Why EB-5 was created
EB-5 (employment-based fifth preference category), also know as the EB-5 Immigrant Investor Visa Program, is a permanent program created by Congress in the Immigration Act of 1990. Its purpose is to stimulate U.S. economic growth and to create or save full-time U.S. jobs by means of immigrant investments. To achieve this goal, the program gives the opportunity to eligible immigrant investors to make a qualifying investment that will allow them, their spouses, and unmarried children under the age of 21 to become permanent residents (holders of Green Cards). The program is administered by the U.S. Citizenship and Immigration Services (USCIS).
Number of annual EB-5 visas
The Immigration and Nationality Act allocates 10,000 worldwide EB-5 visas each year to qualified individuals. While the original intent of Congress is the subject of much debate, USCIS interprets this quota to include not only principal investors but derivative family members as well. As each approved investor has, on average, two derivative family members, 10,000 annual EB-5 visas are used up by about 3,000 to 4,000 principal investors and their family members each year. Another important program regulation is that of the 10,000-visa annual quota, each country is capped at 7% of the total visas.
Original investment amounts and job-creation requirement
From the time the EB-5 program was created, until the new regulations of 2019, the minimum investment amount, was $500,000 for a Targeted Employment Area (TEA) investment, and $1,000,000 for a standard investment. Throughout the program’s history there has been a requirement that each investment create or save at least 10 full-time U.S. jobs.
Creation of the Regional Center Program
To encourage greater investor interest, Congress enacted the 1993 Appropriations Act which included the creation of the “Pilot Immigration Program.” This extension of the EB-5 program allowed immigrants investors to be part of a pooled investment in a new commercial enterprise that was overseen by a regional center: a pre-approved public or private “economic unit involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment.” The Regional Center Program was originally enacted by Congress for a period of five years; since then is has required regular reauthorizations, or extensions, as it is not a permanent program. Besides offering pooled investing, an investment made through a regional center has the added benefit of counting not only direct jobs, but indirect, and induced jobs, making it easier to fulfill the EB-5 job creation requirement.
1990s EB-5 reforms and precedents
EB-5 fraud and a lack of compliance led to the Administrative Appeals Office (AAO), the appeals division of USCIS, to make changes to the program in 1998. The new rules required investors to prove a lawful source of funds, provide evidence they are personally involved in their investment project, and disallowed any guarantees for the return of investment. Following this reform, the number of new EB-5 investors decreased substantially. This decade also saw the AAO make four landmark precedent decisions: Matter of Ho, Matter of Hsiung, Matter of Izummi, and Matter of Soffici. The precedents established in these cases are still followed today with regards to what kind of commercial entity can receive an EB-5 investment, what is a permissible source of funds, and the administration of the investment.
Basic Pilot Program Extension and Expansion Act of 2003
Congress passed this act to help stimulate EB-5 as only a small number of the annual 10,000 EB-5 visas were being issued each year. The Act mandated the Government Accounting Office (GAO) to make a thorough review of the EB-5 program. As a result, more reforms were implemented, including, in 2005, the creation of the Investor and Regional Center Unit (IRCU); this division of USCIS oversees the program and creates new policy.
FY 2012–2016: EB-5 popularity surges
By 2010, EB-5 program activity was still not as robust as Congress had hoped when it created the EB-5 program, so in 2011 USCIS made program changes to increase interest. While in fiscal years 2008 through 2010, between 1,031 and 1,953 new petitions were received, in FY 2011 new I-526 filings leapt to 3,805. Then in FY 2012, EB-5 interest surged. That year, 6,041 petitions were filed. The next few fiscal years saw the number of new filings increase dramatically — 6,346 in FY 2013 and 10,950 in FY 2014. In FY 2015, 14,373 filings were made, the largest number of I-526 filings in program history. FY 2016 saw a very slight decrease but was still an incredibly strong year with 14,147 filings, almost matching the previous year.
The decline in new filings and Chinese interest due to wait times
In FY 2017 filings decreased to 12,165. And in FY 2018, new investor petitions dropped sharply to just 6,424 as a result of declining EB-5 interest from the once-dominant Chinese market. China’s interest began to wane due to oversubscription in the program and its investors suddenly facing “retrogression” and onerous waiting times for new investors.
Modernization Rule in 2019
On November 21, 2019, the Department of Homeland Security implemented the Immigrant Investor Program Modernization rule that made several significant changes to the program, the most notable change being an 80% increase in required investment amounts. TEA investments increased from $500,000 to $900,000, and non-TEA investments increased from $1,000,000 to $1.8 million. This increase was the first ever in the history of the EB-5 program and was the subject of much debate and criticism from many EB-5 stakeholders. Many industry experts predicted such a sudden and steep increase would “chill” the investor market; but most experts also anticipated that eventually the market would overcome the “sticker shock” and acclimatize to the new amounts. Another major change was made to the requirements for TEA designations. USCIS would now directly review and determine if an investment was eligible for such designation; previously, the Immigration Service would defer to state and local governments for TEA designation. Another regulatory change significantly limited the geographic scope of TEA investments; as a result, many large urban investment projects would no longer qualify for the minimum investment amount going forward.