5 EB-5 Direct Investment Myths

[dropcap]There[/dropcap] are a couple of major myths surrounding the EB-5 Program’s direct investment option. Here are the 5 most common:

MYTH: The minimum direct investment amount is $1 million.

The lower investment amount of $500,000 is not limited to regional center investments. Direct investments can qualify for the lower amount if they’re located in a targeted employment area. If it’s outside of a targeted employment area then the minimum required investment amount is $1 million.

KAPIN PLLC EB-5 immigration attorneysMYTH: An applicant for an EB-5 direct investment must be an entrepreneur.

There is no requirement that an EB-5 direct investor must be an experienced entrepreneur. EB-5 investors can be entrepreneurs and often are, but there is no requirement.

MYTH: Direct investors must participate in the day-to-day management of their project.

People often misunderstand the EB-5 investor participation requirements and inaccurately state that regional center investments are all passively managed while direct investments are all actively managed. Neither type of investor is a passive investor. Both a regional center investor and a direct investor, can either manage the day-to-day operations of the enterprise or they can be a policy maker.

MYTH: Job creation requirements for direct investments are tougher than the ones for regional centers investments.

Both regional center investors and direct investors must be credited with the creation of 10 full-time jobs for qualified U.S. workers. Direct investments must create direct jobs. Direct jobs are payroll-employees who work in the enterprise. Regional centers can count indirect and induced jobs as well as direct jobs. While this may sound more beneficial, it’s typically due to regional center projects being more massive in scale than direct projects. In order to be able to take on more investors, they must be able to create a large amount of jobs, and direct jobs usually wouldn’t be enough. Therefore, whether it is beneficial or not is more dependent on the particular project’s business plan and job creation methodology.

MYTH: Direct investments cannot pool funds from multiple investors.

If the new commercial enterprise can create enough jobs to fulfill multiple EB-5 investor’s program requirements, then there would be no problem with pooling funds from multiple investors for a direct investment. Each investor would still need to invest the minimum capital into the project. Direct investments can also raise capital from other sources besides EB-5 such as domestic investments.

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