Important Update: On July 23rd, 2019, U.S. Citizenship and Immigration Services (USCIS) issued sweeping new changes to the EB-5 Program. These changes included an increase in the minimum investment amount. We recommend reading our newest post for a full discussion of the changes.
The EB-5 Program is the United States’ version of an immigrant investor program which allows foreign investors to obtain a green card by investing in a commercial enterprise within the U.S.
Key to an investor’s success in the Program is knowing the differences between the two investment pathways: direct investment vs indirect investment.
As our third post in a series on the EB-5 Program, we will define direct vs indirect investment, give an overview of the main differences between the two, and briefly discuss which pathway to choose.
Direct vs Indirect Investment
Through the direct investment route, the foreign investor creates a new commercial enterprise and places their capital directly into that venture. Some examples of a new commercial enterprise are gas stations, hotels, restaurants, shopping centers, or other small companies.
By contrast, with the indirect investment route, a foreign investor places their capital, with a pool of other investors, into a designated project underneath a government-approved Regional Center. There are currently 884 approved Regional Centers in the U.S., according to USCIS.
What are the differences between the two investment types?
There are three main differences between the two pathways: the amount of capital needed, the job type requirements, and the commercial enterprise’s geographic region.
1. The amount of capital needed
In general, the direct investment pathway requires a larger capital investment of $1 million by the investor.
There are some instances where the direct investment pathway only requires a $500,000 capital investment, if the commercial enterprise is located in a targeted employment area (TEA). A TEA is defined by USCIS as “a rural area or an area that has experienced high unemployment.” The capital investment amount is lower for a TEA to promote the development of underdeveloped areas of the U.S.
In both instances, however, the investment does not have to be an all cash investment. If the investor can prove that other forms of capital (such as property, inventory, or equipment) are beneficial to the commercial enterprise, they can also be counted towards the minimum capital requirement.
For a Regional Center, the investment amount is usually $500,000 and goes into a pool with other investors’ capital for the specific new commercial project within the Regional Center area.
2. Job type requirements
For both the direct and indirect investment pathways, the new commercial enterprise is required to create with the capital investment at least 10 full-time jobs for qualified employees.
USCIS defines a full-time job as “employment of a qualifying employee by the new commercial enterprise in a position that requires a minimum of 35 working hours per week.”
A qualified employee is defined by USCIS as “a U.S. citizen, a lawfully admitted permanent resident, or other immigrant lawfully authorized for employment in the United States.” As examples, lawfully authorized immigrants can include conditional residents, temporary residents, asylees, or refugees.
The difference in requirements involves how the 10 jobs are associated with the new commercial enterprise.
For the direct investment pathway, the 10 jobs must be directly created by the commercial enterprise. This arrangement is what most people think of as the typical employer-employee relationship.
For the indirect investment pathway, the 10 jobs can be either directly or indirectly created by the commercial enterprise.
3. The commercial enterprise’s geographic region
For the direct investment pathway not located within a TEA, there is no geographical requirement for the new commercial business. The business can be located anywhere in the U.S. that an investor feels will produce a successful business.
By contrast, there are requirements for the indirect investment pathway.
According to USCIS, Regional Centers were created for the express purpose of “stimulat[ing] economic growth in a specified geographic area.” Further, the geographic area “must be limited, contiguous, and consistent with the purpose of concentrating pooled investment in a defined economic zone.”
In other words, a commercial enterprise within a Regional Center can only be operated within the geographic area designated for that Regional Center and must fit with the purpose of developing that specified area. You can visit USCIS to see a full list of current Regional Centers and their locations.
If you would like to start a Regional Center in an area not listed by USCIS, there is a process for requesting a new Regional Center designation which you can find in Volume 6, Part G, Chapter 3 of the USCIS Policy Manual.
Which investment type should you choose?
Which investment pathway you choose will be based on what type of relationship you want to have with your new commercial enterprise.
If you want a more direct role with better control over your capital investment and new business than the direct investment pathway will probably fit your needs.
If, however, you do not wish to have complete control over your capital investment or where your new business is located than investing in a Regional Center may be for you.
In the end, remember the requirements for each pathway and make the best decision for you and your family.
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Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Immigration Law.