What is an EB-5 “Regional Center” Program?
Generally, Employment Based Fifth Preference Category, commonly known as “EB-5″, is an Employment Creation Program, designated for foreign investors wishing to invest foreign capital into the job-creating enterprises in the United States. Such investment, if approved by the U.S. Immigration Service, leads to permanent residency (green card) for investor and members of his family (spouse and children under 21 years of age).
There are two ways of funding a project with EB-5 capital: through a direct investment OR through an indirect, â€œpooledâ€ form called a â€œRegional Centerâ€. The regional center can be more attractive, as the designation makes some USCIS requirements less stringent for EB-5 visa applicants. Regional centers are held to more lenient job creation requirements than direct EB-5 investment, which focuses on direct job creation. Rather than being required to create 10 direct full-time jobs, regional centers can satisfy EB-5 job creation requirements by creating 10 direct, indirect, or induced full-time jobs. The regional center is afforded the benefit of economic multipliers in creating these jobs. Regional centers can also make it easier to pool capital since there is no limitation on the number of EB-5 applicants who can invest in a particular project, so long as each of the applicants meets the job creation requirements.
I. How to become an EB-5 Regional Center:
The term “REGIONAL CENTER” means any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment within the EB-5 program. The business models that are eligible to become EB-5 Regional Centers include governmental agencies, partnerships, corporations and any other existing U.S. commercial entity.
A Regional Center must obtain approval from the United States Citizenship and Immigration Service (USCIS). USCIS regional center designation entails a multi-step process that requires the input of various experts. The cost of obtaining regional center organization and approval is substantial and highly variable. USCIS application, Form I-924, Application for Regional Center Under the Immigrant Investor Program, costs $17,795 in USCIS non-refundable filing fees. However, the overall cost to form a Regional Center is much higher and largely dependent on the professional fees charged by the professionals (discussed below) whose expertise is essential for the formation and operation of a Regional Center.
II. Steps to Become an EB-5 Regional Center:
There are several steps that an organization must take in order to obtain EB-5 Regional Center approval from USCIS. The costs involved and the documents that need to be produced will depend on the readiness of the project. Law requires that each regional center filing must be accompanied by a Project, the readiness of the project falls into three categories: hypothetical, actual, and exemplar.
- Hypothetical project refers to a project proposal that is not supported by a Matter of Ho compliant business plan. A sample project containing general proposals and general predictions may be sufficient to determine that the proposed regional center will more likely than not promote economic growth.
- Actual projects require more detail than a hypothetical project in order to conclude that the proposal contains verifiable details and is supported by economically or statistically sound forecasting tools. This generally means a comprehensive business plan and economic report that accurately describes the project, investment, job creation, and so on.
- Exemplar refers to a Form I-526 petition, filed with a Form I-924 actual project proposal that contains copies of the commercial enterprise’s organizational and transactional documents, which USCIS will review to determine if they are in compliance with established EB-5 eligibility requirements. Below we will discuss the steps and additional documents required for each category.
STEP 1. Determine the Scope of the Regional Center:
Perhaps the most important step of the regional center approval process is for the business organization to determine the geographic scope and economic benefit of the project. This includes determining the regional center geographic boundaries, business industry focus, corporate structure, operational business model, and required investment amount for the potential project.
STEP 2. Acquire the Services of Professionals Who Will be Integral to Producing the Documents Required For Regional Center Filing:
At a minimum the following documents are required for organization of a Regional Center:
- Hypothetical Project: Regional center Operational Business Plan, Corporate Structure agreements for ownership of the regional center, (a) sample project business plan, (b) economist report for the project, and sample management agreement between the regional center and the project.
- Actual Project: The documents listed above with the addition of a comprehensive project business plan, and sample (c) transactional documents (typically an investor subscription agreement and private placement memorandum).
- Exemplar Project: The documents list above with the addition of final transactional documents, as well as a sample Form I-526 Immigration Petition by Alien Entrepreneur.
