What is the Difference Between an EB-5 Direct Investment vs. a Regional Center?
When it comes to making your EB-5 investment, you have two basic choices: EB5 direct investment or regional centers. There are pros and cons to both, and it is important to understand the differences between the two to understand which is the best type of investment for your purposes.
When making your decision, it could be helpful to think of EB-5 investing as building a house. You can either build your house yourself by investing $1 million in capital and overseeing the project. Or, you can hire a contractor to build your home at a fixed price. If successful as a direct investor, you’ll have a house along with a small homebuilding company, but that means to obtain a green card you must occupy yourself with homebuilding, capital investment and all of the issues arising with construction. By going the regional center route, for $500,000 you have that house.
EB-5 Direct Investment
An EB-5 direct investment is just as the name implies. You are starting a business under the regulations of the EB-5 visa program. As an example, a small manufacturing company employing a minimum of 10 people full-time could be an EB-5 qualifying direct investment. The same holds true if the EB-5 direct investor purchases a franchise, such as a restaurant or hotel chain, and creates a minimum of 10 full-time jobs.
The United States Citizen and Immigration Service (USCIS) defines an EB-5 regional center as “an economic unit, public or private, in the United States that is involved with promoting economic growth. Regional centers are designated by USCIS for participation in the Immigrant Investor Program.” Rather than a direct investment in a project, this type of EB-5 investment allows investors to pool funds via a regional center.
All regional centers are approved by the USCIS. In this manner, investors can count direct – and indirect – job creation in pursuit of the 10 job minimum. As an example, an indirect job is one created at a manufacturer supplying parts to an EB-5 project. Without the EB-5 project, that job would not exist.
As per the USCIS, as of November, 2018 there are 889 approved regional centers. However, just because the USCIS has approved a regional investment center, it does not mean the agency endorses a regional center’s activities, or that the regional center complies with U.S. securities laws. Such approval also doesn’t eliminate or minimize and EB-5 investor’s risk.
Difference Between EB-5 Direct Investment and Regional Center
With either program, an EB-5 investor must provide $1.8 million in capital, or $900,000 if the investment is within a Targeted Employment Area (TEA) – a rural area or one with high unemployment – in a new, for-profit enterprise.
For the entrepreneur, the hands-on aspect of an EB-5 direct investment and the possibility of starting a successful enterprise are major draws. A regional center investment may make more sense for those primarily concerned with obtaining a U.S. visa for themselves and eligible family members, rather than actively managing a company.
EB-5 Direct Investment vs. Regional Center – Pros and Cons
|EB-5 Direct Investment||· Ability to actively manage the business
· More flexibility in business choices
· Possibly lower fees associated with the investment
· Potentially higher returns
· Tangible assets
|· Higher risks associated with operations of the business
· Credit only for direct job creation
· No passive investment
· Need for more capital if business does not work immediately
· Need to create jobs even if business does not do well
· Much larger time commitment on the part of the EB-5 investor.
|Regional Center||· Credit for indirect job creation
· No need to oversee daily operations
· Rather than EB-5 investors, developer can get additional funds
· Once you receive a green card, there is no reason you can’t then start your own business, without immigration concerns.
|· Possible fees associated with the investment
· More required due diligence on the regional center
· Smaller return potential
· Reliance on regional center to create the necessary jobs
· Shareholder, rather than owner, status
· Must perform due diligence on the project sponsor and regional center operators.
For various reasons, nearly 90 percent of investors go the regional center route rather than that of EB-5 direct investment.
USCIS Regional Center Termination
Keep in mind that the USCIS may also terminate a regional center if it fails to submit required information to USCIS or no longer serves the purpose of promoting economic growth. As of November, 2018, the USCIS lists 289 terminated regional centers. The USCIS notes, however, that: “An EB-5 investor’s conditional permanent resident status, if already obtained, is not automatically terminated if that individual has invested in a new commercial enterprise associated with a regional center that USCIS terminates. The investor will continue to have the opportunity to demonstrate compliance with EB-5 program requirements.”
Conditions—EB-5 Direct Investment and Regional Centers
In order for an EB-5 direct investor to receive an approval of his or her Form I-829, “Petition by Entrepreneur to Remove Conditions on Permanent Resident Status”, more documentation is required than an investor in a regional center. The direct investor must provide tax returns and payroll records to verify the exact number of U.S. employees. In addition, the direct investor is required to prove that every worker holds U.S. citizenship or permanent resident status, or otherwise qualifies as an employee.
Investors in a regional center do not have to provide this type of documentation, as job creation is determined by a different methodology. However, since regional centers must attract many investors for each project, it is possible that the project never gets off the ground or is delayed for a considerable time. If that happens, investors may not have the ability to remove their visa conditions.
Making the Decision to Become an EB-5 Direct Investor or Join a Regional Center
How you will proceed as an EB-5 investor is one of the most important business decisions you will ever make. There is no right or wrong way, as the path for one person is not necessarily the best path for another. Here are some considerations when making your decision:
Do You Possess a Good Command of English and Familiarity with U.S. Business Practices?
It is harder to run a U.S. business if your English is not good or if you do not know much about how U.S. businesses operate. A person who answers “yes” to this question may prefer an EB-5 direct investment, while the person who answers “no” may find the regional center a better option.
Do You Want to Create a Family Legacy Through a Business?
If you want to build a business to pass on to your children – who may receive a green card through your efforts – an EB-5 direct investment is likely the better choice. If you are more concerned with obtaining a green card rather than building a business per se, the regional center may make more sense.
Do You Want a Direct Say in the Enterprise?
An EB-5 direct investor must have a role in the running of the business and job creation. At a minimum, they must hold an advisory role. The regional center investor is much less involved in business management or job creation and is generally a limited partner in the project.
Can You Make a Five-Year Commitment to the Business?
Five years is usually the minimum amount of time needed for a direct investor to commit to the business. This involves not only more time, but much more effort than the regional center investor must put forth.
You may already know which type of EB-5 investment program you will invest your capital, but it is always crucial to weigh every aspect. For that reason, it is important to put together a team to help you every step of the way, including attorneys familiar with immigration, securities and business law.