the (eb 5) program webinar 2012 copyright 2012 … · under public law no. 102-395, ......

Understanding the Immigrant Investor (EB‐5) Program WebinarCopyright © 2012 Novogradac & Company LLPwww.novoco.com/webinars

November 2012

Questions:[email protected] or [email protected] 1

www.novoco.com/webinars

Play-by-play Color commentary/analysis

Wayne Michael, CPADirector of Education and Business DevelopmentNovogradac & Company [email protected]

Today’s Instructors:

Nicolo Pinoli, CPAPartner – Portland OfficeNovogradac & Company [email protected]


November 2012


Renewable EnergyLow-Income Community Businesses

Historic Preservation Affordable Housing

Jobs

Foreign Investor(s)

Investor(s)Investor(s)Investor(s)Investor(s)

EB-5Est. 1990

Renewable EnergyLow-Income Community Businesses

Historic Preservation Affordable Housing

Jobs

Foreign Investor(s)

Investor(s)Investor(s)Investor(s)Investor(s)

EB-5

2005 2006 2007 2008 2009 2010 2011

Limit: 10k / yrEst. 1990


November 2012


Wayne Michael, CPANovogradac & Company LLP

Nicolo Pinoli, CPANovogradac & Company LLP

Overview Combining EB-5 w/ Tax Credit Projects




CPE Credit for CPAs:

5 Polling Questions


November 2012





Which of the following federal programs was enacted most recently?

a. The Low-Income Housing Tax Credit (LIHTC)

b. The New Markets Tax Credit (NMTC)

c. The Immigrant Investor (EB-5) Program


November 2012


Foreign Investor

EB-5 Program Overview

I-526Petition

• For-profit new commercial enterprise• Active involvement in management (or making policy)• Have invested (or in process)

For-Profit New Commercial Enterprise

Creation of new business

Purchase of existing business and reorganization to new enterprise

40% expansion of existing business

1.

2.

3.

U.S. Citizenship and Immigration Services

Full-Time Jobs

Foreign Investor


I-526Petition

• For-profit new commercial enterprise• Active involvement in management (or making policy)• Have invested (or in process)• Funds lawfully obtained• Create or save 10 full-time jobs (35 hrs/wk)


Unemployment AVG x 1.5>

Targeted Employment Area (“TEA”)

“Rural” = Not within a… • MSA or • City w/ pop > 20k

OR


Qualified employees:• U.S. Citizen• Permanent Resident• Other immigrant authorized to

work in the U.S.


November 2012


Denied

Request for Evidence (RFE)

I-526 Actions2011

9%

47%

(3,200+)

Source: USCIS EB-5 Immigrant Investor Program Stakeholder Meeting, Jan. 23, 2013

EB-5 Program OverviewApproved

44%

I-526Petition


I-485Application

(or Form DS-230)


November 2012


Full-Time Jobs

Foreign Investor





Permanent

2 Years

90 Days

Obtaining Conditional Permanent Residency

• Evidence of sustained investment during 2 years

• Evidence 10 full-time jobs created or savedI-829Petition

I-829Petition

X 4

I-829Petition


Denied

Request for Evidence (RFE)

I-829 Actions2011

(1,300+)

Source: USCIS EB-5 Immigrant Investor Program Stakeholder Meeting, Jan. 23, 2013

Approved

77%

20%3%


November 2012


Which of the following is true about Targeted Employment Areas (TEAs)?

a. Investment in TEAs allows the required investment amount to be only $500 thousand instead of $1 million

b. A TEA has an unemployment rate that is at least twice the national average

c. An area with within a Metropolitan Statistical Area (MSA) will automatically be a TEA independent of unemployment data

Full-Time Jobs

Foreign Investor





Pilot Program

Fund

Regional Center

I-924Petition

• Business plan• Detailed economic analysis

“Direct” AND “Indirect”

I-526Petition

(Less perceived risk through RC)


November 2012


EB-5 Program OverviewPilot Program

Under Public Law No. 102-395, priority must be given to Regional-Center-affiliated individual petitions.

