in the EB-5 program via the Regional Center investment cannot do so until Congress reauthorizes it. Based on various industry trends and analysis it is likely that the program will be reauthorized by September 30, 2021. Once it is reauthorized, prospective investors will have a short window to capture the $500,000 capital investment opportunity. “It is imperative for prospective investors to contact an EB-5 specialist to discuss their investment options as soon as possible”, says Zamanian.