When
researching the options for making an EB-5 investment, clients often hear about
the two EB-5 investment paths - direct and indirect. But are there really three paths? The answer to this question is yes and
no. This article will detail the
different options a potential investor has when deciding to make their EB-5
investment.
By
far the most popular option for EB-5 is the indirect regional center
investment. The indirect regional center
investment allows the client to make a completely passive investment in a
project that will be the sole responsibility of the developer to maintain. These investments are generally loan based,
but in some instances may be equity based investments.
The
EB-5 investor will not have any managerial or day-to-day responsibility. They simply invest their money and leave it
in the hands of the developer to meet the immigration requirements so they can
become full-fledged green card holders.
It’s an affordable option because the vast majority of regional center
projects are located in targeted employment areas that allow for the reduced
investment of only $500,000.
What
are the positive attributes of an indirect regional center investment? The reduced investment amount is what makes
the regional center path most appealing to clients. Some investors also enjoy not having to worry
about the day-to-day burden of running the business. While a client may have created a successful
business in their home country, they may be unfamiliar with US business
practices and culture and opt to have the project managed for them. For these investors, the regional center path
fits perfectly into their immigration plan.
What
are the negatives of an indirect regional center investment? Regional center investments will offer a low
return. This isn’t to say that the
project is bad – it’s just the nature of EB-5.
A typical regional center project will generally yield a 0.5% - 1%
return. This isn’t very high, so investors
wishing to obtain a larger return should choose a different path for their EB-5
investment. Clients should be very wary
of regional center projects offering them large returns. Another potential negative aspect is that the
EB-5 investor doesn’t have any decision making power in the business. This may not be ideal for clients that consider
themselves to be savvy investors.
So
what are the options for investors not wishing to invest through the indirect
regional center path? Here is where the
discussion of three paths to EB-5 comes up.
Many clients (and immigration attorneys) misinterpret the rules
regarding a direct (non regional center) investment. Often they think the investor must be
involved in the day-to-day operation and running of the business. They believe they have to live in the same
city and go into the business daily to qualify for EB-5. That is one option, what I refer to as a
“true” direct EB-5 investment, but it’s not the only option for direct EB-5.
So
what are the two paths under the direct EB-5 umbrella? It’s first important to examine the rules
regulating the requirement that the EB-5 immigrant investor be engaged in the
management of the new commercial enterprise.
The EB-5 Program requires the immigrant investor to be engaged in the
management of the new commercial enterprise, either through the exercise of
day-to-day managerial responsibility OR
through policy formulation. 8 C.F.R. §204.6(j)(5).
For
investors courageous enough to take the plunge and run their own EB-5 business,
they can do so through the “true” direct EB-5 path. They will be responsible for the creation and
day-to-day management of the business, as well as meeting all the immigration
requirements. Their investment return
will be based solely on their own personal efforts. This path can prove to be risky and should
only be undertaken by clients confident in their ability to meet all requirements
under the program.
This
may work for some investors, but the majority of EB-5 clients do not want to
assume full responsibility for their immigration future. These clients may benefit from a more “hands
off” direct investment. This “hands off”
direct investment path is great for investors wishing to invest in smaller
projects that may yield significantly higher returns than the indirect regional
center investment. In conformity with
the rules, these investors will have a policy-making role by being a corporate
officer or member of the corporate board of directors.
These
investors get the best of both worlds.
Unlike the regional center path they have some control over the business
and typically receive a larger return.
However, there is no requirement for then to run the day-to-day
operations and they leave the responsibility of meeting the immigration
requirements to the project developer.
The EB-5 investor is free to live and work anywhere in the United
States, regardless of the business location.
This path is ideal for all EB-5 investors frustrated with the lack of
control and low returns of an indirect regional center investment.
For
more information on the EB-5 Visa Program and which EB-5 path is most suited
for your investment needs, contact General Counsel, PC and speak to one of our
Washington DC EB-5 attorneys.
www.eb5investmentlaw.com | www.generalcounsellaw.com
6849 Old Dominion Dr. Suite 220, McLean, VA 22101 | 703.556.0411 | kbarella@gcpc.com
Washington DC EB-5 Attorneys | Northern VA EB-5 Attorneys
