There Are Many Names For This Visa: Investor Green Cards; Investment Visa; Employment Creation Visa; Immigration through Investment; $500,000 Investment Green Card; Alien Entreprenueur Investor Program; Immigration Investor; Regional Centers.
What's it all about?
- What is the Investment Green Card?
- Why are most applications for Investor Green Cards through Regional Centers?
- How are Regional Center investments different from the regular types of investments?
- What types of Regional Center investments are available?
- Why have so few Green Cards been granted to investors if this program is 27 years old?
- What was the real problem?
- What were some of the big changes to the law in 1998?
- What is the future of the Green Card?
- Who are qualified investor immigrants?
- What kind of money can be used?
- What is meant by new commercial enterprise?
- What is meant by creating an enterprise?
- Can you buy an existing business?
- What are pooling arrangements?
- How “engaged” or involved must the investor be in the new commercial enterprise?
- What is meant by investing or actively in the process of “investing capital”?
- What does the word “invest” mean?
- What is the meaning of investing “capital?”
- Can “loans” be regarded as “capital?”
- Beware that the investment is not restricted by the U.S. government.
- How do you count 10 created or saved jobs?
- Can you count the investor, the investor spouse, or children towards the 10 employee minimum?
- Can you count independent contractors as employees?
- How soon must there be 10 new jobs?
- What constitutes a “targeted area?”
- How do I find targeted areas within a city?
- What is a troubled business?
In 1990 Congress created a new category through which people could get Green Cards.
If an investor created a new commercial enterprise and employed 10 people by investing $1,000,000.00, the investor could get Green Cards.
The amount of the investment is reduced to $500,000.00 if someone invests in a new enterprise in a “targeted area.”
A targeted area is defined as an area in the USA that has more than 150% unemployment than the national average. For example if the national unemployment rate is 4.5% then if someone invested in an enterprise located in an area where the unemployment was 4.75% or more they only needed to invest $500,000.00.
The idea behind this Investor’s Green Card is that the investor applies a temporary Green Card for 2 years. The application is complex, but it basically proves that the investment was made, 10 people will be employed and the money that was used was legally obtained. Then at the 2 years period, if the investor proves to the Immigration Service that the investment is still in the business and that at least 10 people were employed during that 2 year period, the investor would received a permanent Green Card.
It is also necessary to show that the investor had at least policy decision responsibility in the investment. So the investor is not required to be actively involved in the day to day management of the investment. This sounds simple, but there have been legal issues that created disappointment in this program. In fact many attorneys who specialize in Business Immigration law strongly discourage their clients from applying in this category. The problems are discussed later in this section “Why have so few Green Cards been granted to investors if the program is 27 years old?”
In 1993 Congress created the Regional Centers as a pilot program. The creation of the Regional Centers has benefits for many investors that are not available under the regular program. The regular program requires the person to establish a new commercial enterprise and directly employ 10 people.
A Regional Center is not a place, but rather a business that is in a special area. U.S. businesses or private agencies or government agencies can apply to the Immigration Service to have their business idea designated as a Regional Center. A Regional Center can then offer investors opportunities to invest in their commercial projects. The huge difference between the regular EB-5 program and the Regional Centers is that these Regional Centers only need show that their commercial enterprises will indirectly create 10 new jobs for each investment. This is discussed later.
If the Regional Center is in a targeted area, the minimum amount of the investment is $500,000.00.
It is possible to have many investors in a Regional Center. So if a Regional Center program required $5,000,000.00 for it’s commercial enterprise, it could provide 10 investors with an opportunity to obtain Green Cards provided that the Regional Center could prove that its commercial enterprise would directly or indirectly result in the employment of 100 people.
So let us look at a couple of examples of what types of commercial enterprises might be able to get Regional Center designation from the Immigration Service.
Example 1. Let’s say a city had a pretty run down area of warehouses along a waterfront. If someone planned to buy these warehouses and convert them to restaurants, hotels, and specialty boutique shops, it could apply for Regional Center status from the Immigration Service, if it could prove that by creating this entirely new upscale area by new construction, many new jobs will indirectly become available, when the shops need assistance, the hotel needed workers, and the restaurants would employ chefs and waiters.
Let’s say that Regional Center operator envisaged that it would keep 30% of profits from rentals and sales, then 70% would be divided among all the investors. This is how an investment deal could be structured for a Regional Center.
Another Example is for a private or governmental agency to create a fund for loans to small businesses. Each investor would invest $1,000,000.00 or $500,000.00 depending on where these loans would be made. Then the interest from these loans would be split between the Regional Center operator and the private investors.
