The EB-5 Visa – A Flexible Immigration Investment Option

Last Updated on March 1, 2013

The EB-5 Visa provides the most flexible path to a green card based on a US investment. The EB-5 visa does not require the applicant to manage the day-to-day affairs of a business. One may invest in an existing business, or a new business. More than one person may invest in the same business. The EB-5 investor may be a minority owner of the business.

One may qualify for an EB-5 as follows:

 

1. Invest $1 million and hire ten employees anywhere in the USA
2. Invest $500,000 and hire ten employees in an area where the unemployment rate exceeds the national average unemployment rate by 150%
3. Invest in a regional center.

INS designated specific areas, called Regional Centers, as eligible to receive immigrant investor capital. INS approved over 20 Regional Centers. Regional Center investors may rely on indirect job creation rather than directly hiring ten employees. A competent professional, such as an economist, must quantify the indirect employment. If the regional center is in a high unemployment area the required capital is reduced to $500,000.

Of the 10,000 investor visas (i.e., EB-5 visas) available annually, 5,000 are set aside for those who apply under a pilot program involving an INS-designated “Regional Center.” To date, the quota has not been exceeded.

The following is a compilation of Frequently Asked Questions prepared by Colin R. Singer, Attorney, summarizing the important features of the EB-5 Visa program.

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LAW OFFICES OF COLIN R. SINGER 
Barrister & Solicitor 
Immigration & Employment Law

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FREQUENTLY ASKED QUESTIONS 
IMMIGRATION TO THE UNITED STATES UNDER THE EB-5 INVESTOR VISA 
(September 2006)

Q: Who should invest?

EB-5 investors include people from all walks of life; professionals, business people, persons wanting to facilitate a child’s education, and retirees. Because the EB-5 visa permits employment in the US, many EB-5 investors become involved in charity or part time work. Simply put, the EB-5 visa gives you the flexibility to do what you want in the USA.

• If you don’t want to actively manage your business, you should consider EB-5
• If you have a US citizen parent or child over 21 years of age, you should consider family class visa categories.
• If you have exceptional skills or are famous you may qualify for a green card based on your skills or fame.
• If you want to manage your own business, consider L-1, E-2, international manager visa categories.

If your goal is to have a green card and not to actively manage a business, it is most often cheaper to utilize the EB-5 category rather than to start and maintain a business.

Q: Is EB-5 a truly passive investment?

The EB-5 regulations require involvement in management or policy making. The regulations deem a limited partner in a limited partnership that conforms to the Uniform Limited Partnership Act as sufficiently engaged in the EB-5 enterprise. However, the Uniform Limited Partnership, adopted by most states of the United States, prohibits the limited partner from actively participating in management.

On one hand you must be involved in management or policy making, while on the other hand you can’t. We resolve this contradiction by granting the limited partners the right, as a group, to oust the general partner for “cause” and to suggest or recommend issues of overall policy. Furthermore, limited partnerships properly structured, comply with the Uniform Limited Partnership Act.

Q: Where is the investment situated?

We collaborate with a number of highly successful entities. Typically our project associates act as general partner with investors entering as legally protected limited partners. The company does not increase yield by taking on and maintaining debt. The company’s principals have set up personal guarantees covering all debt and no debt is cross-collateralized among the properties and partnerships. Risks to the limited partners are significantly reduced.

Q: How is the investment structured?

Each Limited Partnership owns one building. The investment purchases an interest in the Limited Partnership. You become a Limited Partner. Your percentage share of the Limited Partnership depends on the percentage your investment bares to the value of the project. The prospectus for each project describes the valuation methodology.

The Limited Partnership, managed by our associate in the USA, is the general partner of the Limited Partnership. The general partner, renovates the property, leases the property, and manages the property. The Limited Partners receive their share of the income from the properties. Immigrant investors receive 50% of the profits for the sooner of five years or receipt of the permanent green card, and 70% of the profits thereafter. Investors who do not seek an immigration benefit receive 70% of the profits from the out set time of their initial investment.

To date, each of the investments in which our clients have participated, have generated and continue to generate return on investment in accordance with the project prospectus.

Q: What is a limited partnership?

