During the past few months, there has been a pretty intense debate raged on many of the LinkedIn EB-5 Groups regarding the benefits of Direct EB-5 vs. Regional Center EB-5s. The debate, unfortunately, took a pretty nasty turn as the proponent of Direct EB-5s tried to engage the Regional Center side by calling everyone names. Not the most productive way to begin a conversation. That said, the topic of discussion one of great interest to many prospective investors. So I would like to take advantage of my soap box and touch on the arguments made, point-by-point.
But first, what is the difference between a Direct EB-5 and a Regional Center EB-5?
Direct EB-5 is the default mode of investment under the immigration laws and regulations. A foreign investor will invest either $1 million (or $500,000 if the investment is located in a Targeted Employment Area (TEA)) and file an I-526 and obtain a conditional greencard. Two-and-a-half years later, she will earn a permanent greencard by showing that she created 10 qualifying U.S. jobs. A “qualifying” U.S. job means that the job is a minimum 35-hour a week full-time position and that is filled by either U.S. citizens or greencard holders who are not immediate family members (i.e. spouse, sons & daughters) of the immigrant investor. Independent contractors do not qualify.
Regional Center EB-5s are allowed under the Regional Center Pilot Program. This is the program that is extended every three years which was extended for another three years by the Senate last week. (In other words, even if the Regional Center program had not been extended, Direct EB-5s could still have been filed regardless of the extension.) The structure of Regional Center EB-5s are basically the same as Direct EB-5s: invest $1 million (or $500,000 if the Regional Center project is located in a TEA) and then each investor creates 10 qualifying jobs. (It is a common misconception that the minimum investment for Direct EB-5s are $1 million and Regional Center EB-5s are $500,000.) The difference between the two is that if an investor invests through a Regional Center and not directly, she can claim credit for the indirect job creation that the economic impact of the EB-5 project brings. This is where the economic report comes in: in a Regional Center EB-5 petition, in addition to the business plan, the investor will submit an economic report (provided to the investor by the Regional Center) that a certain number of “jobs” will be created by the economic impact of the proposed project. These jobs are the same type of jobs that President Obama or Mitt Romney is referring to when they talk about the number of “new jobs” that they are going to be creating if/when they are (re)elected. Because you are able to count these indirect jobs, obviously, the job numbers are going to be much bigger than only the direct jobs that you are counting in the Direct EB-5 context. And because the amount of capital an EB-5 project is able to raise will necessarily be capped by the number of jobs, more jobs means more investors means more investment flowing into the United States. (Example: If project A creates 20 jobs, only 2 investors can invest and at $500,000, each, only $1 million can be raised. If project B creates 200 jobs, 20 investors can invest and thus $10 million can be raised.)
I mentioned above that 2.5 years after obtaining the conditional greencard, the investor must show that 10 qualified U.S. jobs have been created. This means that the Direct EB-5 investor must prove that she has 10 or more people on her payroll. She can show this by submitting W-2 tax forms or I-9 forms, etc. The Regional Center investor, on the other hand, will be relying on the Regional Center to provide them with data they can submit to the USCIS to show that the indirect jobs were created. This is done by showing that the Regional Center project was able to achieve whatever milestones were set out in the business plan and the economic report that was previously submitted 2.5 years ago. If you said that the economic impact jobs were going to be created by reaching a certain revenue number, you need to show that you in fact reached those revenue target. If you said that these indirect jobs were going to be created by spending a certain amount of money on certain activities (like construction, for example), then you have show that you, in fact, spent the money the way you said you were going to spend it in the business plan. Then, once the USCIS can verify this, they will “deem” the indirect jobs to have been created and the investor will get credit for them.
That, in a rather large nutshell, is the difference between the Direct and Regional Center EB-5 investments. With this background in mind, let me attempt to address the Direct vs. Regional Center debate.