Today, USCIS updated their policy manual regarding the rules of eligibility for the Employment Based Entrepreneur “green card” or EB-5 visa. The EB-5 visa requires an investor wishing to obtain permanent residency in the U.S. to invest either $500,000 or $1,000,000 in a new enterprise that will create 10 jobs over two years post investment.
One of the key issues in the EB-5 sphere is determining what is an investment. The regulations define an investment as:
“To invest means to contribute capital. A loan from the immigrant investor to the new commercial enterprise does not count as a contribution of capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the immigrant investor and the new commercial enterprise is not a capital investment.”
To be considered an investment the capital must be at risk. Many EB-5 investors want to protect their money through strategic use of redemption language in their investment contracts. These redemption clauses generally allow for guaranteed returns to the investor once they receive their permanent residency cards.
In today’s update, USCIS clarifies which redemption agreements are debt arrangements and therefore are not qualifying investments where the investor holds a redemption right or the new commercial enterprise is otherwise obligated to redeem the investor’s equity interest. Thereby making the funds not at risk.
USCIS gives two types of scenarios where they will find that an arrangement is an impermissible debt agreement in the EB-5 context. First, they highlight the mandatory redemption clauses in investment contracts and say they are not permissible if they include a specified time and specified amount of payment.
Second, they give the example of a option exercisable by the investor. This is the scenario where the contract allows for the an option by the EB-5 investor to redeem all or part of their investment at a particular time and for a particular amount.
However, USCIS was clear that an option held by the new enterprise to redeem all or a part of the investment to the EB-5 applicant, is a permissible agreement.
This new policy changes the way USCIS will view “risk” in the realm of EB-5 petitions.
This policy change comes within a week of the recent announcement by the Department of Homeland Security that they will be reformulating the entire EB-5 program over the next six months, which may result in a major changes to the investor program.