STEP 3. Assemble a TEAM of Professionals:
- (a) A business plan writer with expertise in producing EB-5 compliant business plans should be consulted, as the business plan is one of the most important documents required for regional center filing. The Administrative Appeals Office (AAO) issued a precedent decision Matter of Ho and has articulated the standards by which USCIS will review a business plan: the plan should contain a market analysis, including the names of competing businesses and their relative strengths and weaknesses, a comparison of the competition’s products and pricing structures, and a description of the target market/prospective customers of the new commercial enterprise. The plan should list the required permits and licenses obtained. If applicable, it should describe the manufacturing or production process, the materials required, and the supply sources. The plan should detail any contracts executed for the supply of materials and/or the distribution of products. It should discuss the marketing strategy of the business, including pricing, advertising, and servicing. The plan should set forth the business’s organizational structure and its personnel’s experience. It should explain the business’s staffing requirements and contain a timetable for hiring, as well as job descriptions for all positions. It should contain sales, cost, and income projections and detail the bases therefore. Most importantly, the business plan must be credible.
- (b) An economist must be retained to prepare job calculation and job creation reports. This is especially important for a regional center project, as regional centers are afforded the ability to use indirect and induced job creation numbers. Indirect jobs can qualify and be counted as jobs attributable to a regional center, based on reasonable economic methodologies, even if they are located outside of the geographical boundaries of a regional center. For purposes of demonstrating indirect job creation, petitioners must employ reasonable economic methodologies to establish by a preponderance of the evidence that the required infusion of capital or creation of direct jobs will result in a certain number of indirect jobs.
The economist must also determine whether or not the regional center will be located in a targeted employment area (TEA). Targeted Employment Area is a critical factor because it allows for a lower investment amounts.
- (c) Securities counsel with a thorough understanding of the Security and Exchange Commission (SEC) regulations to produce EB-5 compliant subscription and private placement memorandums. These documents must not only comply with Security and Exchange Commission federal regulations, but also USCIS regulations, the most important of which being the “at risk” requirement: in order to qualify as an investment in the EB-5 Program, the immigrant investor must actually place his or her capital “at risk” for the purpose of generating a return, and the mere intent to invest is not sufficient. The alien must show actual commitment of the required amount of capital. This means that any clause providing a put, call, or redemption of investment funds prior to final adjudication of Form I-829 Petition by Entrepreneur to Remove Conditions, will result in possible denial of the investor’s application.
- (d) Immigration Attorney to prepare and file a petition for a Regional Center designation, immigrant petitions by individual investors and to guide throughout the immigration process of approval for investors permanent residence and compliance and reporting requirements.
- (e) Banking professional to advise on the international funds transactions, escrow accounts and relevant banking regulations.
III. Submit I-924 Petition:
Finally, with all these documents in place, the regional center can now submit the I-924 petition to USCIS. The regulations provide that once Form I-924 is filed with USCIS, the regional center can go to market and advertise its project. Please note however, the regional center cannot accept any investment from qualified investors, until, and only until the regional center is approved.
IV. Submit I-526 Petitions for Investors:
Once the Form I-924 is approved and the Regional Center is designated, the regional center can now submit the EB-5 investor’s Form I-526 petitions to USCIS: I-526 applications will outline the specific EB-5 projects that the regional center will be conducting, and will include either the documents outlined above in the actual or exemplar filing. While Form I-526 is a self-petition by an individual investor, it is critical to employ the services of experienced immigration counsel. Immigration counsel will review the regional center, project, and an individual investor for compliance. Once filed and approved, I-526 petitions enable individual EB-5 investors to obtain their conditional green card so that they can move to the United States.
V. Administer Project and Maintain USCIS Compliance:
Upon commencement of operations, the regional center must monitor its investors and track the job creation requirements for its projects. It will need an operational officers to conduct daily operations. The regional center must also file an annual compliance report, Form I-924a with USCIS (Annual compliance report fee is $3,035).
The regional center must also make filings with the Securities and Exchange Commission and other state and local agencies that regulate securities.
VI. EB-5 Visa Applicants File I-829 Petitions:
The final step of the EB-5 visa process for individual investor applicants is to file the I-829 petition to remove conditions on their permanent residence. Evidence must demonstrate that the project and investor have met all the requirements of the EB-5 program. Once approved, the I-829 enables the investors to obtain their lawful permanent resident status (green card). Although the application is filed by the individual EB-5 visa applicants, the regional center must provide evidence of meeting the job creation requirements as a result of the investment.