Carolyn S Lee, Carolyn Lee PLLC
EB-5 capital has risen from obscurity to prominence in a dizzying decade. One developer client has said, “A few years ago, no one had heard of EB-5. Now at every golf outing or cocktail party, someone mentions EB-5.” No wonder, as the EB-5 visa programme is indeed enticing conversation fodder linking immigration, wealth, political power struggles, fabulous successes and sensationalised failures.
So, what is EB-5? The EB-5 visa programme is the United States’ residency by investment (RBI) programme. Various countries offer RBI programmes providing permanent residency in exchange for investment. Permanent residency in the US allows noncitizens to enjoy US domicile, the right to work if desired and the ability to travel and return. Additionally, EB-5 investor residents enjoy the freedom to not work. Unlike other employment-based permanent residency visas, which require intent to work for a sponsoring employer or in a particular field, EB-5 residents are not tethered to employment. They can start their own businesses, pursue further education, oversee investments, tend to children studying in the US or do all or none of these things. If they intend to maintain a permanent home in the US, they enjoy a good deal of day-to-day freedom.
There are certainly other requirements, however. To qualify for investment-based US lawful permanent residency, an EB-5 investor must create US jobs and make an ‘at risk’ investment. Consistent with the particularly American brand of entrepreneurship, the investment must involve an investor’s personal stake in the business’s outcome; there can be no guarantee of capital return. If the investment is made in a ‘targeted employment area’ (TEA), defined as a rural area or high unemployment area, the required investment amount is US$900,000. Otherwise, the required investment is US$1.8 million. These amounts reflect recent upward adjustments made by regulations effective in November 2019.
With respect to job creation, each investor must demonstrate to US Citizenship and Immigration Services (USCIS) that at least 10 full-time US jobs will be created as a result of the investment and that the jobs will be in place within a required two and a half-year timeframe. Satisfaction of job creation and sustainment of investment are tested at the end of the immigration process. If the investor successfully passes these tests, the immigration by investment process is complete and the investor and qualifying family members can proceed, if they wish, to naturalise and become US citizens.
The EB-5 immigration process involves three steps. First, the investor files the Form I-526 to establish eligibility for EB-5 visa classification. In this filing, the investor shows the feasibility of the job creation plan and placement of at-risk investment. The investor also submits documents showing that the entirely of the invested capital is traced to lawful sources.
Importantly, USCIS announced in January 2020 that it will begin prioritising Form I-526s from countries without EB-5 visa backlogs. Countries experiencing EB-5 visa backlog are China, Vietnam and India. Investors from other countries will be placed in a separate queue for prioritised petition processing. This new process should allow prioritised investors to receive their EB-5 visas more quickly than under the prior “first in first out” process.
Second, after Form I-526 approval, the investor and any qualifying dependent family members each file an application for immigrant visa or adjustment of status. At the end of this process, the investor and family members are admitted as US permanent residents (colloquially, green card holders), but conditionally for a two-year period only. During the two-year period in conditional residency, the investor and family members enjoy all the rights and obligations of unconditional US residency. All the required jobs should be created before the end of this two-year period.
Third and finally, toward the end of two years in conditional permanent residency, the investor files the Form I-829, Petition by Entrepreneur to Remove Conditions on Permanent Resident Status. With this filing, the investor shows that all the jobs have been created and the investment sustained over the two-year conditional residency period. If the job creation has been delayed, all is not lost. Investors are permitted to show that the jobs will be created within a reasonable time.
"We are in a time of transition in EB-5. The plates are shifting in all aspects: legislative, regulatory and in policy"
An EB-5 investor can make an investment into his or her own business or invest in a project arranged by a USCIS-designed regional centre. If the investor invests in his or her own business or any business not affiliated with a regional centre, the 10 full-time jobs must belong to the business’s own direct employees. These must be identifiable employees, verified with employment and payroll records.
On the other hand, if the investor invests in a regional centre project, jobs created ‘indirectly’ by the EB-5 investment may count toward the 10 required jobs as well. Indirect job creation refers to jobs created in other industries as a result of investment activity in a particular industry. This is calculated typically using input-output models used by the US government and around the world to predict capital investment projects’ economic impact.
Indirect job creation’s multiplier effect allows the pooling of larger amounts of EB-5 capital and, therefore, sponsorship of larger scale EB-5 projects. This is as US Congress intended when creating the EB-5 regional centre programme on a ‘pilot’ or temporary basis in 1992, as it remains today.