In this situation the application to the Immigration Service for Regional Center staus would include proof that by funding these start up businesses or existing business, each investment ($1,000,000 or $500,000) would indirectly create 10 new jobs.
These Regional Centers like the regular investments also require that the investor have at least a policy-making responsibility in the investment. Investing in the Regional Centers takes a lot of pressure off the investor, because the day-to-day management is in the hands of the Regional Center operator. If the Regional Center is approved by the Immigration Service, the Service is accepting that direct or indirect employment of 10 people will be created by each investment in the Regional Center project.
Since Regional Center operators are actively involved in the day to day management of the investment, the investors only need to be involved in policy decision making from time to time. This would free up the investor to live anywhere in the United States and not necessarily in the area where the investment was made. Of course this type of business set up is unsuitable for investors who want to be actively involved in the management of their investment.
In March of 2007 the Immigration Service confirmed that there were 17 active Regional Centers. There are different types of investments that are available to potential investors in Regional Centers.
Please contact us in this regard: Leon Snaid Telephone: (858) 412-1309 Fax: (858) 750-1901
The immigration laws reserve 10,000 Green Card Visas per year for this Green Card category. 3,000 of these 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 the Regional Center pilot program. Yet at most only 1,000 people a year have immigrated in this category. Why is this the case?
The simple answer is that there is confusion about the meaning of words in the law and the Immigration Service did not have a unit of examiners who were knowledgeable in sophisticated investments.
In 1993 applications for Regional Centers designation were submitted to the Immigration Service. Some were approved and some were rejected.
So this is what happened:
Since the investment concepts in the Regional Centers were created by sophisticated business people with sophisticated lawyers, they wanted to make it as easy as possible for a person to invest in their Regional Centers. So they went to the Immigration Service and asked for clarification of what certain words meant in the new law and whether certain types of investment situations would qualify for Green Cards.
The Immigration Service provided “advisory opinions.” Advisory opinions by the Immigration Service do not bind the Immigration Service, but they were the best source of information on the meaning of the new law. Regional Centers and investors followed these advisory opinions.
Then suddenly in 1998 the Administrative Appeals Office (An appeal court of the Immigration Service) overturned the advisory opinions, which Regional Center operators and investors received from the Immigration Service and suddenly what previously qualified under the law was no longer valid.
Well you can imagine what happened. Many people had invested money based on these advisory opinions and suddenly they were no longer valid. People who had made investments and had received their two year Green Card were facing deportation when they applied for their permanent Green Card.
Investors who were hurt by these 1998 decisions lobbied Congress for help. Eventually in 2002 Congress enacted changes to the EB-5 program, which gave some relief to people who filed petitions for EB-5 Investor Green Cards and had them approved between January 1, 1995 and August 31, 1998. This helped those people who had their two year conditional green card approved but who were denied their permanent Green Card because of the new interpretation of the rules. It must be noted that there had also been fraudulent schemes that contributed to this situation.
It took years to untangle this mess. People initially thought that they would have a conditional green card for 2 years and then get their unlimited green card soon after filing for the unlimited Green Card. Instead their cases dragged on for years. Some of theses case are still up in the air.
As discussed earlier many of the investment concepts that were created the first 8 years of the program were designed to make it easy for investors to qualify for Green Cards.
In fact some of the investments didn’t require the actual investment of cash or tangible goods like inventory, equipment or machinery. Some of them used sophisticated financing or corporate concepts that created the investments, but were later found to be unacceptable to the Immigration appeal court and the Immigration Service. Here is a very brief summary of the changes that occurred:
Post-1998: Promissory note must be valued at fair market value. (Pre-1998: Promissory note valued at face value.)
Post 1998: Promissory note must generally be paid after two years. (Pre-1998: No limit on term of promissory note.)
Post 1998: Security for promissory note needs to be perfected under the UCC. (Pre-1998: Security does not need to meet UCC perfected security interest requirements.)
Post 1998: Bank accounts cannot be used as security. (Pre-1998: Bank accounts can be used as security.)
Post 1998: Reduce the fair market value of promissory note by “considerable expense and effort” to execute on foreign assets. (Pre-1998: Promissory note valued at face value.)
Post-1998: No redemption provisions can be agreed to before end of conditional residence and before conclusion of payments on promissory note. (Pre-1998: Redemption provisions can be agreed to so long as redemption does not occur until after promissory note has been paid in full.)
Post-1998: Third party guarantees to investor prohibited. (Pre-1998: Third party guarantee allowed unless backed by government obligation.)
Post-1998: Amounts attributable to expenses to start new commercial enterprise must be deducted from capital contribution. (Pre-1998: Start-up costs and expenses included in amount of capital contribution.)
