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Final rule amending regulations governing EB5 program increases minimum investment amounts, gives USCIS sole authority to designate targeted employment areas

USCIS has issued new regulations that makes changes to important provisions of the employment-based fifth preference (EB5) immigrant investor visa program. The changes will require that ongoing EB5 investment projects review, and likely modify, their business plans, economic analyses and legal documents (e.g., private placement memoranda, subscription agreements) to reflect the new requirements.

Effective date

The new regulations apply to all EB5 petitions received by USCIS on or after November 21, 2019. There is expected to be a rush of new EB5 investments and petitions filed with USCIS before November 21, 2019, as petitioners seek to avoid the increased investment requirement.

Required investment will increase

The minimum investment required to qualify for EB5 will generally increase to $1.8 million from $1 million. The required minimum investment required for investments made in targeted employment areas will increase to $900,000 from $500,000.

In addition, the required minimum investment will increase in future years to adjust for inflation.

This change will decrease the number of immigrant investors interested in investing in America. The number of new jobs created through EB5 for American workers will decrease by at least 50%. American businesses seeking financing through EB5 will find it harder to obtain such investment, but will need to attracted fewer individual EB5 investors to raise the same amount of investment.

As noted above, the increased investment requirement apply only to EB5 petitions received by the USCIS on or after November 21, 2019. There is no increase for individuals, whose petitions are approved, or pending, prior to that date.

Changes to targeted employment areas

Under current law, the power to designate targeted employment areas (TEAs) is held by each state. The new regulations will strip the states of this power and give USCIS sole authority to designate a TEA. This change is likely to (1) increase the time it takes to receive a TEA designation and (2) decrease the likelihood of receiving a TEA designation. 

Under current regulations, TEAs must be comprised of census areas that are contiguous to each other. Under amended regulations, all of the census areas must be directly contiguous to the census area where the EB5 job creating business is located. The impact of this change will be to greatly restrict the number of locations that qualify as a TEA.

As a result of this change, it will be harder for projects in the US to attract EB5 investors and fewer parts of the US will be able to create jobs for American workers using EB5 funds.

A TEA is a census area whose rate of unemployment exceeds the US national average by 150 percent or more. In addition, two or more contiguous areas whose combined unemployment rate hits that benchmark can be designated a TEA. The latter is affected under the new rule, which takes the authority to designate that group away from the state government and gives it to USCIS, while at the same time limiting what census areas can be combined into the group.

Priority date retention

US law limits the number of people who can immigrate each year through EB5. The limited supply of EB5 visas is allocated in part based on the date the EB5 petition was received (priority date). Under current regulations, if an EB5 investment materially changed or an immigrant wanted to change investments after the petition was granted, the immigrant investor might lose that priority date and their immigration would be delayed. The new regulations preserve the original priority date for investors with multiple approved EB5 petitions.

This is a positive change that will help a small subset of EB5 immigrants to avoid even longer immigration waiting times when their investment plans change over time.

In general

The EB5 immigrant investor program was created in 1990. EB5 grants resident status to investors and their accompanying immediate family members, provided they satisfy a number of requirements which, for the most part, remain unchanged by the new regulations. The final rule does not, for example, change the requirements that:

  • An EB5 investor create at least 10 full-time equivalent (FTE) jobs for US workers.
  • The jobs must either be created before the petition is filed or the investor must submit a comprehensive business plan that shows the jobs will be created before the conditional basis of resident status is removed.
  • The investor show that the source of the invested funds is “lawful.”
  • The invested funds be at risk in an active commercial business located in the US.

For more information

The full text of the final rule was published in the Federal Register and is available online, click here to read.

For more information, please contact your lawyer at Dentons or the authors.

Matt Schulz and Mengci Shao are members of Dentons Global Mobility Practice and are based in the firm’s Silicon Valley office.

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Final rule amending regulations governing EB5 program increases minimum investment amounts, gives USCIS sole authority to designate targeted employment areas

Where’s my green card?

Longer waiting times expected for EB-5 immigrant investors

The US Department of State estimates longer waiting periods for EB-5 immigrant investors from the top six participating countries: China, Vietnam, India, Brazil, Taiwan and South Korea.

