When making an EB-5 investment, the investor is presented with two options: to invest directly and independently or to invest through an EB-5 regional center. These two investment models are mostly the same, requiring the same capital contribution, allowing the same targeted employment area exception, and taking about the same amount of time for adjudication by U.S. Citizenship and Immigration Services (USCIS).
Their paths diverge when it comes to the investor’s role in the new commercial enterprise (NCE) and when calculating job creation, an integral requirement of the EB-5 program. While investors may count only directly created jobs under the direct investment model, investors who rent a regional center are able to include indirect and induced jobs toward their total.
This difference is consequential, so investors should consider the following factors pertinent to the decision.
- In both models, investors are required to file an I-526 application for conditional permanent resident status and an I-829 for unconditional residency after two years. Besides these forms, regional centers are required to file an I-924 annually for approval with USCIS. Before investing through a regional center, it’s important for EB-5 investors to make sure the regional center’s USCIS designation is current.
- The EB-5 program as a whole is subject to the legislative changes that Congress and USCIS may make with respect to investment amounts and TEA guidelines. The regional center aspect of the program is subject to a second layer of legislation, however, such as the possibility of non renewal.
- A regional center is a convenient and effective vehicle for developers and investors to maneuver through the various stages of EB-5 project development while ensuring compliance with USCIS standards, but these advantages come with substantial administrative fees that direct investors don’t have to pay.
- Investors who invest directly are required by the EB-5 program to manage the day-to-day operation of the NCE. Regional center investors typically take a much less active role, such as serving as a lender for the job-creating entity. For investors whose priority is obtaining US permanent residency rather than running a business, investment through a regional center is likely more appealing.
The Main Difference: Direct and Indirect Job Creation
The principal objective of the EB-5 program is job creation. Each EB-5 investor is required to put his or her full investment amount toward an enterprise that creates 10 permanent full-time jobs during the two-year period of conditional residency. This is where the direct and regional center investment models differ the most: For direct investors, only directly created jobs count toward the requirement; regional center investors, however, are able to include indirect and induced jobs.
In the direct investment model, job creation numbers are typically low and projects are too small to fulfill EB-5 program requirements for multiple investors. Only jobs that establish an employer–employee relationship between the NCE and the employee count as direct jobs. These permanent full-time positions must be filled by qualified US workers, and they cannot be occupied by the investor or the investor’s dependent family members even though the investor is required to manage the business. The full amount of the investment must be applied to job creation in the NCE and not used for other purposes.
The regional center model, however, usually involves multiple investments pooled toward larger projects. The investor’s role is often as a lender of investment funds to an enterprise that borrows the funds and applies them in a way that creates many jobs. These jobs are considered indirectly created by the investor, and are calculated by an economist who measures the project’s overall economic impact.
Here are a few examples to illustrate the differences in job creation for the two models:
- The direct investment model is a better fit for restaurants and other small businesses because they need fewer investors and don’t create many jobs. These characteristics make the regional center’s services (and its admin fees) unnecessary.
- Often, real estate projects create few direct jobs, but they create indirect jobs prolifically through construction, demand for materials, and tenancy. Multiple investors are needed to inject the considerable capital required to complete them. For these reasons, real estate development investments are typically made through a regional center.
- Both EB-5 investment models can be appropriate for resorts and hotels, depending on the investor’s aims. Through direct investment, the investor could enjoy a management position but would only be able to include the hotel’s directly paid employees in his or her job creation numbers. By investing through a regional center, the investor would be one of many contributing funds to the project and could sidestep management responsibilities as well as count indirect jobs created by construction, operations, and material demands toward the job creation requirement.
EB-5 investors should take stock of their priorities before choosing which investment path to take. The direct and regional center investment models have many similarities, but the disparities between them demand conscientious consideration. Since larger projects produce higher indirect job creation numbers, they are more suitable for regional center investment. Smaller direct investment projects garner less administrative support and less funding, but they offer opportunities for investors who are eager to oversee business operations.
If you’d like further information about EB-5 job creation calculations or EB-5 regional center investment, call (800) 775-1988 or ask a question at EB5 Economist. We’re here to help.