Post-1998: New ownership and new corporation are not sufficient to establish new commercial enterprise. (Pre-1998: Restructuring or reorganization sufficient to establish new commercial enterprise.)
Post-1998: All of the activities must benefit the targeted geographical area to count indirect employment. (Pre-1998: The qualifying investment must be within the approved regional center; there is no separate requirement to prove benefit solely to the regional center.)
There were also additional restrictive interpretations created by the AAO in nonprecedent decisions. Here is a summary of these interpretations:
Pre-1998: Drug smugglers or other criminals cannot use their ill-gotten gains to obtain permanent resident status in the United State through the EB-5 category; nothing specified about others illegally in the United States.
Post-1998: All investors in the partnership must identify the source of their funds to prove that they were derived by lawful means.
Pre-1998: Only the petitioning investor must identify the source of his or her funds in the partnership to prove threat they were derived by lawful means.
Post-1998: Merely injecting cash into the corporate account of a business does not show that the capital is “at risk” for the purpose of generating a return.
Pre-1998: Injecting cash into a corporate account could show that the capital is “at risk” for the purpose of generating a return.
While some people may feel that the program has become far more restrictive, the great advantage is that we now know for the most part what the Immigration Service require under the laws. Remember that all the trouble started because people did not understand what was meant by different words and phrases in the law, which resulted in advisory opinions, which were later overturned by the Immigration Appeal Court.
The laws are far clearer now. Also the Immigration Service has established a special unit to deal with these cases so they can act more efficiently in dealing with these cases. So if a person who owns 100% of the shares in a corporation arranges for his/her corporation to finance the investment, this arrangement will not qualify. It must be the investors’ money. The investor can receive the money by way of a loan or a gift.
Besides the issues of the investment and what is required in terms of employment, the law doesn’t tell us specifically who may be a qualified applicant for a Green Card. It seems fairly clear that a corporation or a partnership or other entity is not an investor, because they are not human beings and only human beings can make the investment.
Two or more individuals may join together and make an EB-5 investment. But each investor must invest either $1,000,000.00 or $500,000.00 depending on where the single new commercial enterprise is located. Remember that in high unemployment areas the amount required for investment is $500,000.00 per investor. Also at least 10 qualifying new jobs must be attributable to each investor. Remember that in Regional Center investments it is not necessary to prove direct employment, because of the Regional Center had to prove to the Immigration Service that direct or indirect employment would be created for 10 people for each investment.
It is not necessary that all the investors in a single commercial enterprise or Regional Center be people seeking Green Cards. There can be U.S. investors in any of these enterprises.
This sounds like a crazy question but the Immigration Service wants to be sure that the source of all the capital invested is identified and that all the capital that has been invested has been derived from lawful means. For example a drug trafficker cannot use drug money for the investment. It is possible for the investor to fund the investment from a genuine loan or even a gift.
There are basically two requirements for a new commercial enterprise.
Firstly the enterprise must be “new” in the sense that it was formed after November 29, 1990. Now it’s quite possible for an enterprise that was formed before this date in 1990 to qualify if the investor “restructures” or “expands” an existing business.
The second requirement is that it must be “a commercial enterprise.” Any for-profit entity formed for the on-going conduct of lawful business would be regarded as a commercial enterprise. This includes sole proprietorships, partnerships whether limited or general, holding companies, joint-ventures, corporations, business trusts or other entities that are either publicly owned or privately owned.
This definition would even include an investment in a holding company and its wholly owned subsidiaries if each subsidiary is engaged in a for-profit activity for the on-going conduct of a lawful business. However, the term new commercial enterprise will not include a non-commercial activity like owning and running your own home where you employ 10 servants. Simply stated the investment must be made to make money.
In 1998 a precedent decision said that the petitioner had to be involved in the creation of the enterprise and had to be present at the beginning of the enterprise. This created problems with people who invested in partnerships. Usually a partnership will be created by a general partner, who will go out and look for individuals to invest as limited partners. According to the Immigration Service interpretation, this situation would not qualify for an investor Green Card, because the investors were not partners at the moment that the original partnership was set up. However, in 2002, Congress said that it was no longer necessary to show that the investors “established” a commercial enterprise themselves, instead they only need to show that they have “invested” in a commercial enterprise.
This is where things can get tricky. Many people prefer to buy an existing business, because it has a track record and is making money. The Immigration Service does not accept that situation. They do however, agree that by “reorganizing or restructuring” an existing business, a “new commercial enterprise” could be formed and therefore qualify for an Investment Visa.
