EB5 Investors Magazine "Top 25 issue" Volume 9 Issue 1 | Page 94

for a small business or even not consistent with the practice of a particular trade if the industry is susceptible to seasonal fluctuations in the workforce .
Finally , in contemplating the transition from E-2 to EB-5 direct , business owners rarely take into consideration implications of extracting the capital from the fully operational business for the purpose of reinvesting it back to preserve the compliance with EB-5 regulations . Many E-2 visa holders tend to overlook one crucial detail of the EB-5 program – the requirement to invest the personal capital of the investor and place it at risk , which effectively precludes counting retained earnings of the E-2 business toward the EB-5 investment amount . As a result , before the invested amount can be considered a qualified investment , the E-2 visa holder has to make a distribution of profits or dividends payment ( incurring respective tax liability ) just to return that same capital to the operational budget of his enterprise . This route may be not only costly , but also risky for the operational status of the business and the potentially nonimmigrant status that depends on uninterrupted functioning of the enterprise .
Solution ? Use the income of the E-2 enterprise as a source of funds and invest in a qualified Regional Center project .
The obvious advantage of using Regional Center for EB-5 filing as opposed to converting E-2 into the direct placement of capital is the lower amount of the required capital . Even though the EB-5 Reform and Integrity Act of 2022 made a difference in the amount of investment , which went to $ 800,000 in TEAs to $ 1,050 million elsewhere , there is still an additional of $ 250,000 that needs to be realized to qualify for the approval of I-526 . For a small business , this amount may be significant . Also , the cost of a payroll that the investor needs to maintain to create ten direct places of employment makes the entire endeavor even more costly .
Another benefit of relying on an E-2 enterprise to derive the funds for investment into the Regional Center , is the established history of the business dealing of the E-2 visa holder in the U . S . USCIS historically operates on requirements that serve valid government interests – preserving the integrity of the EB-5 program by confirming that the funds utilized are not of suspect origin . 4
This interest is easily served by a source of funds documented with the extensive evidence of the operational activity of E-2 business in the U . S ., and reflected in the tax returns of the E-2 company or corporation .
However , probably the most significant advantage of the transition from E-2 to EB-5 through the investment into the
" The most significant advantage of the transition from E-2 to EB-5 through the investment into the Regional Center is the possibility of using the assets of the E-2 enterprise to collateralize the loan ."
Regional Center is the possibility of using the assets of the E-2 enterprise to collateralize the loan that may serve as a source of funds for the EB-5 investment . USCIS no longer follows its interpretation of indebtedness as including the investment of loan proceeds as of Nov . 30 , 2018 , the date of the district court decision in Zhang v . USCIS et al . 5
Nevertheless , the principle governing loans in EB-5 context remains intact - assets of the new commercial enterprise cannot be used to secure any of the indebtedness . 6
Accordingly , even if the investor accumulated significant assets in his E-2 enterprise , a loan obtained with the use of those assets as a collateral cannot be used for re-investment into the same enterprise for the purpose of expansion and further conversion into EB-5 direct . At the same time , the same loan proceeds , as long as they are properly secured 7 , can be used for the investment into a Regional Center . In Zhang , the court remarkably emphasized that “ bona fides of a loan tend to show that its proceeds were
lawfully acquired ,” 8 thus , making use of this loan proceeds even more feasible in the EB-5 process .
Finally , even though the complexities of the securities offerings cannot be fully analyzed within the scope of this article , it is hard to disregard the fact that for the