Waiting periods have long existed for immigrant investors born in mainland China and recently, EB-5 visa applicants from Viet Nam have been facing them. The State Department’s Visa Bulletin for June 2018 shows that EB-5 immigrant visas are only available to people born in China and Vietnam who applied before August 1, 2014. Now, the State Department predicts the likelihood, in the near future, of waiting periods for people born in the other four above-named countries.

The State Department predicts that, for people born in India, EB-5 will remain currently available until 2019 and that EB-5 is likely to remain available without longer waiting times for people born in Brazil, Taiwan and South Korea until 2020.

The US limits the number of immigrant visas and green cards issued each fiscal year. The limits are based on both visa category and country of birth. Each country has potentially the same supply. Only 10,000 EB-5 immigrant visas are available each fiscal year (October 1, 2017, was day one for FY2018). This small allocation is shared by immigrant investors and the family members who immigrate with them.

In addition to the countries mentioned above, the State Department reports increases in demand from Russia, Japan, Colombia and Venezuela.

While each country is entitled to 7 percent of the annual supply (i.e., 700 visas), any unused visas are allocated in order of immigrant petition receipt date, regardless of place of birth. In the past, that resulted in more China-born immigrants. As the demand from other countries increases, expect fewer unused visas and longer waiting periods.

For example, in FY2017 China received 75 percent (or 7,567) of all EB-5 immigrant visas because of unused visas allocated to other countries. Due to increasing demand from other countries, China will likely get fewer visas this year and in the future. The State Department puts the number at 4,500 in FY2018 and 3,500 in FY2019 (or less than half that of FY2017).

The bottom line: It is more important than ever for immigrant investors to file their petitions as early as possible. The date that the government receives the petition is the priority date.

The Visa Bulletin allocates immigrant visas by priority date. The sooner immigrants make their investment and file the petition, the faster they will get resident status. Petitions are processed slowly by the government. Since the priority date is the date that petitions are first received, immigrant investors are already in line during processing.

There are federal legislative and regulatory proposals pending that would at least partially address this problem. But these are only proposals and it is not clear when they will become law, if ever. One thing is certain: Unless and until Congress increases the annual supply of EB-5 visas, increasingly long waiting periods will create hardships on immigrant investors that will likely result in less job creation for American workers.

EB-5 refers to the employment-based, fifth preference immigrant visa classification. EB-5 is the US immigrant investor program that grants immigrant visas and resident status (or green cards) to individuals who make an at-risk investment that creates, directly or indirectly, full-time equivalent jobs for at least 10 American workers. The required dollar amount of investment is currently US$1 million, although US$500,000 is acceptable in targeted employment areas where the government wants to encourage job creation, generally high-unemployment or rural areas.

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Where’s my green card?

No more EB5 job creation through tenant-occupancy models: New USCIS policy reduces availability of immigrant investor funds to create jobs for Americans

On May 15, 2018, USCIS revised its Policy Manual, effective immediately. The agency will no longer count the jobs created for US workers through tenant occupancy of EB5 properties. The result of this change is to reduce the amount of immigrant investor funds available to create jobs for US workers.

“EB5” refers to the US employment-based fifth preference immigrant visa. EB5 is a program (sometimes called “traditional EB5”) Congress created in 1990 to stimulate the US economy through job creation for US workers using investment by foreign investors. In 1992, Congress created the Immigrant Investor Pilot Program (regional center EB5), a temporary program that Congress has repeatedly extended, most recently through September 30, 2018. (See our previous posting “EB5 immigrant investor visas are available again”).

Both types of EB5s generally require that at least ten full-time equivalent new jobs for US workers be created by each immigrant’s investment. A key advantage of a regional center EB5 is that “indirect” and “induced” jobs are included in the job creation count (in addition to “direct” jobs), whereas a traditional EB5 counts only direct jobs.

Direct jobs refer to US workers employed directly by the business that received the EB5 investment. Payroll tax records show direct jobs. Indirect and induced jobs refer to employees of other business as a result of EB5 investment. The calculation of indirect and induced jobs is based on an economic analysis using models accepted by USCIS.