The problem is that the law and the regulations give us very little idea as to how much restructuring or reorganization must take place before a business is regarded as a new enterprise.
It would seem that if someone bought an existing business, because they believed that they could use the basic business activity as a spring board to create an additional or different business that this would qualify.
There is a decision by the Immigration Appeal Court (“AAO”), where there was a restructuring of a horse breeding business into a new business for horse breeding and training.
I think that it would be a good idea in this kind of situation to show in your business plan the amount of additional revenues that will be generated from the restructuring. If you buy a restaurant and claim that you are restructuring it by establishing a small deli on the side so that your revenues will increase by 5% a year, it is unlikely that you will prove the restructuring of a business.
This leads on to the question of what is regarded as expanding an existing business.
It is possible to create a new enterprise by expanding a business resulting in at least a 40% increase in the net worth of the business or in the number of employees of the business. Obviously this could require the investor to create more than 10 new jobs to qualify for a Green Card. So a business that employs 100 people would need to hire another 40 employees.
It is interesting to note that it is not necessary to prove that the investment alone caused the 40% increase in the net worth of the business. The AAO tests this by looking at the bottom line. They require audited financial statements of the business at the time of the investment and subsequent to the investment. Bottom line is that it seems that restructuring of a business and expanding a business are pretty much the same thing.
That law allows any number of immigrant investors to join together when they are each seeking EB-5 status. Of course, each investor must invest the required amount and all the new jobs created in the business will be divided among those in the group who are applying for permanent residence.
The AAO has created a restriction on pooling investments by requiring that the Petitioner show that “every investor in a partnership” identify the source of their funds, and prove that they were derived by lawful means. This issues is discussed in greater detail a little later.
The law says that the applicant must be engaged in a new commercial enterprise. The regulations say that the investor must be involved in the management of the new enterprise. This management comes about in 2 situations:
1. The investor can be involved in the day-to-day management and control of the enterprise; or 2. Manage the investment through policy formulation.
A person satisfies the requirement of engaging in the management of the new commercial enterprise if he/she is a corporate officer, or member of the board of directors, or in the case of a Limited Partnership, the investor is a limited partner under the provisions of the Uniform Limited Partnership Act(ULPA). But take note that the Immigration Appeal Courts said that it is not good enough to merely call an investor a “limited partner” under the Uniform Limited Partnership Act, when drawing up a partnership agreement. The appeal courts in a 2007 case said that the investor in that case did not have the rights normally granted to limited partners under the Uniform Limited Partnership Act, even though there was superficial language in the limited partnership agreement referring to the Uniform Limited Partnership Act and the actual regulation dealing with “engaging” in a new commercial enterprise.
As mentioned before, this was an area where investors and their attorneys were extremely creative at the start of the Green Card program.
This led to a topsy-turvey roller-coaster ride of Advisory Opinions from the Immigration Service, then the Immigration Appeal Courts (AAO) rejecting the argument that the Immigration Service was bound by its Advisory Opinions. Investors were dangling in the air until Congress stepped in to provide relief. Also new interpretations have given us a much clearer idea of what is meant by “investing or actively in the process of investing capital.” So this is what it’s all about:
Even though the law that was passed by Congress clearly says that an investor has invested or is actively in the process of investing capital, the Immigration Service is not interested in the concept of being actively in the process of investing capital. They want to see that the money is already invested and the money is “at risk” as far as the investor is concerned at the time that the first application is made for the 2 year conditional Green Card. The words “at risk” simply mean that the investor may lose that money.
Invest means to contribute capital. So to put money into a business enterprise provided that you get a note or a bond or convertible debt or any other arrangement that forces the new commercial enterprise to repay the amount of the investment won’t work. There is a difference between investing in a business and lending money to a business.
Capital means cash or what can be called a cash equivalent. So inventory and other tangible property that is used for the investment can be regarded as cash equivalent.
Here is an example of what could qualify: If a person was making a $500,000.00 investment in a targeted area and the investor imported factory machinery from his/her own country, which he personally owned that had a fair market value of $200,000.00, and the investor also contributed $200,000.00 of inventory at its fair market value to the enterprise and then finally added $100,000.00 of cash that was at risk, this situation would probably qualify as in contribution of capital.
Using something intangible such as “retained earnings” this will not be regarded as “capital.”
The issue of loan can be divided into two sections:
A loan by the investor or other parties to the business will not be counted as capital. However, if the business gets a loan from a bank and the loan is secured by assets, which are owned by the investor this will count as capital if the investor is personally and primarily liable for the bank loan. At no time may the assets of the commercial enterprise upon which the petition is based be used to secure any of the debt.
