EB-5 investors face several important questions at the outset of their journey. For some, one of the first questions they encounter is whether or not to select a regional center project or consider a direct EB-5 investment?
Both options provide a path to permanent residency and have the same investment amount options. However, there are three key differences between the two options that a potential investor should consider when selecting their EB-5 path.
1. Active vs. Passive Investment
One of the most significant distinctions between regional center EB-5 investments and direct investments lies in the nature of the investment itself.
Regional Center Investments
Regional center investments are typically considered passive. Investors commit their capital to a designated regional center, which is a third-party entity approved by the U.S. Citizenship and Immigration Services (USCIS). In this model, investors do not have direct control over the day-to-day operations of the business. Instead, they rely on the regional center to manage the investment and ensure it meets the program’s requirements.
Direct EB-5 Investments
In contrast, direct EB-5 investments require a more active role from the investor. These investments involve the establishment or operation of a new commercial enterprise directly by the investor. This could mean starting a business from scratch or investing in an existing business. As a result, direct investors must be more involved in the management and decision-making processes, which can be both rewarding and extremely demanding.
2. Job Creation Requirements
Job creation is at the heart of the EB-5 program, but the job creation criteria differ between regional center and direct investments.
Regional Center Investments
Investments in regional centers can utilize indirect and induced job creation. This means that jobs created as a result of the investment don’t have to be directly linked to the investor’s capital. Instead, the regional center can count jobs created within the broader economic impact of the investment. For instance, if a regional center funds a new hotel, it can consider jobs created in related industries, such as suppliers and service providers, as part of its job creation tally.
Direct EB-5 Investments
On the other hand, direct investments are held to a more stringent standard, solely requiring direct job creation. For a direct EB-5 investment, the investor must demonstrate that their investment has directly created at least 10 full-time jobs for U.S. workers. This necessitates a more detailed analysis and documentation of employment numbers, making the process more complex for direct investors.
3. Ability to Pool Investors
The capacity to pool funds is another crucial difference that can significantly impact an investor’s decision.
Regional Center Investments
Regional center investments excel in this area, allowing investors to pool their capital. Multiple EB-5 investors can contribute to a single project, combining their funds to meet the minimum investment requirement, which currently stands at $1.05 million or $800,000 in targeted employment areas. This pooling can lower the financial burden on individual investors and enhance project viability, as larger sums are typically easier to secure for substantial projects.
Direct EB-5 Investments
Direct investments do not allow for pooling. This structure can pose a challenge for smaller investors who may find it difficult to single-handedly fund a business venture that meets EB-5 criteria. It also makes it more challenging to achieve the necessary job creation requirements if the investment is smaller in scale.