The “tenant-occupancy” model counts job creation by independent tenant businesses that lease space in buildings developed with EB5 funding. In the past, USCIS accepted the tenant-occupancy model.

USCIS’ skeptical attitude toward the tenant-occupancy model can be traced back to early 2012 when it rolled out a Request for Evidence (RFE) template for tenant occupancy seeking evidence that the projected jobs attributable to prospective tenants would represent only newly created jobs, and not jobs that had merely been related from another location. In December of that year, USCIS issued “Operational Guidance for EB-5 Cases Involving Tenant-Occupancy,” which clarified that to claim tenant jobs, the economic analysis must project the number of newly created jobs that would not have been created but for the economic activity of the EB5 commercial enterprise. In making that projection, the claimant must use economically and statistically valid forecasting tools. USCIS made determinations on a case-by-case basis and would generally require an evaluation of the verifiable details provided and the overall reasonableness of the methodology as presented.

The 2012 memo suggested two ways to demonstrate a causal relationship between the EB5 investment and tenant jobs:

  1. “[M]ap a specific amount of direct, imputed, or subsidized investment to such new jobs” (i.e., “show an equity or direct financial connection between the EB5 capital investment and the employees of the prospective tenants”); and
  2. Utilize a “facilitation-based approach,” seeking to “demonstrate that the economic benefits provided by a specific space/project will remove a significant market-based constraint” and “result in a specified prospective number of tenant jobs that will locate in that space.”

Beginning in 2013, USCIS modified its tenant-occupancy model position. The agency’s RFE template identified the following three distinct areas of concern:

  1. Will there be tenants to occupy the space once construction is completed?
  2. Will the tenant jobs be “new jobs” and not “merely relocated”?
  3. Are the job creation estimates based on a reasonable and transparent methodology?

Over the years, practitioners in the EB5 field have reported that in tenant-occupancy cases, USCIS, when issuing RFEs or Notices of Intent to Deny, tended to require EB5 immigrants to either (i) remove tenant jobs from the job creation calculation; or (ii) submit additional evidence that shows by the preponderance of evidence (more likely than not) that the tenants will be there to occupy the commercial space when the project is finished, that the tenant jobs are not merely relocated from another commercial space within the same geographical area, and that the estimated number of tenant jobs is a reasonable estimate.

Given the lengthy adjudication time, the capital at stake and the uncertainty involved, many EB5 immigrants gave up claiming tenant jobs. Subsequent formulations of EB5 projects largely steered away carefully from the tenant-occupancy methodology to avoid potential issues.

Now, USCIS has formally rescinded its previous guidance and will no longer consider tenant-occupancy methodology. The agency will continue to give deference to Form I-526 and Form I-829 petitions directly related to previous approved projects, absent material change, fraud or misrepresentation, or legal deficiency of the prior determination.

USCIS is accepting comments on the new policy until May 29, 2018.

Full text of the agency’s Policy Alert can be found here. Dentons represents regional centers, EB5 investment programs and individual investors on both traditional and regional center EB5 programs. Please contact your Dentons lawyer for more information.

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No more EB5 job creation through tenant-occupancy models: New USCIS policy reduces availability of immigrant investor funds to create jobs for Americans

US proposes new immigration status for international entrepreneurs

In addition to the many legal solutions already in place to make visas and other immigration opportunities available to qualified entrepreneurs, there will be an additional way to allow entrepreneurs to live and work in the United States for up to two years if a new rule proposed by the US Citizenship and Immigration Services (USCIS) on August 26, 2016, goes into effect. Savvy entrepreneurs will continue to make use of existing law whenever possible, but the proposed International Entrepreneur Rule could create a much needed important new immigration benefit.

