Q: I haven't paid taxes, individual or business, because my country of residence doesn't require it or it isn't customary. Is this a problem?
A: Catharine: We normally tell clients if they can provide income tax returns, it’s great to do so. If they can't, it's not going to make or break their petition.
We let them know that if USCIS EB5 sends a request for evidence (RFE) for copies of their income tax returns, they will need to either produce them or get a letter from an attorney in their country of residence stating the legal reason behind why they can't provide those tax returns.
I always request tax returns but I’ll still file a petition if I don't have them.
Q: What does ‘At Risk’ mean?
A: EB-5 program requirements stipulate that an investor’s capital must be “at risk for the purpose of generating a return on the capital.” In addition to a “chance for gain” this must further entail a “risk of loss.”
Investors should note that this requirement does not allow for any guaranteed returns, including a guaranteed interest rate of return. If any guarantees are made to the investor for the right to own or use real estate (such as a condominium unit), then the current value of the ownership or use of the asset will be deducted from total amount of capital deemed at risk.
The investor’s capital must got into a New Commercial Enterprise (NCE); the NCE then invests in or loans the capital to a Job Creating Enterprise (JCE). This means the capital is invested in a job-creating business that will prove that it is or will be conducting a business activity that uses that capital. If the business is not successful, the investor’s capital may be lost. Therefore an investor’s capital cannot simply remain in a bank account — it must actually be invested in such a real job-creating business.
This “at risk’” requirement must be fulfilled for the duration of the immigrant investor’s conditional residency. A failure to fulfil this “at risk” requirement will result in USCIS denying the petitions of all the NCE’s investors who would then have to start the investment process all over with a new I-526 filing and EB5 investment.
Q: When will I get my EB5 money back?
A: Rupy: Often times an investor's understanding may be that their funds are being loaned to a project for five years so they can expect a return of their capital in five years.
Investors should understand that they are making an equity investment in the new commercial enterprise (NCE), and the NCE is making the loan. So the investment returns are dependent on two outcomes, first the repayment of the loan by the JCE and second the liquidation of the NCE by the Manager.
In order to asses the timing of the loan repayment by the JCE, an investor should understand the loan terms: when the loan begins, when the balloon payment is due and if there are any possibilities of extensions.
And when the money does come back to the NCE there may be a possibility of re-investment. To understand when an investor might get their money back they need to understand the terms of the operating agreement they signed which outline the timing of liquidation of the NCE.
Q: Can I continue to travel in and out of the US, while my I-526 is pending?
A: Sam: Generally yes, although it depends on the type of visa the immigrant has. Typically if an investor has a B visa or if they come from a country where they're able to use ESTA, there are no problems with traveling. Sometimes we get stories of clients who are stopped at the airport and questioned, but we haven't encountered any major problems.
Traveling outside the US may become more difficult once a client's I-526 petition gets approved, so it is important to explain to them what their visa allows for, what duel intent means and what to do if they are stopped at the border.
It can be difficult for a client to apply for a non-immigrant visa after their I-526 petition, because they’ve already put on record that they had immigrant intent through the I-526, so establishing non-immigrant intent can be very tricky.
Q: Where do I invest? How do I find EB5 projects?
A: Rupy: We're often contacted by investors who are researching EB-5 projects online and are therefore aware of a few projects in the market. And sometimes an investor's immigration attorney will provide them with a list of 'preferred regional centers', which I'm not convinced is a good idea because it tends to lend credibility to investments that have not been vetted.
Immigrant investors with strong business backgrounds often feel capable of doing their own due diligence. If they do, one benefit of working directly with a regional center is that some regional centers may offer a reduction to their administrative fee if the investor does not involve an agent.
In this situation I suggest the investor procure an EB5 due diligence report, then visit the project themselves, meet with the developer and management team.
The benefit of working with a broker dealer agent is that the investor gets a larger selection of investment options and the due diligence is performed at the agent's expense. An agent is also a fiduciary who works with the investor throughout the investment selection process, will answer questions and generally act as a go-between with the regional center.
Q: Which is preferable, use of escrow or EB5 funding directly?
A: Dawn: Although regulations do not require use of escrow, up until a couple of years ago, the majority of projects used escrow. Complicate eb 5 visa requirements along with the lengthy and increasing waiting periods for processing has made the practice of releasing directly into the project or having some sort of hold back into the project much more common. But I prefer for the money to sit in escrow until my client's I-526 is approved.
But in practicality, many of the developers are pushing for an immediate release, so if that's the case I find what mechanisms are in place to return the funds in case of a denial: "Does there need to be another investor as a replacement for my investor to get their money back?" "What's the difference between best efforts and reasonable efforts?"
There are some regional centers that will put themselves on the line and they'll advance the funds if there's an issue.
Escrow is helpful to protect investors against potential denials and to be used by Regional Centers and project developers that are not as well known. I prefer to see escrow in deals where there is a greater potential for fraud such as disclosed conflicts of interest between the NCE and JCE.
Rupy: As Dawn mentioned, repayment of investor's funds in the event of denial is a common investor concern and investors want to know the terms of refund for both the investment and the administrative fees.
