Citizenship by investment visa programs
Question: I am going to invest $1,000,000 from the foreign investment for the EB-5 Visa. However, I’m not sure if I properly invested for purposes of the EB-5. Can you help? What is allowed under current immigration laws?
Answer: The rules define “invest” to mean the contribution of capital. A debt financing arrangement between you and the new commercial enterprise in which the alien is acting solely as a creditor does not constitute a contribution of capital. As a result, you cannot establish the requisite investment of capital if the “investment” is made in the form of a loan to the company. For example, a contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between you and the commercial enterprise is not a qualifying investment. The rules define capital to include: (1) cash; (2) cash equivalents (such as certificates of deposit, treasury bonds, or other instruments that can be converted readily into cash); (3) equipment; (4) inventory; (5) other tangible property; and (6) indebtedness secured by assets owned by the alien, e.g., a promissory note made out by you and payable to the commercial enterprise (provided that you are directly and personally liable and the assets of the enterprise are not used to secure the debt). In determining whether the statutory minimum level of capital has been invested, the capital contributed to the new enterprise must be valuated at fair market value in U.S. dollars.
Question: Are there other requirements than showing you invested the money?
Answer: Yes. You must also establish that the required amount of capital has been placed at risk for the purpose of generating a return on that capital. A mere intent to invest, or prospective investment arrangements entailing no present commitment will not suffice to establish that you are actively in the process of investing. Actual commitment of the required amount of capital is required such as: (1) the deposit of monies in the enterprise’s business accounts; (2) the purchase of assets for use in the U.S. enterprise; (3) the transfer of assets from abroad for use by the commercial enterprise; (4) the transfer of monies to the commercial enterprise in exchange for shares of stock; and (5) a loan, mortgage agreement, promissory note, security agreement, or other evidence of the investor’s borrowing which is secured by your assets, other than those of the new commercial enterprise, and for which you are personally liable.
A loan obtained by a company, secured by assets of the corporation, does not constitute an investment of “capital” as defined by the rules. In addition, your personal guarantee on the business’s debt does not transform such debt into personal debt. If the assets of the enterprise are securing the debt, a creditor has the right to proceed against the company and take possession of the assets of the enterprise in the event of default even if you personally guarantees the loan. Consequently, your capital is not personally “at risk” under such an arrangement.
You cannot receive guaranteed payments from a new commercial enterprise if you owe money to the enterprise. An agreement under which a new commercial enterprise guarantees an annual return on capital, regardless of whether the business is making a profit is, in fact, identical to a bond or other debt arrangement in which the company promises to pay interest payments on capital loaned to it by you (while the you may incur a loss of the funds lent in the event the business fails, the risk incurred by you in these cases is no different than that incurred by a bondholder or any other business creditor). Similarly, a promissory note with a large final balloon payment combined with the option to sell your interest in the business at a fixed price and guaranteed returns on the your cash outlays fails to meet the “at risk” element in the regulations for the same reasons.
Thus, it is important to make sure the investment is proper and at risk.