EB-5, the immigration investment program of the United States which started in 1990, offers foreign investors a direct path to a Green Card. If a person invests $1 million ($500,000 in rural and target employment areas) and creates ten new American jobs as a result of the investment, he or she will be eligible to obtain a Green Card for themselves and their immediate family. The other key requirement of the program is a properly documented source of funds used for the investment.
ROUTES FOR EB-5 INVESTMENT
There are two routes for EB-5 investment: direct and regional centers. The regional centers model pools the investments for multiple investors into one or more large projects and functions more like a close-end mutual fund with a lock in period of five years. The direct investment, as the name suggests, involves investing directly into an existing business or establishing a new business. Typically, the investor in a direct investment has the majority stake or outright ownership, giving them control, management options and higher returns.
In the Direct route, the client has the option of managing the business directly, hiring an outside management firm or hiring a consultant to assist with the management until the investor is up to speed. On the other hand, project principals manage Regional Centers and the investors have no direct sway on the management and operations whatsoever leaving them with no options but to remain in a passive role.
There are other differences too, including the investment return. While the Regional model offers an average of less than 2% returns, the Direct model offers returns in double digits. Also, the Direct route offers the investor a vast array of choices as far as industry and the type of business is concerned. There are no restrictions on the industry in which one can invest. However, most projects in regional centers are related to real estate.
The EB-5 is a two-step process. The first step is the I-526 application, which includes documentation for the source of funds, the business plan demonstrating how jobs will be created, path of funds, criminal background, etc. Once these are approved, the client receives a conditional Green Card. The next step is to file for the I-829 application after two years to remove the conditions by demonstrating the creation of the 10 new jobs. The client then has the option to continue the business or sell it, typically at a higher valuation.
EB 5 IN INDIA
Although EB-5 has seen a rapid surge since the financial crisis and the number of applicants has risen from 1,885 in 2010 to 7,641 in 2012, India still lags behind with just over 35 applications filed in the last fiscal year, which amounts to roughly Rs. 120 crore raised. However, increasing marketing and presence of EB-5 players in India coupled with a fall in Chinese investors has resulted in conditions where India is poised to be the next big market for the EB-5 applications.
After the devaluation of the Indian currency by more than 20% in mid-2013, the Reserve Bank of India (RBI) intervened to regulate the outflow of currency by imposing 'temporary' capital controls. The liberal remittance scheme for an individual has also been reduced from $200,000 to $75,000 and the limit for overseas direct investment has been cut to 100% of net worth of indian company compared to 400% earlier. However, these are merely temporary measures, which are expected to be reversed after the general elections. The Union finance minister, P Chidambaram, echoed this view at the time; "RBI's measures are not to be understood as capital control. The announcement preserves the right of a corporate to go to RBI and seek approval in case it wants to take out more than 100% of net worth. These are temporary measures and I am sure RBI will revisit them at an appropriate time," he said.
In China, even though the restriction is lower at $50,000 per person, more than 3,000 Chinese apply for EB-5 Green Cards every year. However, there are alternative legal routes to making an EB-5 investment in the US widely practiced by Chinese investors that can also be applicable for Indian investors.
According to a poll conducted by a national newspaper, 1 crore Indians have expressed a strong desire to migrate to the US and for people who have the means and resources, EB-5 still remains the most straightforward path to a Green Card.
Applying for an EB-5 Green Card via the direct investment model can be a daunting process. There are two major elements: buying and managing a new business (or selecting a project in the case of a Regional Center investment) and the immigration procedure. Both need to be properly executed at each step to ensure the Green Card and the smooth operation and profitability of the business. An EB-5 investment is not just a financial investment move; it is a major life decision for the family as well. Therefore, it is imperative to ensure compliance and correct decisionmaking at each step.
Vice President, South Asia, Aginsky Consulting Group