Visa Lawyer Blog

In a recent Reuters article, a report showed that immigrants founded or cofounded almost half of 50 top venture-backed companies in the United States for 2011, a new study shows, underscoring some of the high stakes in potential immigration reform.

The venture capital community argues the study, completed by research group National Foundation for American Policy, proves the need to overhaul rules governing how entrepreneurs can immigrate to the United States to spur job development.

"It's a gamble whether an entrepreneur should stay or leave right now, and that's not how the immigration system should work," said Mark Heesen, president of the National Venture Capital Association, on a call with reporters. "What we need is legislation that helps these entrepreneurs from outside the United States."

Of the 50 top venture-backed companies, 23 had at least one immigrant founder, the study found. In addition, 37 of the 50 companies employed at least one immigrant in a key management position such as chief technology officer. With so many immigrants being employed in key positions, it is a strong indicator of how important it is that our immigration regulations make it easier to bring new business here to the U.S.

Companies with immigrant founders include some of Silicon Valley's hot start-ups, such as textbook-rental service Chegg, founded by Indian Aayush Phumbhra and Briton Osman Rashid; online craft marketplace Etsy, founded by Swiss Haim Schoppik; and Web publisher Glam Media, founded by Indians Samir Arora and Raj Narayan.

The countries that supplied the most founders included India, Israel, Canada, Iran and New Zealand, the study found, and the immigrant-founded companies created an average of 150 jobs. Such an influx of jobs would further lower the unemployment rate which many politicians keep bringing up.

The study looked at the top 50 venture-backed companies as measured by research firm VentureSource, based on factors such as company growth and the amount of capital raised. VentureSource considered only companies valued at less than $1 billion.

Young companies and their backers say the rules are too cumbersome and encourage non-U.S. citizens to launch start-up businesses elsewhere, or bog down companies in red tape if they commit to basing in the United States. Among such factors include requirements the company must meet in generating business and employing U.S. citizens/residents within the operation. These requirements are sometimes difficult to meet, which then puts the company founder's status also at risk.

Another obstacle to the loosening of immigration rules for entrepreneurs is a tendency in Congress to consider legal and illegal immigration jointly, Heesen said. Because illegal-immigration issues are so divisive, he said, overall immigration reform has bogged down. Even where legal immigration issues are considered, the personal agenda of other politicians to put in their own reforms on other bills further bogs down the process to getting any meaningful reform.

The NFAP identified bills pending in the House of Representatives and the Senate that would help through measures such as lowering the amount of capital an entrepreneur has to raise before being eligible for an immigrant visa. Such measures would benefit the U.S. economy by creating more jobs and create more spending on other business needs which would help boost the overall economy. By making it easier for foreign investors to come here, the benefits from their ventures can only help the U.S. improve its economy.

On November 9, 2011, USCIS posted for comment the Draft Memorandum on EB-5 Adjudications Policy. The Memo provides clarifications on the current law and policies concerning adjudication of EB-5 petitions. American Immigration Lawyers Association (AILA) provided its comments and suggestions for the Final Memo. AILA pointed out the major issues with the Draft Memo. Attorney Ekaterina Powell from our law office has prepared this summary to address the most important AILA’s comments that hopefully will be considered by USCIS.

New Commercial Enterprise

First of all, of major concern is the definition of a “new commercial enterprise.” The Draft memorandum does not provide clear analysis on what is considered a “new commercial enterprise.” Accordingly, the Memo should be supplemented with the explanation on what business will qualify under the regulations.

The initial inquiry should be on whether the investment is in a commercial enterprise that was established after November 29, 1990. If the investment is in a commercial enterprise that was established after November 29, 1990, the requirement is met and no further inquiry is appropriate.

If the investment is made in a commercial enterprise established on or before November 29, 1990, the investor must meet one of two tests: 1) the investor must restructure or reorganize an existing business or 2) expand the business in such a way as to accomplish a 40 percent increase either in the net worth or the number of employees of the business.

Therefore, if the investor can establish that the business was created after November 29, 1990, it should end USCIS’ inquiries and the business should be deemed a “new commercial enterprise.”

Purchase of assets of another company

The second major concern is classification of the business as a “new commercial enterprise” if it purchases assets from another enterprise. The Memo as it is written now does not provide clarifications on this issue. The problems arise when the entity from which the new enterprise purchased assets was created before November 29, 1990.

The final version of USCIS Memo should include the analysis that a new commercial enterprise established after November 29, 1990 does not lose its status as a new commercial enterprise because it purchases assets from an independent company which it does not acquire and with respect to which it is not a successor in interest (assuming it does not acquire all of the rights and liabilities of the independent company whose assets have been purchased).

If there is no succession-in-interest, the new company simply cannot provide documentation for the company it purchased the assets from because it does not have an ownership relationship and, thus, does not have access to the documents of the seller.
Therefore, the Final Memo should clarify that the date that the company from which assets were purchased was established is completely irrelevant as to whether the purchasing company is a new commercial enterprise if there is no succession-in-interest.

