Immigration Visas can Help Fund Biomass Projects
Funding for renewable energy projects has been challenging, as private investors may not have the resources or are concerned about regulatory uncertainty. Federal funding, once viewed with great hope, has turned out to be a frustrating, and often hopeless, endeavor. But the U.S. is still one of the best markets in the world for renewable energy projects, and even if many U.S. investors are unwilling to participate, there are many foreign investors looking to take advantage of the opportunities. The EB-5 immigrant visa category offers U.S. renewable energy projects and foreign investors an avenue to make it all work.
Congress created the EB-5 immigrant visa category for investors making significant investments in commercial enterprises that benefit the U.S. economy and create at least 10 full-time jobs. Due to onerous restrictions, however, this category was underutilized for many years. In 2003, Congress initiated a study of the EB-5 program to determine why and concluded that the rigorous application process was deterring applicants. It also found that even though few people had participated, EB-5 investors had invested an estimated $1 billion in a variety of U.S. businesses. Since then we have seen a steady growth in the number of EB-5 investment projects, and particularly in the number of approved regional centers. Even though the category remains underutilized, EB-5 investment is increasingly being looked at as a means of revitalizing the U.S. economy.
Basic EB-5 Requirements
Approximately 10,000 visas are reserved annually for applicants to invest in a new commercial enterprise employing at least 10 full-time U.S. workers. To qualify under the EB-5 program, the new enterprise must be one in which the applicant must invest (or be in the process of investing) at least $1 million (or $500,000 if investing in a “targeted employment area,” discussed below). The investment must benefit the U.S. economy and create the requisite 10 jobs. Permanent residence for EB-5 investors is granted conditionally for two years, after which time they need to file an application to remove the conditions, proving that their investment has continued to qualify.
After developing the EB-5 category, Congress created a program to encourage its utilization, called the Investor Pilot Program, which set aside 3,000 EB-5 visas each year for those who invest in “designated regional centers.” Although efforts are underway to make this program permanent, it is still temporary and was recently renewed until Sept. 30, 2012. At present, more than 90 percent of all EB-5 investments are made through regional centers, of which there are about 75. A regional center is an “economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation or increased domestic capital investment.” The benefit to investors is that the pilot program does not require that they employ 10 U.S. workers (indirect job creation is sufficient) or that they be engaged in the direct management of the business.
To be approved, a regional center must submit a detailed proposal outlining how it plans to focus on a U.S. geographical region to achieve the required job creation and growth. It must also outline the amount and sources of committed capital and the plan for promoting the project.
USCIS precludes corporate or other nonindividual investors from the EB-5 category, but more than one investor can participate in the same, new commercial enterprise provided that each one has invested (or is actively in the process of investing) the required amount and that a minimum of 10 jobs are attributable to each investor. The source of all capital must be identified and all invested capital must have been obtained lawfully. The regular EB-5 program and the pilot program have similar requirements, with the distinction that the former requires the investor to submit all of the evidence whereas the latter requires the regional center to certify that the investor has met its criteria regarding the particular investment project.
In addition, it is critical that all investors prove that their capital is “at risk” at the time of making the application. It is not enough to intend to invest; there must be an actual commitment of funds, which can include certain debt arrangements.
To prove that the capital was lawfully acquired, investors must submit tax returns for the previous five years. In a regular EB-5 case, investors must prove that they will be managing the new commercial enterprises.
USCIS requires that the entire amount of capital be invested and at risk at the time the application is filed, including binding debt arrangements. The term “invest” means to contribute capital, so a contribution made as a loan in exchange for a note, bond or any other debt arrangement does not qualify. “Capital” means cash and cash equivalents, inventory and other tangible property. Retained earnings do not qualify as capital. Indebtedness secured by assets owned by the investor may be considered capital if the investor is personally liable and the assets of the new enterprise are not used as security. A signed promissory note, for example, generally constitutes a contribution of capital provided the petitioner is obliged to make all the requisite payments and there are no “escape” clauses. USCIS has ruled that the full amount of the promissory note must be paid off by the end of the two-year conditional residence period.
New Commercial Enterprises
To qualify as “new,” businesses must be created after Nov. 29, 1990, and must be “commercial” for-profit entities. There are exceptions, however, when an investor restructures, reorganizes or expands. Unfortunately, the rules provide minimal insight into what level of restructuring or reorganizing must be done to establish a new enterprise, and all but one of the challenged cases found that the businesses failed to do so. Expanding an existing business requires that there be an increase of at least 40 percent in the net worth or the number of employees.
A new enterprise established through the capital investment in a troubled business must prove that the number of existing employees will be maintained at no less than the pre-investment level for a period of at least two years. A “troubled business” is one that has been in existence for at least two years and has incurred a net loss, during the 12- to 24-month period before the petition was filed, of at least 20 percent of the business’s net worth before the loss.
To qualify for the lower investment amount of $500,000, the employment must be created in a targeted employment area. Therefore the EB-5 investment must either be in a rural area or in a high unemployment area.
To qualify for EB-5 status, investments must “benefit the U.S. economy,” but no guidance is provided in the rules as to exactly what this means. The USCIS examiners are therefore left to their own interpretations when adjudicating petitions.
Normally, except with troubled business applications, at least 10 full-time jobs must be created per EB-5 investment. These jobs must be for direct employees of the enterprise and not for independent contractors. The employees may be U.S. citizens, lawful permanent residents, or other immigrants (asylees, refugees, and conditional residents), but they cannot include the investor’s dependents.
Full-time jobs require at minimum 35 hours per week (including job sharing arrangements). The jobs don’t need to be created immediately at the time of the initial investment and can be rolled out over the two-year period of the EB-5 investor’s conditional residence, with a detailed business plan explaining the strategy. The jobs must be located in “targeted employment areas” to qualify for the $500,000 investment.
Removing Conditional Residence
When the initial application has been approved, the investor either adjusts status (if within the U.S.) or is admitted on an immigrant visa, at which time he or she becomes a conditional resident for two years. In order to remove the conditions, a petition must be filed establishing that the individual invested the required capital and that the investment created or will create 10 full-time jobs.
Technically, under the rules, an investor will qualify for removal of the permanent residence conditions if it can be shown that the capital investment requirements have been “substantially met” during the conditional period, but as a practical matter, USCIS is most likely to require that the capital has been fully invested. If the 10 requisite jobs aren’t fully staffed by the end of the initial two years, USCIS will want proof that those jobs will be created “within a clear, defined and credible period of time.”
Investors’ conditional status is extended during the pendency of their applications. If denied, the EB-5 investor will be asked to leave the U.S. and is deportable.
The history of the EB-5 program has proved difficult, with USCIS applying an extremely strict interpretation of the rules. Given the persistent high rates of unemployment in the U.S. at present, we can only hope that USCIS sticks to its word and allows vital investment into our country at a time when it is most needed.
Authors: Laura Danielson
Chair Immigration Department, Fredrikson & Byron
Co-Chair Clean Technology Group, Fredrikson & Byron