When debt is involved there will typically be a promissory note, which will be signed by the investor setting out a payment schedule. As long as there isn’t any fraud, the promissory note which is signed by the investor and secured by the investor’s personal assets will be regarded as a contribution of capital by the investor. So if the Petitioner is absolutely bound to make the payments under the promissory note that is secured or guaranteed by the Petitioner’s own personal assets, that situation will be considered a contribution of capital by the investor. Why is this acceptable? Because the investor is “at risk.” In this situation the investor is clearly forced to make all the required payments on the debt. It is important to note that the investor cannot get a note back or bond or any other debt arrangement from the commercial enterprise for the amount of the capital contributed to it by the investor.
Using debt as the basis for the investment is complicated and it raises many red flags. So while the use of debt in certain circumstances is technically permitted, it is a bad idea from a practical point of view.
There are significant regulations relating to investment by foreigners. Some of these laws restrict investment in banking, communications, aviation, shipping, land use, energy sources, and government contracting. Congress has also imposed several disclosure and data requirements on foreign investments.
It must be remembered that the investment must be beneficial to the United States economy and if it goes against any statutory law on foreign investment if will not be regarded as being good for the United States economy.
The investment must create full time employment for ten U.S. citizens, permanent residents, or other immigrants that are allowed to work in the United States.
A full time job requires at least 35 working hours per week regardless of who fills the position.
Job sharing arrangements, where two or more qualified employees share a full time position, will also serve as full time employment if the hourly requirement per week is met. So two people working different shifts doing the same job will qualify both people as employees. Job sharing does not allow a combination of part time jobs even though 2 of them may add up to 35 hours a week.
This is not allowed in calculating 10 full time employees. In fact, non-immigrants are not counted when calculating 10 full time employees. So an investor could not file temporary work permits for friends and employees from the investor’s home country to come and work for the business and count them as employees.
The regulations define an “employee” as someone who provides services or labor to the new commercial enterprise and receives wages or other compensation directly from the enterprise.
Please note: The EB-5 pilot program for Regional Centers does not require the investment to directly create 10 U.S. jobs. What is required for Regional Centers is that they create 10 direct or indirect jobs and that the investment will benefit the U.S. economy.
It is not clear when the new jobs must exist. The law as written sees the creation of 10 new jobs in the commercial enterprise. So the law does not require that the jobs exist exactly at the time that the initial investment is made or when the first petition is filed for conditional residence.
Also the Immigration Service does not require these jobs to continue forever as long as they exist for a reasonable time after the Green Card is issued. So an investor may prove through a very detailed business plan the there is a need for 10 new employees with in the next 2 year period. This business plan must indicate the approximate dates during the next two years when the employees will be hired. Even if there is a temporary drop in the number of employees that are required this will not disqualify the investor as long as he/she can show that real efforts were made to get someone to replace the position.
This is when the investment need only be $500,000.00. A targeted employment area fits into two categories:
It is a rural area or an area that has experienced high unemployment of at least 150% of the national average. What is a rural area? An area that is not within a metropolitan statistic and an area or the outer boundary of any city or town having a population of 20,000 or more is considered a rural area. The Office of Management and Budget designates the various metropolitan’s statistical areas. Every state tells the Immigration Service what state agency will apply these guidelines and determine the targeted areas for that state.
Once a decade the government takes a census of all the people in the country. This is a huge undertaking requiring accurate information at the very start of each decade. So the metropolitan areas are divided up into small areas, each of a few city blocks. After the census the government knows how many people live in a particular census area. When people living in a particular or census area claim unemployment benefits, they give their address and so the government gets to know what the unemployment rate is for a particular census area. The government publishes the unemployment rate for each census area and if that rate is 150% above the national unemployment rate then it is a “targeted area.” So it is possible that at a cross street in a city can have one corner that is within a targeted area while the three other corners are not. (Note: The term “government” used in this explanation applies to both the Federal and State governments.)
Firstly the business must have been in existence for two years and has incurred a net loss for accounting purposes during the 12 or 24 month period before the petition is filed. “Net loss” is defined as being at least 20% of the businesses net worth before the loss. In this type of case a Petitioner must prove that the investment is in troubled business and that the business will continue to employ the same number of employees that were in the business prior to the investment for at least two years.
So a business that had 6 employees before the net loss would have to maintain at least 6 employees for the two year period of the temporary Green Card. This may sound like an ideal situation, but it has a draw back. If the business closes down within the two years after the investment is made and the Petitioner has received a Green Card, the investor could lose his/her residency status by not being able to show the continued employment of the employees.