Restructuring and Reorganization

The Final Memo shall clarify what constitutes sufficient restructuring or reorganization for the purposes of creating a new commercial enterprise as these terms have not been defined yet. At least, a change in the mission or focus of a business should also result in sufficient reorganization or restructuring.

Changed Circumstances

The Draft Memo supports the realms of the business world and suggests that at the time of removal of conditions on permanent residence, the petition may be approved if the circumstances have changed and the business has operated not in accordance with the business plan that was submitted with the original petition.

However, The Final Memo should be more specific on this point. Historically, USCIS has denied the removal of conditions petitions if there has been a material change in a project even if the investor’s money has already been used in projects and has created jobs.
In the Draft Memo, USCIS states that the removal of conditions may be successful if the investor provides documentary evidence demonstrating that, notwithstanding the business plan contained in the Form I-526, the requirements for the removal of conditions have been satisfied.
However, USCIS has not provided clear guidance on this issue and it seems like, in a situation with changed circumstances, eligibility will depend on a particular adjudicator and will be in his/her own discretion.

The proposed changes to USCIS policy will provide more clarity and will give less room to discrepancies in exercise of discretion in EB-5 petitions’ adjudication process. EB-5 adjudication policies are currently undergoing a lot of changes. Check back on our blog for the most recent updates.

Today, U.S. Citizenship and Immigration Services (USCIS) posted a job announcement and began accepting applications from business experts to serve on the USCIS Entrepreneurs in Residence tactical team. The purpose of the tactical team is to bring business experts in-house to work alongside USCIS staff to ensure that current immigration laws’ potential to attract foreign entrepreneurial talent is fully realized. The tactical team will help develop policy guidance and training tools that support their decision-makers. The Entrepreneurs in Residence initiative provides USCIS a unique opportunity to gain knowledge on how specific industries operate and to use that knowledge to inform USCIS’s policies and practices. Together this will ensure that immigration pathways for foreign entrepreneurs are clear, consistent, and better reflect today’s industry realities.

The Entrepreneurs in Residence initiative is the perfect complement to the changes made to the National Interest Waiver. The new regulations regarding the National Interest Waiver allows an entrepreneur to petition himself because the entrepreneurship is in the national interest and will have such an impact. With business experts working alongside USCIS to provide better guidance in the decision-making process, there is a better chance that a good National Interest Waiver for an entrepreneur will be approved. This is a step in the right direction for bringing more entrepreneurs and foreign investors to the U.S. who want to bring business here that will have a meaningful impact on the economy. Once the initiative commences, we will provide an update on how much it impacts entrepreneurs and their opportunities to bring business to the U.S.

The EB-5 Category is an excellent opportunity for many foreign nationals to become permanent residents of the United States. In the U.S. so far this year almost 3,000 Chinese citizens have applied for investor visas, up from 270 in 2007. That’s 78 percent of the total applicant pool for this type of visa, according to U.S. Citizenship and Immigration Services (USCIS). The U.S. investor visa, also known as the EB-5, requires a minimum investment of $500,000 by the applicant in a commercial project in the U.S. that employs at least 10 Americans within two years. If the Chinese applicants can’t generate those jobs, they and their family may have to leave the U.S.

A person investing $500,000 in certain circumstances or $1 million in a business that creates 10 jobs may be granted EB-5 permanent resident status. To encourage immigration through the EB-5 category, Congress created a Regional Center program in 1990. 3,000 visas have been set aside each year for people to invest at least $500,000 in designated Regional Centers.

The Regional Centers program does not require the immigrant investor enterprise itself to employ 10 U.S. workers. Instead, it is sufficient if 10 or more jobs are created indirectly as a result of the investment. Regional Centers are designated as "any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productively, job creation, or increased domestic capital investment." The investment requirement is only $500,000 if a Regional Center is in a targeted employment area, which is either in a rural or high unemployment area, as defined hereinafter in the section on EB-5 Regulations.

According to BusinessWeek, For the most part, China’s richest aren’t permanently fleeing their country, as some Russian oligarchs have. About 80 percent of the wealthy Chinese emigrating don’t plan on giving up their passports, according to an October survey by the Bank of China and Shanghai-based Hurun Report.

So why are they looking at residency abroad? The top motive cited is to pursue better educational opportunities for their children, according to the Bank of China-Hurun and China Merchants-Bain surveys, as well as comments from émigrés. The feeling among rich Chinese is that U.S. universities beat out their Chinese equivalents, and their children need to understand the world.

EB-5 investors include people from all walks of life: professionals, business people, persons wanting to facilitate a child's education, and retirees. Because the EB-5 visa permits employment in the US, many EB-5 investors become involved in charity or part time work. Simply put, the EB-5 visa gives you the flexibility to do what you want in the USA. Email us if you need more information about this program.

Last week I attended the EB5 Investor Visa conference for Immigration Lawyers held in San Antonio Texas. Top lawyers from across the nation gathered to discuss the latest developments and updates in this exciting area of law. In the next few weeks, we will share some info obtained on this Blog in a series of articles.

