EB5 Investments are part of the key criteria to qualify for the EB-5 Immigrant Visa. EB5 Visa Investments must be made into a new commercial enterprise (NCE) that generates US jobs. EB-5 Investments must be cash or real, personal, or mixed tangible assets of the immigrant investor obtained from lawful sources. EB-5 Visa investors have the right to expect a return on investment (ROI) through the distribution of profits from the new commercial enterprise (NCE). The return on investment, however, cannot be guaranteed since the U.S. Citizenship and Immigration Services (USCIS) requires EB 5 Investments to be at risk for at least 2 years.
The U.S. Citizenship and Immigration Services (USCIS) also has specific rules on redemption provisions for agreements between NCEs and EB 5 investors. Redemption agreements that allow immigrant investors to regain their EB5 capital investment after a certain period of time or after a specified event has occurred are impermissible per USCIS rules. Redemption provisions that are exercisable by the NCE and do not grant the right to repayment to foreign investors are permitted under the EB-5 Visa Program.
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How Do Returns on Investment Work for EB5?
Return on investment (ROI) is a measure of profitability wherein the return is measured relative to the cost of investment. EB-5 Visa investors are allowed to receive a return on their investment based on the distribution of profits from the NCE. The distributed profit cannot be part of the EB 5 investor’s minimum capital investment. The distribution of profits can occur during the 2-year Conditional Permanent Residency after EB5 Visa approval and before the minimum number of jobs are generated.
Return on investment (ROI) cannot be guaranteed for EB 5 Visa investors. The U.S. Citizenship and Immigration Services (USCIS) requires EB5 Investments to be at risk meaning the capital is subject to both gains and losses. A guaranteed ROI on the EB 5 Investment does not satisfy the required risk on investment and likely leads to a denied petition. Furthermore, the equivalent amount of a guaranteed right to eventual ownership or use of an asset based on the EB-5 investor’s capital contribution counts against the investor’s total at risk EB-5 Investment. For example, the value of a property that an immigrant investor with a right of ownership or use of that property is not considered part of the at risk capital investment in the NCE. Our articles on Are Funds returned after EB-5 Visa? and At Risk Investment for EB5 contain more details about how your money is returned after making an EB 5 Visa investment.
What are Redemption Provisions for EB5 Investments?
Redemption provisions for EB5 Visa Investment are based on the regulatory definitions and precedent decisions used by the U.S. Citizenship and Immigration Services (USCIS). Different redemption provisions are in place for petitions filed relative to the effectivity of the EB-5 Reform and Integrity Act (RIA) on March 15, 2022.
Redemption Rules for EB5 Investments Made Before March 15, 2022
Redemption agreements that indicate an EB5 investor’s preconceived intent to withdraw from the NCE as soon as the conditions on permanent residency are removed are considered impermissible by USCIS. Below are certain types of redemption provisions and USCIS’ rules on such agreements in relation to EB5 Investments.
Mandatory Redemptions
Mandatory redemption agreements require the NCE to return all or part of the EB 5 investor’s capital at a specified time or upon the occurrence of a specific event and for a specified price. Mandatory redemption agreements that establish the EB5 investor’s right to demand a repurchase are considered impermissible debt arrangements.
Options Exercisable by the EB-5 investor
Redemption agreements that allow immigrant investors the right to require the new commercial enterprise to return all or part of the EB 5 investor’s capital at a specified time or upon the occurrence of a specific event and for a specified price are impermissible debt arrangements. The impermissibility of this type of redemption agreement cannot be resolved with the addition of contingencies or the probability that the EB5 investor will not exercise the granted right for repayment.
Options Exercisable by the NCE
A redemption provision that does not grant the right to repayment to EB-5 investors is permissible per USCIS rules. A discretionary option held by the New Commercial Enterprise (NCE) to buy back investor shares is an illustration of such a redemption contract. These options are often structured similarly to options exercisable by the investor with the exception of the fact that the option is retained and exercised by the NCE. When these options are exercised, the investor is obligated to return all or a portion of his or her ownership interest to the NCE.
The redemption contract is considered impermissible if there is any indication that the parties involved created the agreement that converts it to mandatory redemption or an option exercisable by the investor.
Redemption Rules for EB5 Investments Made On or After March 15, 2022
The passing of the EB-5 Reform and Integrity Act (RIA) into law on March 15, 2022 enacted the following provisions regarding EB5 Investments and agreements between NCEs and immigrant investors.
- Investments made in exchange for a note, bond, convertible debt, obligation, or other types of debt contract between the immigrant investor and NCE are ineligible for the EB 5 Visa Program.
- Capital invested with a guaranteed rate of return from the EB-5 New Commercial Enterprise is ineligible EB5 Investments.
- Invested capital that is subject to any agreement between the immigrant investor and the EB5 NCE that grants the investor a legal right to repayment is impermissible. These agreements cover mandatory redemption contracts and sell-back options held by immigrant investors even if the right to repayment is dependent on the profitable success of the NCE.
The new provisions do not exclude the following as acceptable EB 5 Investments.
- Capital that is subject to a buy back option and can only be exercised at the discretion of the new commercial enterprise.
- Capital investment that results in the immigrant investor’s withdrawal of their petition unless the investor has met the required period of investment and other EB5 Program criteria.
What is an EB-5 Investment?
An EB5 Investment is a main requirement for immigrant investors seeking to obtain Permanent Residency in the US through the EB-5 Visa Program. The EB-5 Investment is the minimum capital invested in a new commercial enterprise (NCE) that leads to job creation for U.S. workers. The EB5 Investment must be in the form of cash or real, personal, or mixed tangible assets of the immigrant investor. Investments made in exchange for a note, bond, convertible debt, obligation, or other types of debt contract between the immigrant investor and new commercial enterprise are not acceptable EB5 Visa Investments.
EB5 Capital Investment must come from lawful sources and be kept in the new commercial enterprise (NCE) for at least 2 years. Lawful sources of funds include salaries, business profits, loans, gifts, or inheritance. More about EB5 Source of Funds for Investment.
How Does EB5 BRICS Help with EB5 Investments?
EB5 BRICS is the expert on US Investor Visas including the EB5 Immigrant Investor Program. The EB5 BRICS team works with immigration lawyers, financial advisors, and regional centers to help immigrant investors reach their immigration and investment goals. EB5 BRICS conducts careful due diligence on EB5 Investment projects to ensure that foreign investors are able to choose the right investment that meets the standards set by USCIS.