United States: 10 Questions (And Answers) About The EB-5 Program And Its Future As Its Sunset Date And New Final Rule Loom

Last Updated: September 5 2019
Article by Christine J. Alden and Michael Strazzella

With a sunset date on the United States EB-5 Immigrant Investor Visa Program set for September 30, 2019 as well as a new Final Rule anticipated any day now, is it time to say goodnight to parts of the program?

For decades, the EB-5 program has provided U.S. Lawful Permanent Residence to foreign nationals who are willing to invest $1 million (or under certain circumstances $500,000) in a qualified investment in the U.S. and use that investment to create at least 10 full-time jobs for U.S. workers. In question is the status of the popular yet divisive EB-5 Regional Center Pilot Program, of which more than 90 percent of EB-5 investments fall under.

The EB-5 Regional Center Pilot Program allows investors to pool smaller $500,000 investments into a larger project in a targeted employment area (TEA) under a regional center. Most often, the investment is in real estate, such as a hotel. Beyond the benefit of the lower investment level of $500,000, the Regional Center Pilot Program allows all direct, indirect and induced jobs created to count toward the 10-job program requirement. In the non-regional center program, only direct jobs count toward the requirement.

While it is unclear at this point exactly which way Congress may be headed on this program, concerns about how the program is being used both from some politicians and the general public make it an issue worth looking into more deeply. Just recently, Buchanan Ingersoll & Rooney hosted a panel discussion on the future of the EB-5 program featuring some of the foremost experts on EB-5 and immigration.

Here are 10 of the most pressing questions coming from that discussion that anyone who is a part of the EB-5 world needs to be thinking about.

1.  Why would businesses and developers use EB-5 investments? 

In the simplest terms, developers use EB-5 investments to get project financing at a (sometimes significantly) lower rate than working with U.S. banks and lenders. While traditional lenders typically charge interest of anywhere from 12 to 18 percent or more, financing through EB-5 is much less, usually in the range of 0.5 to 4 percent. For the most part, foreign investors' main goal of an EB-5 investment is to secure permanent residence in the U.S. for them and/or their families.

2.  What is driving public concerns about the EB-5 program? 

Concerns about where these foreign investments are coming from have persisted since the EB-5 program was created. Other instances of fraud in the program by certain regional centers and projects have also been cause for public scrutiny.

3.  Can the U.S. government or regional centers guarantee that foreign investors won't lose their investment? 

No. In the EB-5 program, the investment must be at risk for the foreign national. There must be no guarantee of the investment returning. There cannot be any type of redemption agreement or promise to pay anything back. While there may be rumors of certain projects that are "promising condominiums in return for the EB-5 investment," those agreements are not allowed.

4.  What size should a project be to make EB-5 be a viable option? 

There is no limit – big or small – the size a project must be in order to qualify for EB-5 category. At Buchanan, we've helped investors seed projects on both smallest and largest of scales – from just a few million dollars to multi-billion-dollar projects.

5.  Is the source of funds used for the EB-5 investment important? 

Absolutely. It may sound obvious, but any capital used in an EB-5 investment must be lawfully obtained. At Buchanan, we help foreign investors demonstrate to the U.S. government that the money they are using for an EB-5 investment was lawfully sourced.

6.  What does Washington think about the EB-5 program? 

As with all areas of U.S. immigration, politicians in Washington can be quite divided on the EB-5 issue, but there are people on both sides of the aisle calling for some changes to the program. Representative Steve King (R-IA) introduced a full repeal of EB-5 in 2017, but the bill garnered zero cosponsors and is not a threat. Additionally, Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA) have called for a bipartisan repeal of the program and a redistribution of the 10,000 annual EB-5 visas among other immigrant visa programs. This bill is worth watching and will go through the Senate Judiciary Committee, of which Grassley and Feinstein are chairman and ranking member, respectively.

7.  What changes are on the horizon for the EB-5 program?   

Fueled by multiple instances of fraud and with bipartisan support for changes to the program, the chances are high that EB-5 will look different down the road than it does today. In January 2017, the Department of Homeland Security published notice of proposed rulemaking in the Federal Register known as the EB-5 Immigrant Investor Program Modernization Regulation, which sought numerous changes to the EB-5 program.

That proposed regulation has progressed to the Office of Management and Budget (OMB) review stage, the last stage before publication as a final rule. As of this writing, the OMB has completed review and publication of the final rule is expected any day now. The text of the final rule has not been released, so no one in the general public knows what it will look like just yet. We also do not know when it will be published and when it will be effective, but most likely, it will not be effective until at least 30 days after publication.

While it is not possible to predict what exactly the final rule will contain, what is known from the notice of proposed rulemaking as published on January 13, 2017 in the Federal Register is that the following could be included:

  • An increase of the EB-5 investment amount in a TEA from $500,000 to $1.35 million and from $1 million to $1.8 million in a non-TEA. In the proposal, the Department of Homeland Security (DHS) could look at those amounts every five years and decide if they should be raised.
  • Once an investor files a petition, they will be given priority date protection in the event a regional center is terminated so that they do not lose their place in line when filing a subsequent EB-5 immigrant petition.
  • Spouses and children of investors may be able to continue filing for removal of conditions in the event an investor passes away prior to that stage or if for some reason the spouse or children could not be included with the principal investor.
  • New parameters for "target employment area" would be defined by DHS rather than states.

How the exact Final Rule will look remains unclear. What is clear is that the EB-5 program creates jobs for U.S. workers and adds billions of dollars to the U.S. economy.

8.  What is the timeline for changes to the EB-5 program?

Certainly, the September 30 date is worth watching. However, Congress has gotten continuances on EB-5 before, and it's likely that will happen again for at least a few months until politicians can decide what exactly they want to do with this program. If that happens, the program would remain as it is until any changes have been approved or until the Final Rule is published.

9.  Will there be changes to how many visas are available per year for the EB-5 program across the globe?  

There are 10,000 visas available per year for the EB-5 program across the globe, but that doesn't mean there are 10,000 investor slots available. Included in that number are spots for up to four family members of investors, meaning there are a minimum of 2,500 investor spaces available.

There is Federal Court litigation challenging how the visa numbers are counted with the argument being that Congress always intended that there be 10,000 investors per year without including family members in that limit. This is currently in the appeal process in Federal Court.

Additionally, HR 1044, Fairness for High-Skilled Immigrants Act of 2019 passed on July 10, 2019 in the House by a vote of 365 to 65. If enacted, the bill would eliminate the per-country limit for all employment-based immigrants. It will also increase the per-country limit for all family-sponsored immigrants from 7 percent to 15 percent.

Currently, no country can take more than 7.1 percent of the 10,000 available unless there are leftover visa slots in the worldwide category. If this bill were to pass the Senate and signed into law, it would likely lead to investors primarily from China and India nabbing most of the 10,000 visas.

10.  Once EB-5 investors get their green card, are they subject to the U.S. income tax?

Yes, they are. Once an individual becomes a lawful permanent resident of the U.S., he or she is subject to all U.S. tax laws and taxation on their worldwide income. Intending EB-5 investors are advised to consult with qualified tax counsel specializing in pre-U.S. immigration tax planning prior to moving forward with their EB-5 case to be fully aware of U.S. tax liability.

These 10 questions are just a tip of the EB-5 iceberg. With the EB-5 program's many intricacies and pending legislative changes, investors and developers require expert litigators and government relations professionals who can navigate the complex world of EB-5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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