Which means…


2007 2008 2009 2010 2011 2012Approved Regional Centers


November 2012





November 2012


Which type of investor received the highest number of EB-5 visas in 2011?

a. Regular program investors creating new businesses

b. Regular program investors creating new businesses in TEAs

c. Pilot Program investors in Regional Centers

d. Pilot Program investors in Regional Centers…in TEAs

Combining EB-5 Investment With Tax Credit Projects


November 2012


LIHTC and Renewable Energy Credits

• Difficult to use very much EB-5 because of jobs requirement

– How many full-time employees are at a typical (or even large) apartment complex?

• Generally other sources of capital are relatively abundant and cheap, which tends to make EB-5 less attractive

• More likely to be used in biomass or trash-to-gas facilities with lots of jobs

– Can also be theoretically trebled with NMTC for these types of projects

• Can be used with EB-5

• Structuring the EB-5 as a leverage loan is challenging

• Hotels can get extra exciting…

QEI

New Markets Tax Credits

CDE

Tax CreditFund

Lender

Investor(s)

LeverageLoan

Equity

QLICI

Foreign Investor(s)

RC

EB-5Fund

Full-Time Jobs


November 2012



• Structuring is a lot less challenging – just use the EB-5 funds as permanent financing

Historic Rehabilitation Credits

EB-5 can most easily be combined with which tax credits?

a. Low-income housing tax credits

b. Renewable energy tax credits

c. Historic rehabilitation tax credits


November 2012



• Structuring is a lot less challenging – just use the EB-5 funds as permanent financing

• Hotels can get extra exciting…


(Pssssst. Hotels generally have LOTS of employees.)

Alaska Building RehabilitationSeattle, Wash.

$80M

$60M

$40M

$20M

$0M

Sources Uses

Acq costsRehab costs

40mil20%8mil

X.XXX.Xmil

$x$x$

QREsCredit %HTCsPricingHTC Equity

QREs$40 mil

$47mil$38mil

$85milHTC Equity

$80mil

EB-5 Funds(160 investors x $500k)



November 2012


February 17, 2012 “Tenant-Occupancy” Memo

Fund

Regional Center

LeaseAgreement

Full-Time Jobs

Look! Jobs!

Full-Time Jobs

Another Company


“USCIS has concerns that the attribution of certain direct jobs to the EB-5 investment may not be based on reasonable economic methodologies, and therefore do not demonstrate in ‘verifiable detail’ that the requisite jobs will be created. Rather, contemporary economic methodologies appear to indicate that such jobs would more appropriately be attributed to the tenants themselves and not to the regional center because the demand for labor precedes the decision about where to house that labor as a general economic principle.”


November 2012



Fund

Regional Center

LeaseAgreement

Full-Time Jobs

Look! Jobs!

Another Company

…and this is a management agreement?


Difference with hotels:

• Risk of losses born solely by hotel owner

• The hotel owner is always solely responsible for all employee salaries and costs

• Employees tend to stay with the same hotel, even if the hotel operator/manager changes

- Catherine Holmes and Victor ShumJMBM Law Blog


November 2012


According to USCIS’ “Tenant Occupancy” methodology, If a Regional Center develops office space and a business with several employees leases the space, who is most responsible for the jobs?

a. The lessee company

b. The Regional Center

c. USCIS

d. The city in which the building is located

www.novoco.com/webinars

FINALQUESTIONS


November 2012


Appendix(Bullet-Point Slide Material)


• Created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors

• Administered by the U.S. Citizenship and Immigration Services (under the Department of Homeland Security)

• President Obama signed Public Law 112-176 on Sept 28, 2012, which extends EB-5 until Sept. 30, 2015

See www.uscis.gov


November 2012


Job Creation Requirements

• Capital investment must create or preserve at least 10 full-time jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor’s admission to the United States as a Conditional Permanent Resident.

See www.uscis.gov

Employee Parameters

• Qualified Employee – U.S. citizen, permanent resident or other immigrant authorized to work in the United States. The individual may be a conditional resident, an asylee, a refugee, or a person residing in the United States under suspension of deportation.

– Does not include the immigrant investor; his or her spouse, sons, or daughters; or any foreign national in any nonimmigrant status (such as an H-1B visa holder) or who is not authorized to work in the United States

• Full-time employment – A position that requires a minimum of 35 working hours per week.

• Job-sharing arrangement - Whereby two or more qualifying employees share a full-time position will count as full-time employment provided the hourly requirement per week is met.