Regional centre investments are managed by the project fund managers, whether a regional centre affiliate or a fund manager at arm’s length from the regional centre. Investors in regional centre projects, therefore, have a far less active role than they would investing in businesses they manage or own, or both, in greater proportion. Full-time student investors and investors contented with less active engagement would be attracted to regional centre-based EB-5 investments. On the other hand, investors who prefer more active engagement in their investments would be more attracted to the direct EB-5 investment route, also called a ‘stand-alone’ EB-5 investment.
We are in a time of transition in EB-5. The plates are shifting in all aspects: legislative, regulatory and in policy. There have been numerous bills in the US Congress to revamp the EB-5 regional centre programme since 2015. None has had the right combination of stakeholder buy-in and legislative consensus to reach enactment to bring long-term reauthorisation and reform to the EB-5 programme. In the meantime, as a temporary statutory creature needing periodic legislative reauthorisation, the regional centre programme has been extended in serial short-term spurts.
Legislation’s arrival time uncertain, USCIS recently made significant changes to the EB-5 programme by regulation under its own authority. The EB-5 programme had experienced no significant regulatory change since creation in 1990. In 2019, the USCIS literally made up for lost time. From the US$500,000 minimum investment level, the minimum amount was adjusted upward to reflect ‘present-day dollar value’ to US$900,000 as mentioned above. Rules for determining whether a project qualifies for investment at the lower level have also changed significantly. Rather than allowing any contiguous area to qualify as a high unemployment TEA, the new regulations now restrict high unemployment areas to the actual project site and the areas adjoining the project site only.
These regulatory changes address two of the most prominent criticisms of EB-5: TEA gerrymandering and outdated investment thresholds. Some may disagree, but my observation has been that the fact that the regulations are now in effect after almost two years in the proposal phase has had an energising effect on the investor market despite making EB-5 RBI more expensive. There is the sense that at least and at last, here is a measure of certainty. However, with the prospect of legislative reform on the horizon, one must certainly be watchful of the impact of any new legislation on the ‘new normal’ created by regulations. In other words, we have a complex EB-5 environment to navigate.
Finally, party changes in the US Presidency affect USCIS leadership in tenor and policy. The Department of Homeland Security, the cabinet housing the USCIS, and the USCIS, itself, are led by presidential appointees. The typical reshuffling between the Democratic and Republic party affiliations within the White House creates shifts in immigration policy as a matter of course. However, the changes under President Trump have been particularly profound, arising from prioritisation of immigration policy changes. The changes in the EB-5 sphere have been marked by delays and higher denial rates, though as mentioned above, USCIS has recently announced process changes to benefit investors from low-demand countries with no visa backlog.
The visa backlog, itself, currently affecting Chinese, Vietnamese and Indian investors is among the biggest challenges in EB-5 today. The visa backlogged countries are, axiomatically, the biggest investor markets for EB-5 investment immigration. The high demand for EB-5 visas in the past several years from these countries has exhausted the per country quota for years to come in China’s case. To bring these markets back online at the same volume experienced in the late 2000s into mid-2010s, we will need to expand visa capacity by legislation or otherwise create temporary benefits to offset the wait for an EB-5 green card.
As an immigrant from Seoul, I have personal appreciation of what draws immigrants to America. It’s the promise that one’s particular genius can be realised with vision and hard work
Readers of only the immediately preceding section might be sobered into looking elsewhere for residency by investment opportunities. Those same readers might be shocked to learn that the author opened an exclusively EB-5 immigration firm in 2019 after 16 years creating a world-class EB-5 practice at her prior firm. Why did a practitioner versed in EB-5’s challenges make such a seemingly daft business move?
The answer is in the question as rather felicitously posed. Experience in this highly complex and arcane area of US immigration law reveals that this transition in EB-5 is a pivot point. The EB-5 visa programme is poised to mature into a heartier version of its former self. This is because EB-5 is too good to allow any other outcome. A study published by the US Department of Commerce in 2017 under President Trump’s administration concluded that in just a two-year period, more than 11,000 immigrant investors provided US$5.8 billion in capital, and was expected to create an estimated 174,000 jobs.
A larger sampling studied by the Invest in the USA (IIUSA), the largest regional centre trade association, reports much bigger numbers: US$37.2 billion in investment into the US economy since 2008, over 276,000 US jobs in just a five-year period, and over US$5 billion in tax revenues over the same five-year period.
These are just the beneficial economic impacts on the US side of the equation. On the immigrant investor side, for all our imperfections – and who doesn’t have some – the United States is the land of the free and home of the brave. As an immigrant from Seoul, I have personal appreciation of what draws immigrants to America. It’s the promise that one’s particular genius can be realised with vision and hard work. It’s a call to which investors, most of whom have achieved financial success, are especially drawn. The EB-5 programme is now and will remain a welcoming harbour for them.