"Capital" in the EB5 Investment Context



The employment-based fifth preference (EB5) category is available to immigrant investors who invest a certain amount of capital in a new commercial enterprise and create or preserve a certain number of jobs. In order to be eligible for an EB5 visa, the immigrant investor must invest his or her own capital into the new commercial enterprise. In this article, we will examine what constitutes “capital” under the EB5 program.

Statutory Background

Section 203(b)(5)(A)(i) of the Immigration and Nationality Act makes available immigrant visas to aliens who have invested or are actively in the process of investing “capital in an amount not less than the amount specified in [INA 203(b)(5)(C)].” As of April 2, 2019, the minimum investment threshold is $1,000,000 in general cases and $500,000 in regional center cases. The statutes do not further define the term “capital.”

We discuss the meaning of “actively in the process of investing” in a separate article [see article].

Regulations Define “Capital”

The term “capital” for EB5 purposes is developed in the implementing regulations for the EB5 program.

8 C.F.R. 204.6(e) defines capital as meaning:

other tangible property,
cash equivalents, and
indebtedness secured by assets owned by the alien entrepreneur (provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness).

The regulations thus list six categories of “capital” for EB5 purposes. Indebtedness is only “capital” if (1) the alien entrepreneur is personally and primarily liable for the indebtedness and (2) the assets of the new commercial enterprise which forms the basis of the EB5 petition are not used to secure the indebtedness.

The regulation provides that “[a]ll capital shall be valued at fair market value in U.S. dollars.” This means that if the investor relies on foreign assets, the foreign assets will be valued in U.S. dollars at their fair market value at the time the EB5 petition is filed.

The regulation notably excludes from the definition of “capital” any “[a]ssets acquired, directly or indirectly, by unlawful means…” (Emphasis added.) Thus, even if the proposed investment funds fall cleanly within one of the six capital categories, they will not constitute “capital” if they were acquired unlawfully. It does not matter whether the investor him or herself acquired the funds unlawfully or if he or she acquired them lawfully but the source of the funds acquired them unlawfully. As we will examine, the latter provision means that if an investor acquires his or her funds through, for example, a gift or an inheritance, the investor must still document the lawful source of the funds prior to his or her acquiring them through a gift or inheritance.

We will return to the “lawful source of funds” requirement later in this article [see section].

USCIS Policy Manual on Specific Capital Scenarios

The United States Citizenship and Immigration Services (USCIS) has published extensive guidance on the EB5 program for its adjudicators in its Policy Manual (PM). At 6 USCIS-PM G.2(A)(1), the USCIS discusses the regulatory provisions on “capital.”

The PM explains that, in certain cases, a promissory note may constitute “capital.” This is noteworthy in that promissory notes are not specifically addressed in the regulatory definition of “capital,” but rather are noted at 8 C.F.R. 204.6(j)(2)(v) as possible evidence that the investor is actively in the process of investing. The PM's rules for when a promissory note constitutes “capital” echo the regulatory provisions on indebtedness as capital. The investor must be “personally and primarily liable for the promissory note debt and his or her assets must adequately secure the note.” To constitute “capital,” “[a]ny security interest must be perfected to the extent provided for by the jurisdiction in which the asset is located.” The assets securing the promissory note:

Cannot include assets of the company in which the immigrant is investing;
Must be specifically identified as securing the promissory note; and
Must be fully amenable to seizure by a U.S. noteholder.

The fair market value of the promissory note depends solely on its present value. Nearly all the money due under a promissory note must be payable within two years to constitute capital, with no provision for extensions.

We discuss promissory notes in far greater detail in our full article on the subject [see article].

The PM clarifies that loan proceeds may constitute capital provided that they meet the regulatory requirements for indebtedness as capital. In order for loan proceeds to qualify as capital, the investor must show:

That he or she is personally and primarily liable for the debt;
That the indebtedness is secured by assets he or she owns; and
The assets of the new commercial enterprise are not used to secure any of the indebtedness.

The loan documents must establish that the immigrant investor has primary responsibility for repaying the debt used to satisfy his or her minimum required investment amount. The PM also requires the investor to establish “that his or her own collateral secures the debt, and that the value of the collateral is sufficient to secure the amount of debt that satisfies the immigrant investor's minimum required investment amount.” By implication, “[a] loan secured by the immigrant investor's assets qualifies as capital only up to the fair market value of the immigrant investor's pledged assets.”

Thus, when relying on loan proceeds, the investor must establish that he or she is personally and primarily liable for the debt and that the debt is secured with the investor's assets to the amount necessary for the investor to meet the minimum investment amount. Please see our later section in the article for a discussion of cases where the loan agreement restricts the borrower's use of loan proceeds to purposes other than making an EB5 investment [see section].

Establishing that Investor is Owner of the Funds

8 C.F.R. 204.6(e) points to the requirement that the investor must be the owner of the funds in order for the funds to qualify as “capital” in requiring that indebtedness must be secured “by assets owned by the alien entrepreneur…”

The PM makes the ownership of funds requirement explicit. It cites to the Administrative Appeals Office (AAO) decision in Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm. 1998) [PDF version], for the rule that “[t]he immigrant investor must establish that he or she is the legal owner of the capital invested.” In Matter of Ho, the AAO held that “[b]ank statements and other financial documents” are insufficient for establishing that the petitioner is the legal owner of the capital invested “if the documents show someone else as the legal owner of the capital.”

Thus, the investor is not only required to show that the funds fall under the definition of capital (including that they were obtained lawfully), but also that he or she is the owner of the funds. The evidence required to establish ownership of the funds intersects with the evidence required to establish the lawful source of funds.