– Does not include combinations of part-time positions or full-time equivalents even if, when combined, the positions meet the hourly requirement per week. The position must be permanent, full-time and constant. The two qualified employees sharing the job must be permanent and share the associated benefits normally related to any permanent, full-time position, including payment of both workman’s compensation and unemployment premiums for the position by the employer.

See www.uscis.gov


November 2012


Capital Investment Requirements

• Capital – Cash, equipment, inventory, other tangible property, etc.

• Cannot be acquired by unlawful means

• Cannot be borrowed

• Minimum investments:

– $1 million –OR–

– $500 thousand if made within a Targeted Employment Area (TEA)

• High Unemployment Area – an area that, at the time of investment, is a rural area or an area experiencing unemployment of at least 150 percent of the national average rate

• Rural Area – any area outside a metropolitan statistical area (as designated by the Office of Management and Budget) or outside the boundary of any city or town having a population of 20,000 or more according to the decennial census

See www.uscis.gov

Application Process

1.File a Form I-526, Petition by Alien Entrepreneur

2.Upon approval of the Form I-526 petition, either:

1.File a Form I-485, Application to Register Permanent Residence or Adjust Status, with USCIS to adjust status to conditional permanent resident within the United States, or

2.File a DS-230, Application for Immigrant Visa and Alien Registration, with the Department of State to obtain an EB-5 visa for admission to the United States.

See www.uscis.gov


November 2012


Application Process

The EB-5 investor (and his or her derivative family members) is granted conditional permanent residence for a two-year period upon the approval of the I-485 application or upon entry into the United States with an EB-5 immigrant visa.

1. File Form I-829, Petition by Entrepreneur to Remove Conditions, 90 days prior to the two-year anniversary of the granting of the EB-5 investor’s conditional resident status (Green Card). If USCIS approves this petition, the conditions are removed from the EB-5 applicant’s status and the EB-5 investor and derivative family members will be allowed to permanently live and work in the United States.

See www.uscis.gov

EB-5 Visas Issued in 2011

• Total immigrant visas issued: 360,344

• Total employment-preference visas issued: 139,302

• Total EB-5 visas issued: 3,463

– Top nine countries

• China: 2,408• South Korea: 254• Taiwan: 122• Iran: 117• Great Britain and Northern Ireland: 57• Mexico: 53• Venezuela: 46• India: 37• Russia: 30

See www.travel.state.gov


November 2012


Regional Centers

• Regional centers are associated with the EB-5 “Pilot Program,” which was created in 1992

• Investment requirements are the same in the pilot program, except that investments affiliated with Regional Centers allow for less restrictive job creation requirements

– Direct vs. Indirect job creation

See www.uscis.gov

Regional Centers

• Direct jobs are actual identifiable jobs for qualified employees located within the commercial enterprise into which the EB-5 investor has directly invested his or her capital.

• Indirect jobs are those jobs shown to have been created collaterally or as a result of capital invested in a commercial enterprise affiliated with a regional center by an EB-5 investor. A foreign investor may only use the indirect job calculation if affiliated with a regional center.

– The number of indirect jobs created through an EB-5 investor’s capital investment is based upon a business paly and a detailed economic analysis, which is evaluated and approved by USCIS during the application and review process of the Regional Center being designated as such for participation in the pilot program

See www.uscis.gov


November 2012


Regional Centers

• A Regional Center is not merely a defined geographical area but rather is a business entity that coordinates foreign investment within the area

• Regional Centers do NOT hold sole jurisdiction over their geographic region

• Must focus on a contiguous geographical region of the United States

• Must focus on economic growth through– Increased export sales (if any)

– Improved regional productivity

– Job creation

– Increased domestic capital investment

See www.uscis.gov

Regional Centers

• Must demonstrate in verifiable detail how jobs will be created, either directly or indirectly

• Must commit sufficient funds to promote and oversee capital investment opportunities in the Regional Center

• Under Public Law No. 102-395, priority must be given to Regional-Center-affiliated individual petitions (but no criteria for USCIS to prioritize amongst those petitions)

See www.uscis.gov

the (eb 5) program webinar 2012 copyright 2012 … · under public law no. 102-395, ......

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