The key provisions of the new rule include:

  • DHS may grant the parole in the exercise of its discretionary authority on a case-by-case basis if the evidence shows that the applicant’s presence in the US will provide a significant public benefit;
  • The applicant must submit biometric information and may be denied if there is any derogatory information, such as criminal activity or national security concerns; and
  • The startup must have been formed in the US within the past three years; and
  • The startup must have substantial and demonstrated potential for rapid business growth and job creation, as shown by any of the following:
    • At least $345,000 in capital investment from certain qualified investor(s) with established records of successful investments within 365 days immediately preceding the parole application; or
    • Receipt of significant awards or grants of at least $100,000 from certain federal, state or local government entities within 365 days immediately preceding the parole application; or
    • Partial satisfaction of one or both of the above, plus other reliable and compelling evidence of the startup’s substantial potential for rapid growth and job creation.
  • The applicant must have an ownership interest in the startup of at least 15% and must maintain at least 10% ownership at all times during the parole; and
  • The applicant must have a role that is both active and central to operations that uses the applicant’s knowledge, skills or experience to substantially assist the startup.

“Qualified investor” includes an investor who is a US citizen or lawful permanent resident, or any organization located in the US that operates through a legal entity organized under the laws of the US or any state and is majority owned and controlled, directly or indirectly, by US citizens and residents, but only if such investor regularly makes substantial investments in startups that subsequently exhibit substantial growth in terms of revenue or jobs creation. Further, the investor must, during the five preceding years:

  • Have made investments in startups, in exchange for equity or convertible debt, in at least three separate calendar years comprising a total of not less than $1 million; and
  • At least two of these startups must each have:
    • Created at least five qualified jobs of at least 35 hours per week, in the US and for a US citizen, resident or other immigrant (not including the applicant and the applicant’s parent, spouse, sibling, son or daughter); or
    • Generated at least $500,000 in revenue with average annualized revenue growth of at least 20%.

Not counted as part of the $345,000 investment requirement is any investment by the applicant, or the applicant’s parents, spouse, brother, sister, son or daughter, or any company in which the applicant or those relatives, directly or indirectly, has an ownership interest.

The applicant entrepreneur and his or her spouse and children would be granted an initial stay of up to two years. An extension of the initial stay of up to three additional years is available, but only if the applicant and the startup continue to provide a significant public benefit as shown by substantial increases in capital investment, revenue or job creation. DHS’s proposed additional requirements for the extension generally require additional qualifying investment, creation of at least 10 qualified jobs, or generation of $500,000 in annual revenue, and annual revenue growth averaging 20%.

The proposed rule expressly states that there is no appeal from a denial, nor will the agency consider a motion to reopen or reconsider a denial decision.

The proposed new rule is not any type of immigrant visa or green card, nor is it a new type of temporary visa. Rather, the DHS is utilizing its discretionary parole authority As a way to authorize qualified foreign nationals to travel in and out of the US without a visa. A grant of parole does not confer immigrant status and does not allow a change to another temporary visa status within the US or an adjustment to a permanent resident (green card) status within the US. Parolees are not automatically authorized for employment in the US, but may apply to the USCIS for an Employment Authorization Document (EAD).

Parole authority to allow temporary entry to the US is not new. It is often used for humanitarian reasons, such as to allow aliens to receive urgent medical treatment, to visit a seriously ill American relative or attend an American relative’s funeral, to cooperate with law enforcement, to participate in a voluntary disaster relief effort, etc. However, given the unusual application of the parole authority to international entrepreneurs instead of creating a new visa classification through legislative action and especially in the current US election period, the future of this proposed application of parole authority is very unclear. Other extraordinary uses of agency authority by the DHS have been delayed and halted by court order. It is disappointing that the agency chose to use this controversial approach to solve the very important need the US has for better immigration solutions for entrepreneurs.

There is a 45-day public comment period from the date that the proposed rule is published in the Federal Register. The USCIS may change the terms of the proposed rule after review of the public comments. The agency did not state when a final rule will be issued, but there is little time in the current administration and the long-term future of this proposal very much depends on the position taken by next Presidential administration.

Read the full proposed rule at the USCIS website.

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US proposes new immigration status for international entrepreneurs

US State Department changes E Visa processing in Canada for investors and traders

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The US State Department announced, effective March 1, 2016, new streamlined registration and expanded processing locations for E-1 treaty trader and E-2 treaty investors visa applications processed in Canada.

Applications to register companies to qualify as E-1 and/or E-2 visa employers must be done at the US Consulate in Toronto. E-1 and E-2 visa applications for employees of companies not already registered, or of companies that have let their registration expire, must be submitted to the Toronto consulate.

