U.S. Residency by Investment – A New Era and Perspective

 

EMPLOYMENT BASED CATEGORY 5 (EB-5) – NEW REGULATIONS EFFECTIVE NOVEMBER 21, 2019.

 

The new era reminds me of a saying “When you come to a fork in the road, take it!”

 

Foreign nationals may obtain U.S. Permanent Residency by their personal investment into a U.S. business project which results in the creation of 10 direct fulltime jobs or the creation of 10 indirect jobs if the business project is associated with a Regional Center designation.

 

U.S. corporations can apply for and obtain a license referred to as a “Regional Center” designation from the U.S.C.I.S. (United States Citizenship and Immigration Services). The Regional Center Company can enter into an agreement with a U.S. project business, as a basis for certain allowances. The allowances include the required 10 jobs being created indirectly and the project business can obtain the funds in the form of a loan from an entity fund which receives the funds as an investment from the foreign nationals.

 

The minimum investment amount was US$500,000 into a qualifying EB-5 project in either a rural or high unemployment area Target Employment Area (TEA). This amount had not changed since the United States Congress created the modern EB-5 program in 1990. If the project is not in a TEA or Rural area, then the investment was US$1 million.

 

As of November 21, 2019, new USCIS EB-5 Regulations were effective, increasing the minimum investment to US$900,000 if in a TEA or rural area and if the project is not in a TEA or rural area then the investment is US$1.8 million.

 

Potential new legislation will hopefully provide permanency or a long-term extension for the EB-5 Regional Center program without the need for constant Continuous Resolutions being initiated by U.S. Congress. As we are all aware any new legislation would override any new regulations.

 

Currently, a proposed Bill  before the U.S. Congress, which if becomes law, will provide new investment requirements. For instance, if the project business is in a TEA or rural area the investment requirement will be US$1million. To the contrary, if the project business in not in a TEA or rural area, then the investment will be US$1.1 million.

 

One proposed provision of the Bill will be of substantial benefit to the potential foreign national investor. This provision would allow a foreign national investor to file an EB-5 I-526 petition and have the USCIS expedite the processing and adjudication of the petition within 120 days. There will be an additional government filing fee for the expedited process. The current USCIS processing times of EB-5 petitions are between 2 years to 5 years. Therefore, once an EB-5 I-526 is adjudicated and approved, the foreign national investor can immediately apply for and receive their conditional permanent residency (i.e. includes investor, spouse and minor children).

 

The application for conditional permanent residency to be filed with the U.S. consulate may only take a few months. Hence, the proposed new law may allow a foreign national investor to obtain conditional permanent residency in less than one (1) year. This anticipated processing time from the filing of the I-526 petition will be used for relocation and tax planning.

 

A new continuous resolution has extended the EB-5 Regional program to December 2019. There will a predictable Continuous Resolution extending the EB-5 R.C. program beyond this date.

 

The new Regulations radically redefine TEAs to limit them to the location of the census tract of the EB-5 project and any adjacent census tracts, provided that the weighted average unemployment level is at least 150% of the national average. Rural TEAs continue to be defined as outside of an MSA and outside of any city or town with a population of 20,000 or more. The new regulations also stripped States of the authority to determine TEA boundaries, and instead placed that authority with the USCIS (DHS).

 

If the investor files an I-526 petition which incorporates the EB-5 project request that the geographical area for the project, is in a TEA, the investor and the project must wait for the Federal Government (DHS) decision.

 

DHS with the filing of the I-526 Petition will adjudicate the TEA destination. The uncertainty for the EB-5 Investor and EB-5 Project will be definitely cumbersome. That is, will the EB-5 Investor take the risk that the TEA request may not be approved, and as a result will lose their ability to move forward with the EB-5 process unless they invest an additional $900,000.00? Alternatively, will the EB-5 projects be willing to return the EB-5 $900,000 investment to the EB-5 Investor if the TEA request is not approved?

 

The new Regulations change in the investment amount and TEA definitions could be disruptive to existing EB-5 projects that are only partially funded through their capital raise. The new TEA definition will most likely cause most EB-5 projects after November 21, 2019, not to be considered a project in a TEA.

 

As a result, there are important questions that will be asked by the Foreign National Investor.

 

Will these projects be able to raise EB-5 investment capital at the higher threshold?

 

How many projects will not be able to complete their EB-5 raise and what are the consequences for existing investors?

 

An important question is, if all the EB-5 financing was not raised prior to the new regulations, would the project still move forward and be completed by traditional non-EB5 funding?

 

It is important to be aware that a Regional Center designation by USCIS, or a pre-approved EB-5 project of the supporting EB-5 documentation by USCIS, does not endorse the financial or business viability of the project.

 

Based upon the substantial increase in investment amounts, the foreign national investor may decide to invest their personal funds into their own business project rather than in a project business managed by a separate operator or company. A large majority of current EB-5 Regional Center projects are managed this way. Therefore, the Foreign National may decide to pursue their own strategy.

 

For instance, if the foreign national is a citizen of country that has an E-2 visa Treaty or agreement with the U.S., then the E-2 citizen can invest in their own business in the U.S. The E-2 is a temporary non-immigrant visa but allows the E-2 investor to obtain the E-2 visa from the U.S. consulate in a matter of a couple of months. The E-2 investor once in the U.S. directing and operating the U.S. business can then subsequently file their EB-5 I-526 petition on the basis the minimum EB-5 investment requirement has been committed to the U.S. business project.

 

Furthermore, if the foreign national is not a citizen of an E-2 country, then they may obtain citizenship in certain E-2 countries in a couple of months by their investment in real estate in these countries.

 

Even though the higher investment requirements provided by the New Regulations as of November 21, 2019, are not welcomed; these Regulations still provide a basis for the EB-5 investor to obtain U.S. Conditional Permanent Residency, then full permanent residency and on this basis after 5 years apply for U.S. citizenship.

 

As there is also a possibility of new legislation, with new requirements, it is prudent for the foreign national investor to analyze and plan a strategy based upon initial investments, timelines, due diligence on the business viability of the project and of course pre-immigration tax planning.

 

“Where are we now

Sitting in the jungle

A man lost in time

Fingers are crossed

Where are we now?

The moment you know

You know, you know.”

 

 

 

Author: Edward Beshara, Managing Partner, Beshara Global Migration Law Firm, USA