Establishing the Lawful Source of Funds

As we discussed, funds obtained directly or indirectly through unlawful means are not “capital” for EB5 purposes. 8 C.F.R. 204.6(j) requires the investor to establish that he or she has invested or is actively in the process of investing lawfully obtained capital. 6 USCIS-PM G.2(A)(4) states that “[t]he immigrant investor must demonstrate by a preponderance of the evidence that the capital invested, or actively in the process of being invested, in the new commercial enterprise was obtained through lawful means” (Emphasis added.) In other words, the investor must show that it is more likely than not that the source of funds was lawful. Extrapolating from the regulations, the PM notes that “the immigrant investor must provide evidence demonstrating the direct and indirect source of his or her investment capital.”

8 C.F.R. 204.6(j)(3) lists the types of evidence that the investor may submit in support of his or her petition to establish that the capital was obtained “through lawful means”:

(i) Foreign business registration records;
(ii) Corporate, partnership (or any other entity in any form which has filed in any country or subdivision thereof any return described in this subpart), and personal tax returns including income, franchise, property (whether real, personal, or intangible), or any other tax returns of any kind filed within five years, with any taxing jurisdiction in or outside the United States by or on behalf of the petitioner;
(iii) Evidence identifying any other source(s) of capital; or
(iv) Certified copies of any judgments or evidence of all pending governmental civil or criminal actions, governmental administrative proceedings, and any private civil actions (pending or otherwise) involving monetary judgments against the petitioner from any court in or outside the United States within the past fifteen years.

The specific evidence needed will vary depending on the source of the investor's funds.

The PM expands on the types of possible proof of the legality of “other sources of capital” in 8 C.F.R. 204.6(j)(3)(iii):

Corporate, partnership, or other business entity annual reports;
Audited financial statements;
Evidence of any loan or mortgage agreement, promissory note, security agreement, or other evidence of borrowing which is secured by the immigrant investor's own assets, other than those of the new commercial enterprise, and for which the immigrant investor is personally and primarily liable;
Evidence of income such as earnings statements or official correspondence from current or prior employers stating when the immigrant investor worked for the company and how much income the immigrant investor received during employment;
Gift instrument(s) documenting gifts to the immigrant investor;
Evidence, other than tax returns, of payment of individual income tax, such as an individual tax report or payment certificate, on the following: (Wages and salaries; Income from labor and service or business activities; Income or royalties from published books, articles, photographs, or other sources; Royalties or income from patents or special rights; Interest, dividends, and bonuses; Rental income; Income from property transfers; Any incidental income or other taxable income determined by the relevant financial department);
Evidence of property ownership, including property purchase or sale documentation; or
Evidence identifying any other source of capital.

The above list highlights the myriad possible sources of funds that may form the basis of an EB5 investment. Petitioners must be mindful of their burden to establish both their ownership of the funds and that the funds were obtained through lawful means. Cases where the petitioner obtained his or her investment funds directly may be relatively straightforward. Cases where the petitioner obtained his or her funds indirectly are generally more complex because the petitioner must establish not only that he or she personally obtained the funds lawfully, but that the funds had previously derived from a lawful source.

Cases involving gifts to the investor often present complicated lawful source of funds issues. We discuss gifts in the EB5 context in a separate and comprehensive article [see article].

Lawful Source of Funds Issues Involving Loan Proceeds

On April 22, 2015, the then-Director of the USCIS's Immigrant Investor Programs Office (IPO) made interesting remarks about cases where an investor is relying upon loan proceeds but where “the explicit language of the loan agreement or other document restricts a borrower's use of the loan proceeds to a purpose other than EB5 investment” [PDF version].

Restrictions on the use of loan proceeds contained in a loan agreement is “relevant evidence” in considering “whether the petitioner has demonstrated, by a preponderance of the evidence, a lawful source of funds.” The IPO Director stated that “[w]here the petitioner obtains a loan from a lawful source (such as a reputable bank), the loan proceeds may, nevertheless, be unlawful if the capital was obtained by unlawful means (such as fraud on a loan application).” Furthermore, even if the language in the loan agreement is not dispositive on the lawful source of funds issue, “the presence of a restriction on the use of proceeds may weaken the credibility of the evidence in the record establishing that the loan in question was the actual source for [the] petitioner's capital investment.” For these reasons, the IPO Director cautioned investors “against submitting documents that contain any provisions that would restrict use of the funds for EB5 investment.”

Thus, where the petitioner is relying on loan proceeds or in other similar situations, the petitioner should establish that there is no direct restriction on his or her using the funds for an EB5 investment. Similar issues may arise in cases involving any indirect source of funds.


In order to be eligible for EB5 classification, the investor must invest his or her own capital. In order to constitute capital, the investment funds must fall under one of the specified regulatory categories and must have been obtained lawfully. The petitioner has the burden of establishing that it is more likely than not that the source of funds is lawful. The difficulty in meeting the lawful source of funds requirement will vary depending on the facts of a particular case.

Because EB5 petitions are necessarily complex and involve substantial amounts of money and business considerations, investors should always consult with an immigration attorney experienced in the area of investment immigration before proceeding. An attorney will be able to evaluate the investor's case and discuss with the investor whether he or she has a business plan and capital that would satisfy the EB5 requirements and whether the EB5 program is the best immigration option provided his or her resources and objectives. If the investor decides to proceed with an EB5 petition, an experienced attorney will be able to help the investor present the best possible case in support of his or her petition, including submitting evidence to establish the investor's ownership of lawfully obtained capital.

To learn more about investment immigration, please see our growing collection of articles on the subject on site [see category].