This is best explained through an overview of the various entities available to investors.

A Corporation, formed by filing a charter with a state government, is owned by shareholders. The corporation is taxed on its income. The shareholders are only taxed on dividends paid to them by the corporation. Shareholders do not pay tax on the corporation’s income. The shareholders only risk the cost of their investment in the corporation they bare no responsibility for the general affairs of the corporation.

A partnership is comprised of two or more people or entities coming together for an enterprise, without any particular state charter. The partnership does not pay tax, but passes through all items of income and loss to the partners. The partners pay tax on partnership earnings. Each partner, unlike a corporate shareholder, undertakes responsibility for the entire operations of the partnership. If the partnership were to be sued and judged liable, each partner bares full responsibility for the damages. A corporate shareholder has no such direct liability.

A limited partnership combines corporate limited liability with partnership taxation. The limited partnership, formed by filing a charter with a state government, consists of a general partner and one or more limited partners. The charter details the rights and powers of the limited and general partners, percentages of ownership, and distributions of profits. The general partner manages the business.

As in a corporation, the limited partners are passive investors liable only for the value of their investment. As in a general partnership, limited partnership income is taxed at the partner level, not at the entity level.

A limited liability company is a corporation that passes through income and loss to the shareholders but offers shareholders the same limited liability as a limited partner or corporate shareholder. You could say a limited liability company is a corporate version of a limited partnership.

Q: How is my limited partner interest protected?

The Certificate of Limited Partnership must be recorded with the State of Washington as a public record. The Certificate refers to a Schedule A of the limited partnership agreement, which lists the names and percentage interests of the limited partners. The deed for the investment property is held in the name of the limited partnership. The deed is also of public record. This means the property cannot be sold, mortgaged or altered without complying with the terms of the limited partnership agreement.

Q: Is my investment guaranteed?

No. The law requires an “at risk” investment without guarantees or redemption rights.

Q: What are my risks?

As in any investment there is a risk of total loss. Our associate invests in real estate without mortgage or bank financing. This lack of debt eliminates much of the risk of total loss. Like everybody we risk the deleterious effects of acts of god, war, and market fluctuations in rental income or real estate prices. All investors are provided with sound references to permit independent verification of the information contained in the investment prospectus.

Q: Why must I invest before you will apply for my green card?

Our associates understand that other investment companies accept EB-5 investors place funds in a trust or escrow account pending visa approval. In this case the funds may only be released upon visa approval.

The primary activity of our associate in the USA is business in real estate development. Most of the capital injected into their projects comes from investors who do not seek an immigration benefit. These investors invest on financial consideration only, without preconditions. EB-5 investors, however, have two considerations, the soundness of the investment, and obtaining their green card.

The investment must be analyzed upon its merits. Their policy is to require that you commit your capital as any other investor. If for some reason, you do not receive your green card the contract with you requires a refund of your investment. They maintain credit lines with several banks for this purpose. They also have a constant stream of new investors, providing an alternative source of funds to refund your investment, should you fail to obtain your green card.

Escrow or trust agreements present immigration difficulties. They offer investment opportunities on a first first-come first first-served basis. While your investment capital sits in escrow or trust pending the results of a visa application, which may take six to eight months to complete, the target investment, which formed the basis of your visa petition, may have been sold out to other investors. You would be in the unfortunate position of basing your green card on an investment that didn’t exist, and run the risk of having your application denied. Finally, although the regulations permit escrow arrangements we find that INS looks more favorably on petitions based on a completed investment rather than a pending one.

Hopefully, you will be satisfied with your investment and wish to keep all or part of the investment regardless of the out come of your green card application. The need for a green card is situational. You may decide you don’t like life in America, or your family or economic situation may change. The need for sound investments never changes. While you would not have come to us unless you were seeking a green card, now that we’ve met, we hope you will be more than satisfied by the investment results and service.

Q: How does the partnership distribute income?

Each partnership distributes profits to its investors monthly. The distributions are based on the prior month’s gross rental income net of expenses. Investors receive a profit and loss statement with each month’s distribution. At the end of the year the partnership issues a summary report along with Internal Revenue Service form K-1. Form K-1 details your yearly income and expenses. Your accountant will require form K-1 to prepare your US annual tax return.

