Earlier this year, bipartisan legislation was introduced that would permanently authorize the EB-5 Immigrant Investor Pilot Program. Rather than pass the legislation, the U.S. House of Representatives passed a Continuing Resolution that included a provision to the extend the EB-5 program “as is” through December 11, 2015. It is expected that Congress will use the short term extension to propose legislation meant to make it more difficult to invest in the program in an effort to curtail the incidents of fraud. For example, legislation has been proposed in the Senate to increase the minimum amounts of investment from $500,000 to $800,000 for targeted employment area (TEA) investments and from $1 million to $1.2 million for non-TEA investments. The bill also seeks to restrict how indirect job creation is calculated, and already has strong bipartisan support.
By way of background, Congress passed the Immigrant Investor Program (known as the EB-5 visa) as part of the Immigration Act of 1990 to attract foreign investment and stimulate the economy. Under the Immigrant Investor Program, the United States Citizenship and Immigration Service (USCIS) allocates 10,000 visas annually for foreign investors who make significant investment in a new, reorganized, or restructured business that will create jobs for qualified workers.
To qualify for an EB-5 visa under the Immigrant Investor Program, a foreign investor must contribute $1 million to a new commercial enterprise (one created after November 29, 1990) or one that has been expanded (which is defined as a business that will expand to 140% of its pre-investment or net worth) that will create at least 10 jobs. If the commercial enterprise is in a TEA (defined as a rural area or an area where the unemployment rate is 150% of the national average), then required initial investment is only $500,000. If the EB-5 visa petition is approved, the foreign investor is granted conditional permanent residence for two years. After two years, the foreign investor can seek to have the conditions removed—and, therefore, become a legal permanent resident—if the investor has made the required capital investment and that investment has created or preserved at least 10 jobs for qualified workers in the United States.
Two years later, Congress created the EB-5 Regional Center Program (also known as the Investor Pilot Program). The requirements for the Investor Pilot Program are the same as under the original Immigrant Investor Program, except that the investment under the Investor Pilot Program can be with a Regional Center that coordinates foreign investment under the Immigrant Investor Program within a specified geographic area.
Despite the similarities between the Investor Program and Pilot Program, the Pilot Program offers three distinct advantages over the Investor Program. First, the required investment is significantly less under the Pilot Program. A foreign investor need only put $500,000 at risk in a regional center in a TEA to qualify for an EB-5 visa. Under the Investor Program, the foreign investor must put $1 million at risk. Second, the ten jobs that must be created before the investor can become a legal permanent resident under the Pilot Program can be “direct” or “indirect” jobs—a lower standard than under the Investor Program. The Investor Program only counts “direct” jobs. Third, investors are permitted to make a passive investment and are not required to show that they are actively involved in the management of the enterprise. For these reasons, most foreign investors prefer investing in a regional center under the Pilot Program. Not surprisingly, 97% of all EB-5 investments for FY2014 were in projects managed by Regional Centers.
In sum, changes are coming for the EB-5 program. Investors considering pursuing an EB-5 visa would do well to consult with their counsel.