E-1 and E-2 visa applications for employees of companies registered with the US Consulate in Toronto, as well as their dependent family members, may now apply at the US Embassy in Ottawa, as well as the US consulates in Toronto, Vancouver, Calgary and Montréal. Previously, only the Toronto and Vancouver consulates handled E visa applications.

Appointments are prioritized for Canadian citizens and permanent residents who are citizens of treaty countries. The US State Department publishes a complete list of treaty countries online, click to see a complete list. Limited appointments are available for citizens and residents of countries other than Canada.

E visa company registration indicates that a consular officer has determined that a company met E visa standards on a prior application. Registered companies are given a Notice of E Visa Company Registration. There are more streamlined E visa application procedures while the registration is valid, unless there are substantive changes to the enterprise that would jeopardize its E visa status. If there are substantial changes in the company’s ownership structure or operations since the registration notice was issued, the consular officer may require additional corporate documents to ensure the treaty enterprise still qualifies.

For more information about the E-1, E-2 and other US temporary and permanent visas, please see Dentons United States Immigration Guide.

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US State Department changes E Visa processing in Canada for investors and traders

EB-5 China backlog

The United States State Department announced in the May 2015 Visa Bulletin that conditional resident status based on the EB-5 immigrant investor visa is currently available only to individuals born in China whose I-526 immigrant petitions were received on or before May 1, 2013.  EB-5 remains immediately available to immigrants born in all other countries.  Further, this backlog does not impact pending I-526 and I-829 petitions, regardless of country of birth.

The fiscal year begins on October 1.  According to the State Department’s Visa Control and Reporting Division Chief, 2,525 EB-5 visas remain available this fiscal year to people born in all countries other than China.  China has already used 6,819  or 88.56% of the EB-5 allotment for this fiscal year.  Vietnam is the second largest user this year, with a mere 244 EB-5 visas, followed by Taiwan, India and South Korea.  The State Department anticipates that the other countries will not use up all of the remaining EB-5 visas and estimates about 1,000 more EB-5 visas will be released to immigrants from China before the current fiscal year ends on September 30, 2015.

EB-5 immigrants from all countries can continue to file and obtain approval of I-526 immigrant petitions.  In fact, filing the I-526 as early as possible is more important than ever, since it is the I-526 receipt, also known as the priority date, that is ultimately used for quota purposes.  Approximately 10,000 new EB-5 visas will become available on October 1, 2015, when the new fiscal year begins.

For more information, check out the May 2015 Visa Bulletin.

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EB-5 China backlog

Update for Immigrant Investors in the US

The US Citizenship and Immigration Services agency reports faster processing times for immigrant investors in the US under the employment-based, fifth preference immigrant visa (EB5).

The agency reports an average 13.4 month processing time on individual investor petitions and a 5.7 month processing time on the petition to remove the two-year conditional basis of resident status.  The agency reports a 6.1 month processing time on applications to designate new regional centers, amend the designation for existing regional centers, and exemplar petitions for investment opportunities at regional centers.

The USCIS has devoted a number of resources to improving the EB5 process.  The volume of EB5 petitions received, approved, and pending almost doubled from fiscal year 2011 and 2012, and the number denied almost tripled.  The growth in 2013 was not quite as dramatic, but there was growth and the numbers reported for the first two quarters of FY 2014 show that this is likely to be a banner year.  In August 2014, the USCIS added a document library to facilitate submission of digital copies of documents to supplement paper-based filings and this is expected to help reduce lengthy processing times.

At the same time, the USCIS is working more closely with the Securities and Exchange Commission (SEC) and other agencies to improve immigrant investor confidence in the program and reduce fraud.   The SEC posted an Investor Alert to recommend the due diligence investors should take when evaluating EB5 opportunities.

Common industry practices are evolving in the EB5 sector to catch up with new government practices and enforcement patterns.  The leaders who adopt best practices early on have the best opportunity for success in securing immigrant investor funding for their ventures and resident status for their immigrant investors.  Dentons provides clients with a comprehensive and integrated suite of EB5-related legal services – from project finance, securities, immigration and employment to hotel, real estate, franchise, and much more.

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Update for Immigrant Investors in the US