Q: What is the history of the EB-5 visa category?

The EB-5 visa category started in 1991. Regional Centers started in 1993. Our associate formed its regional center in 1996 and raised capital from some 40 investors between 1996 and 1998. Several companies competed for investment capital during this period. Most of the companies didn’t offer sound investments and were really in business to collect fees rather than to fund an ongoing business. Many investment opportunities didn’t raise the full $500,000 investment capital or hire the required number of employees.

INS, rightly wanted to stop these abuses of the program. In 1998, INS wrongly applied their revised rules retroactively to people who already had approved petitions. INS attempted to revoke these visa petitions. This started the litigation. In 2002, Congress passed a new law to protect the pre-1998 investors. Also, in 2002, in a case commonly known as “Chang” the 9th Circuit Court of Appeals ruled that INS may not apply their new rules retroactively. In August of 2003, INS began approving regional center petitions for the first time since 1998.

It is now common knowledge that EB-5 immigration petitions based on sound investments, for the full $500,000 as prescribed by the rules, with proper supporting documentation, will be approved.

Q: What documents must I prepare to process my visa petition?

You must prepare complete biographical information for each applicant and the principal applicant must prove the source of the investment funds. To prove the source of investment funds, INS requires five years of tax returns, five years of bank records, proof of ownership in any businesses, financial statements for each business and business licenses. The idea is present a track record of an honest course of dealing. If your capital came from a specific transaction, such as sale of a house, inheritance or gift, you must prove the transaction occurred, by providing an official document, such as a closing statement or contract or other official documents. This is not an exhaustive list. Documents Other documents may be required and vary on a case-by-case basis.

Q: What issues have been problematic in EB-5 cases?

Our associate uses the same investment model for each case. INS has reviewed their investment model and has approved visa petitions based on their model. The most common problem area has been insufficient documentation of the source of funds. Many people try to disclose the least possible information only to have the file returned with a request for further information. It is better to provide too much information rather than too little information. In this era of terror alerts, and suspicions about money laundering, INS case examiners require a well- documented source of funds.

Q: Where can I find a copy of the relevant law and regulations to study?

Please go to the Bureau of Citizenship and Immigrations Services web site. A direct link to investment visa information is:

http://www.immigration.gov/graphics/services/residency/investment.htm

Q: How long does INS take to process my visa petition?

Processing times vary from as little as a few weeks to as much as eight months. We can’t predict or promise a particular processing time. You should plan for the entire process to take approximately one year to avoid disappointment.

Q: What are the processing procedures?

A general outline of the application process follows:

Step 1) File form I-526 Petition for Alien Entrepreneur with the California Service Center. This petition requests INS to certify the applicant and the investment as eligible for EB-5 visa status.

Step 2) Upon approval of the I-526 petition, (a) if you are in the United States you may apply for Adjustment of Status to Permanent Residence by sending form I-485 and supporting documents to the INS regional processing center nearest your US residence. (b) If you are abroad you must wait for notification from the Embassy in your home country to prepare documents for the visa interview.

The purpose of the Adjustment of Status or consular visa interview is to make sure you are not subject to a grounds of exclusion, e.g. a criminal past, infectious diseases, etc.

Step 3) Upon approval you receive a form evidencing the approval and as well as a travel document. You will also receive the temporary green card in the mail. If you are abroad you must enter the US within six months of the date of the Embassy approval.

Step 4) After two years, you may file for removal of conditions or your permanent green card using Form I-829. This procedure permits INS to verify that you have maintained your approved investment for the required two-year period.

Q: What are the fees?

The Real Estate investment firm receives the first $50,000 of profit from your investment. There are no other fees charged for the investment. Investors must pay their own attorney fees which we can estimate to be in the area of $10,000 (paid under a result oriented installment mandate) to prepare and secure approval.

Q: How can I receive further information?

If you require any clarifications please take the liberty to contact Colin R. Singer, Attorney by Toll Free telephone (1-888-817-2011) or by email – [email protected] to discuss any issues related to the foregoing.