EB5 FAQ on Source of Investment Fund and Job Creation
1. A Chinese investor will invest about $1.5 million to develop and operate a childcare center with a U.S. investor. The project will purchase the childcare center site for about $1.3 million and will spend additional $1 million to build and operate the center. The center will hire more than 10 full-time U.S. workers. Is the land purchase considered an EB5 investment capital?
Yes, the land was purchased for the purpose of creating profit for the commercial enterprise, childcare center. However, owning and operating a personal residence is not considered a commercial activity.
2. Ten immigrant investors seek to establish a hotel as their new commercial enterprise. The establishing of the new hotel requires capital to pay financing costs to unrelated third parties, purchasing the land, developing the plans, obtaining the licenses, building the structure, taking care of the grounds, staffing the hotel, and the many other types of expenses involved in the development and operation of the new hotel. Does the new hotel constitute a valid EB5 commercial enterprise?
Yes, the new hotel business will be considered an EB5 commercial enterprise. Additionally, each EB5 investor’s capital investment must create at least 10 qualifying full-time U.S. positions. Assuming that each EB5 investor invested the required amount, the new hotel must create at least 100 jobs to satisfy all 10 immigrant investor’s EB5 job creation requirement.
3. Three investors (2 U.S. and 1 Chinese) purchased a hotel in U.S. for $7.3 million, with each investor contributing 1/3 of the purchase price. The hotel reopened under a new company and qualifies as an EB5 new enterprise. The new hotel will create 15 jobs. Can the Chinese investor claim all 15 jobs?
Yes, 8 C.F.R. § 204.6(g)(2) allows the total number of full-time positions created for qualifying employees to be allocated solely to those alien entrepreneurs who have used the establishment of the new commercial enterprise as the basis of a petition on Form I-526. No allocation need be made among persons not seeking EB5 classification. However, if all three investors are foreign investors seeking EB5, none of the investors will satisfy the job creation requirement because in such case the jobs must be allocated equally (5 per investor).
4. A foreign investor wants to invest $1 million total into 2 different restaurants in an area that requires $1 million investment. Both restaurants together will create 12 EB5 qualifying full-time jobs (6 jobs each). Can the investor claim both investments for one EB5 case?
Yes, but the investor will probably need to form a holding company for both restaurants. 8 C.F.R. § 204.6(e) allows a commercial enterprise to consist of a holding company and its wholly-owned subsidiaries, provided that each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business.
5. A foreign investor will invest $500,000 to open up a new restaurant in a targeted employment area (TEA). The investor borrowed $500,000 from a foreign bank using her personal property as collateral. Is her investment a valid EB5 capital?
Yes. The law does allow investment capital to come from indebtedness secured by assets owned by the investor, provided that the investor is personally and primarily liable and that the assets of the new commercial enterprise are not used to secure any of the indebtedness. The investor must also provide evidence of any loan or mortgage agreement, promissory note, security agreement, or other evidence of borrowing to prove the path of fund. Additionally, the investor must prove that she lawfully obtained the property used as collateral.
6. A Taiwanese investor issues a promissory note to invest $500,000 in a TEA EB5 project. The investor agrees to invest in installments of $50k deposit, $50k after I-526 approval, $200k after U.S. entry, and $200k prior to the removal of the condition. The note is backed by the investor’s $500,000 property in Taiwan. Is the promissory note a valid EB5 capital?
No. Although a promissory note can constitute an EB5 capital, the investor failed to provide the necessary documents required by the law. In this case, the investor should have provided documentary evidence to satisfy the following: (1) the assets are specifically identified as securing the note; (2) the security interests in the note are perfected in the jurisdiction in which the assets are located (i.e. such security arrangement is recognized in Taiwan); (3) the assets are fully amenable to seizure by a U.S. note holder (i.e. U.S. company can claim the investor’s Taiwanese property if the investor fails to invest as agreed); and (4) the assets have an adequate fair market value. In this case, the investor failed to provide any of the necessary documents such as trust or grant deed, valid property appraisal, lien report, or documents to support that Taiwan will recognize U.S. court judgment or that a Taiwanese court will directly enforce the promissory note. (Facts modified from Matter of Hsiung)
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