EB5 Investors come from select few countries, mainly China, Iran, Korea, Brazil and Russia. In this article we will cover specific issues relating to Russian Investors. The following article is based on an AILA report by Mr. Kenneth White.

What is EB5 Investor Visa?

Congress created the fifth employment-based preference (EB-5) immigrant visa category in 1990 for immigrants seeking to enter to engage in a commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. The basic amount required to invest is $1 million, although that amount may be $500,000 if the investment is made in a “targeted employment area.”

Of the approximately 10,000 numbers available for this preference each year, 3,000 are reserved for entrepreneurs who invest in targeted employment areas. A separate allocation of 3,000 visas is set aside for entrepreneurs who immigrate through a regional center pilot program.

Compared to emigration from China, India, and Korea, Russian immigration to the United States is negligible. This is also reflected in the EB-5 program. For fiscal years (FYs) 2008 and 2009 combined, less than 100 Russians have obtained permanent resident status through EB-5.

Besides the greatly improved economic situation in Russia since the early 1990s and the overall political stability, specific reasons cited by potential EB-5 investors for a reluctance to participate include: (1) U.S. worldwide taxation on permanent residents; (2) the perceived riskiness of EB-5 investments and the two-year conditional status; (3) low return on investments (Russian entrepreneurs are accustomed to 15–30 percent annual return); and (4) an inability to collateralize existing assets to finance an investment due to high Russian interest rates (14–17 percent).

Other factors contributing to these spartan EB-5 statistics include a short-term mentality; little EB-5 marketing in Russia; widespread gray and corrupt sources of funds; and the existence of other residency and passport alternatives (e.g., UK, Canada, St. Kitts, and Bulgaria).

For the EB-5 program, this is unfortunate because Russians represent a truly large pool of potential participants. In the 1990s, Russians were able to privatize their apartments for a nominal fee, and employees and management of large factories received free privatization vouchers. Virtually overnight, millions of Russians became owners of apartments—mortgage free—and shareholders in factories.

Show me the Money

Source of funds is a key factor in EB5 cases and was discussed in detail at our conference. Russian law does not require the filing of tax declarations for most individuals. Usually, employers will issue W-2-like forms to employees and shareholders reflecting the payment of salaries and dividends. The employers withhold the relevant taxes and file the necessary reports with the Russian Tax Inspectorate. For those individuals who do file declarations, they must file for the previous calendar year by April 30th and pay the tax owed by July 15th. In the EB-5 context, this issue may be particularly acute for investors whose source of income for the investment was earned in the most recent tax year, and who have yet to file tax declarations or pay taxes on that income. In such instances, it would be appropriate to point out these tax deadlines to USCIS and have the client provide counsel with copies of the declaration and receipt of tax payment once these obligations have been met.

Conflict of interest questions sometimes arise. Resumes and business promotional materials are foreign concepts among many Russian entrepreneurs over the age of 45. Technical and logistical issues that frequently arise relate to the constantly fluctuating exchange rate (33 percent depreciation of the ruble over the past year); bank statements which often do not reflect daily balances or even the names of the owners of the account; delays in transferring of funds to the EB-5 entity or escrow account because some banks have little experience with international transactions or require the translation of all investment-related documentation; and a general lack of automation and public accessibility to personal and corporate records, hindering due diligence efforts.

Russian tax law is very liberal and has been relatively effective in ensuring greater tax compliance. This is not to say that all Russians diligently pay their taxes. High pension and social fund taxes have the effect of discouraging employers from reporting full salaries or any salaries at all. Offshore companies continue to be commonplace, acting as invoicing mechanisms for business transactions, “piggy banks” for accumulating funds, and investment structures.

Other pertinent Russian law provisions that arise in the EB-5 context include corporate governance laws, which cover certain conflict-of-interest situations. For example, it is not unusual for antiquated Soviet-era factories to have unused premises. An executive for the successor organization may also own an outside company, and acting in the name of the organization, lease out the unused premises to his own company, which in turn subleases the premises to another company.

As long as the Board of Directors of the successor organization approves the transaction, it is permissible under Russian law. In contrast, Russian anti-corruption legislation is unequivocal in prohibiting government officials from profiting from their positions. While not having the desired effect of curbing widespread corruption, these provisions, along with U.S. source-of-funds requirements, seem to have deterred EB-5 petitions by such individuals.

The Russian proclivity to operate in cash and not adhere to the letter of Russian legislation certainly poses challenges to lawyers in preparing EB-5 petitions. Nevertheless, the overall trend is towards the gradual “civilizing” of Russian business, including increased transparency and tax compliance. While this positive trend and the underlying wealth of asset-rich Russians would seem to augur well for Russian participation in the EB-5 program, the Russians, have remained an enigma. Now that they are free to emigrate and have the financial ability to do so, they have generally chosen—at least for now—not to pursue immigration opportunities for themselves or their children in the United States.

We feel that changes in the US economy, the surplus of cheap real estate and business opportunities will increase Russian interest in the US Investor Visa program. These changes mark a major leap forward in the usage of the EB-5 visa category but many more Russians than ever before.

If you are interested in this program and would like to discuss it, feel free to drop us a note.