Some regional centers have hold-back provisions such that 10-20% of investor EB5 funding remain in escrow until all investors have been approved.
Other regional centers provide a 'guarantee' that funds will be returned to investors in case of denial. One would hope that the NCE manager has underwritten the guarantee by reviewing the net worth and liquidity of the guarantor to ensure that in the event of denial, the guarantor is actually able to pay the investors back. But in many situations we have found that guarantees are not properly vetted and may not protect investors as promised.
Q: When do I make the EB5 investment? Before or after I file my I-526?
A: Catharine: We recommend that our clients make the investment before they file their I-526 petition.
According to the regulations one can actively be in the process of investing when they file but we tend to request that our clients make the investment, receive the confirmation letter from the regional center and then we file the I-526 petition.
Q: How long does the process of filing an I-526 typically take?
A: Catharine: From the initial meeting until when we file, the entire process can be as short as one to two months or it can take as long as six to eight months.
Most of the time is spent with the investor, deciding which regional center he wants to invest for the EB 5 Visa and for the investor to do his own due diligence, as well as translating the source of funds documents and reviewing them.
Q: How long do I have to stay in the U.S. once I get my conditional green card through EB5?
A: Dawn: The investor’s intent needs to be to live here in the United States permanently.
Once they become a conditional resident, they are subject to the same rules and regulations that any other type of resident is regardless of how they got their green card.
I don't like to have my clients outside the United States for any more than six months at a time. Once they get over six months the burden changes. Once they’re outside for over a year, they have a problem.
It also depends on why the investor is leaving the U.S. If they need to go back to their country or to a third country for a good reason, there are certain ways to preserve residency.
Investors should speak with their immigration counsel to see what planning needs to be done.
Q: Who in my family should be making the EB-5 petition and investment?
A: Dawn: It’s important to discuss who is the appropriate petitioner as a pre-planning item. What is the investor's goal?
If it's for their child, and the investor never plans on living in the U.S., the child may be the appropriate petitioner, depending on their age. Or their spouse may be a better petitioner.
Petitioners need to be careful if they don’t plan on living in the US. I think the immigration service is going to start to scrutinize EB-5 more carefully because there are a lot of EB-5 immigrants that are not living in the United States.
Sam: Investors oftentimes look at the EB 5 Visa program in comparison to other immigration programs around the world and sometimes they're surprised to hear about some of the differences in the requirements to be a permanent resident of the United States, and how taxation as a U.S. person is different from other countries and other immigrant USA investor visa programs.
It's an important part of the process for an investor to meet with a tax lawyer and discuss tax planning. As an immigration attorney, you need to make sure your client is adequately informed about the different aspects of making an EB-5 investment.
Q: What are the differences between an equity EB5 investment and a debt investment?
A: Rupy: Investors sometimes don't understand that their investment must be an equity investment. Investors sometimes hear that their funds are being lent to the project so the investor thinks they’re making a loan for five or six years, but in fact, they're making an equity investment into a new commercial enterprise (NCE). The NCE will then make a loan or potentially an equity investment into a project.
To make a decision about the investment structure is one of the most complicate parts of the EB5 process, one has to understand the risks associated with debt versus equity, understand the different types of debt structures and rights and remedies associated with the investment structure.
Debt can be secured with the assets of the JCE or it can be unsecured and debt has a higher priority of repayment than an equity investment. It is very important to review the loan documents to understand the rights and remedies of the lender, which is the EB-5 investor fund.
In a preferred equity investment, investors should review the operating agreement of the developer (JCE), to understand their rights associated with their investment.
It's very important to differentiate between the investment into the NCE (always equity) and the investment into the JCE (can be either debt or equity).
Q: How do I know whether an EB5 project uses an in-house regional center or a third-party rental center?
A: Rupy: A review of the PPM should disclose the relationship of the Regional Center and the Issuer (NCE). It should outline who the principals of the Regional Center are, who the principals of the NCE are and who the principals of the JCE are. And it is important to identify any conflicts of interest disclosures in the PPM.
Sometimes even though the parties are unrelated, there can still be conflicts of interest due to the way compensation is structured. There can also be conflicts regarding common ownership and conflicts regarding incentives given to certain parties. These are serious issues investors need to evaluate.
Q: How do I know a good EB5 regional center from a bad regional center?
A: Catharine: We usually provide our clients with our Due Diligence Memo: a list of questions that investors should use to evaluate and assess whether the EB5 regional center is a “good or bad” regional center.
Investors should learn:
- how long the regional center has been in existence
- how many I-526 petitions it has filed
- how many I-829 petitions it has filed
- how many were approved
- how many were denied
- how many were withdrawn.
We also recommend that investors look at the background history for developers, to see if the developer has any experience in the project that they're undertaking. Even though a regional center might be new, an experienced developer is a good indication of the project's strength.
Q: What happens if the petitioner passes away during the EB5 process. Are green cards transferable or is money returned?
A: Sam: It depends on the terms of the documents the investor is signing. And it’s important to look at the escrow terms and clauses.
It depends on where the petitioner is in the process, and on whether or not it's been approved.