CAPITAL INVESTMENT REQUIREMENTS OF THE EB-5 PROGRAM.
The investor is required to invest a minimum of $1 million; however, if the investment is located in a Targeted Employment Area (TEA) or qualified rural area, then the EB-5 applicant may invest a reduced amount of $500,000. Most Midwest Investments of America investments are designated as TEAs and qualify for the lower threshold investment. However, some are not located in a TEA and require the full $1,000,000 investment. EB-5 defines a high unemployment area as an area in which unemployment rates are 150% the national rate. A state’s letter that the area is a qualified high unemployment area is not sufficient; these claims must be backed by verifiable statistical data demonstrating that the area qualifies.
THE JOB CREATION REQUIREMENT FOR EVERY INVESTOR IS TEN NEW AMERICAN JOBS
The investment from each foreign national EB-5 investor must create at least ten new full-time American jobs in order for the applicant to move forward in the naturalization process. If the investment is not located in an approved Regional Center, the jobs must be directly within the specific entity that receives the EB-5 investment. If the investor uses a Regional Center to make the investment, the job creation requirement of ten jobs still exists; however, the investor may utilize both direct and indirect job creation to fulfill the USCIS job creation requirement. Additionally, the Regional Center may use reasonable economic methodologies to prove indirect job creation.
THE INVESTOR’S FUNDS FOR THE INVESTMENT MUST BE FROM A LAWFUL SOURCE.
The investor must demonstrate that the capital they are investing is in fact from a legal source. For example, the funds cannot be derived from a criminal enterprise. An investor use funds received as a gift; however, the USCIS will require verification of gift status and will track the source of the funds from the person who granted the gift. Loans are also a credible source of investment funds for an EB-5 program, but the investment in the EB-5 enterprise cannot be used as collateral for acquiring the loan or be pledged in any way to a third party. The loan in question must also be a “real” commercially viable loan.
THE INVESTMENT MUST BE AT RISK.
The EB-5 applicant’s capital investment must be truly at risk. Guarantees of return of any capital to an investor are strictly prohibited. This would include buying interest in houses or condominiums, as this constitutes a redemption agreement. Any guarantee of the return of EB-5 capital investment will negate the “at risk” requirement of the EB-5 law and the investor’s petition will be denied. Further, there can be no redemption agreements or reserve accounts. The enterprise must meet the requirements of a new commercial enterprise.
A new business is defined as one that was formed after November 29, 1990; and it must be a for-profit enterprise formed for the ongoing conduct of any lawful business. Under certain circumstances, the law allows for investment that expands an existing business or that saves American jobs by investing in a narrowly defined “troubled” business.
THE LAW STATES THE FOREIGN NATIONAL INVESTOR MUST PARTICIPATE IN MANAGEMENT OF THE NEW COMMERCIAL ENTERPRISE.
The applicant must have some involvement in the management of the new commercial enterprise. This is the reason most Regional Centers investments are formed through limited partnerships; the act of being a participant in a limited partnership (L.P.) satisfies the USCIS requirement of having a role in management of the partnership. Nearly all L.P.s require the limited partner to vote on certain key issues of the enterprise.
MUST THE INVESTOR QUALIFY AS AN ACCREDITED INVESTOR?
Securities regulations dictate that investors must be sophisticated enough to understand the complex issues involved with an EB-5 investment. Regulation D of the (United States) Securities Act defines an “accredited” investor as an individual meeting at least one of the following conditions:
-Any natural person whose individual net worth (or joint net worth with a spouse, if applicable) at the time of purchase exceeds $1,000,000; or
-Any natural person who had an individual income in excess of $200,000, or joint income with a spouse in excess of $300,000 in each of the two most recent years, and who reasonably expects an income in excess of $300,000 in the current year; or
-Any other “accredited investor” as that term is defined in Regulation D as adopted by the Securities and Exchange Commission; or
– A person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of an investment in the Units, and of making an informed investment decision, and does not require the use of a Purchaser Representative.