Issues such as documenting the lawful source of funds and tracing from the investor to the new commercial enterprise are common in individual and regional center EB-5 petitions. However, when it comes to individual EB-5s there are many unique and complex issues that the attorney must deal with. These include determining if the investment entity qualifies as a “new commercial enterprise,” if it is located in a “targeted employment area,” and how to document if the required “employment creation” has occurred or will occur.
What constitutes a new commercial enterprise?
In contrast to regional center EB-5 investors, individual EB-5 applicants must demonstrate that their investment is in a new commercial enterprise. For those that make their EB-5 investment in a brand new business, this requirement is relatively straightforward and can be easily proven through the submission of corporate formation documents. An investment in a business established after November 29, 1990 will meet the “new commercial enterprise” requirement. However, those investors that invest in a company created before November 29, 1990, face a tougher challenge. They can meet this requirement in one of two ways. First, they can show that they have significantly restructured or reorganized an existing business. The USCIS has not defined what this entails and has interpreted this requirement restrictively. As a result, this is an argument many EB-5 practitioners shy away from. The second option is to demonstrate that the investor has expanded an existing business. To do this, the investor must not only create ten, full-time U.S. jobs, but they must also expand either the net worth or the number of employees of the business by at least 40 percent. This is a tall order for some, but for others it may be feasible.
TEAs aren’t just for regional center EB-5s
Individual EB-5 investments are $500,000 if the investment is in a Targeted Employment Area (TEA). The regulations define a TEA as either a rural area or an area that has an unemployment rated of at least 150 percent of the national average. Otherwise, if the investment is not in a TEA, the required amount of investment is $1 million. It is important to remember that TEA designation is not decided at the time the individual makes the EB-5 investment. Rather, the USCIS has stated that the availability of a reduced $500,000 investment is only decided at the time of I-526 adjudication. This means that if unemployment statistics change the investor might find that they must invest the higher $1 million amount to satisfy the EB-5 requirements. If the investor has put their funds in escrow, the date of investment for EB-5 purposes is considered the date that the escrow is released following the approval.