Tuesday, April 28, 2015

Entrepreneurs and Immigrant Investors: When Will They Cross Paths?

Guest Blogger: Elisha Yang, third-year law student, University of San Francisco:

The EB-5 immigrant investor visa is one of the five employment-based preference categories issued by the United States Citizenship and Immigration Services (USCIS).  In 1990, Congress created this EB-5 visa to help stimulate the U.S. economy through job creation and capital investment by foreign investors.  Through this program, qualified immigrant investors and their immediate family members are granted lawful permanent resident status in the U.S. when they invest in a commercial enterprise that benefits the U.S. economy that creates at least ten jobs.  Those who are approved receive a two-year conditional green card, which can later be adjusted to permanent resident status.  Achieving permanent resident status is an essential step to obtaining U.S. citizenship--typically the end goal for an EB-5 immigrant investor.  

There are two particular ways to apply for an EB-5 visa.  The first option, involving direct investment, requires the investor applicant to individually create, invest in, and manage a business that meets the statutory requirements of the EB-5 visa.  For a foreign investor, this option does not often appear attractive because of the onerous conditions required, in addition to the fact that all the responsibilities are placed on the applicant.  The second option, frequently identified as the Regional Center Program, allows the investor applicant to passively invest in an approved and designated regional center, which would then be the responsible entity for meeting the requirements of the EB-5 visa.  The investment requirement through this program is reduced from $1 million to $500,000.  Naturally, a majority of investors choose the latter route.

Since its inception, the EB-5 program has been largely underutilized by city governments, economic development corporations, foundations, and other organizations actively promoting inner city investment.  A number of reasons could have been triggering such a result.  The Initiative for a Competitive Inner City (ICIC) reasons that the lack of popularity in this international financing mechanism might have been due to the relative obscurity and complexity of the program as well as the negative reputation it developed from a few high profile cases involving fraud.  There are currently about 440 EB-5 Regional Centers in the U.S., and we are recently seeing an increasing interest in creating new ones in response to the spike in EB-5 visa applications.  

In 2013, over 80 percent of EB-5 visas were issued to Chinese nationals.  The program also attracts investors from India, Mexico, South Korea, Canada, and the United Kingdom, among other countries.  In fiscal year 2014, the State Department issued 9,228 EB-5 visas.  Today, the overwhelming number of I-526 petitions filed by Chinese nationals may result in a retrogression of EB-5 visas.  In August 2014, the State Department announced that no more EB-5 visas would be issued for the remainder of the year until the beginning of the 2015 fiscal year.  According to the May 15, 2015 Visa Bulletin, the State Department will impose a cut-off date of May 1, 2013 for EB-5 investor visas for persons born in China.  This means that no more spots will be available to the Chinese for the rest of the U.S. government’s fiscal year, which ends September 30.   

Greenberg Taurig, an international law firm, estimates that the waiting line now for an EB-5 visa will stretch to two to three years.  The developing backlog will have a significant impact on applications for investors hoping to enroll their children in U.S. colleges and universities.  If they apply too close to the child’s 21st birthday, he or she will age out and will no longer be eligible to enter the U.S. with a dependent visa through an investor parent.

With a high demand for the EB-5 visa, Congress might find it useful to study successful investment-based immigration programs used in other countries.  For example, Canada offers a highly competitive investment-based visa program, which provides multiple avenues for foreign investors to pursue.  The Federal Entrepreneur Program awards permanent resident status to those who demonstrate an ability to become economically established in Canada by proving two years of suitable business experience and meeting the personal net worth requirement.  On the other hand, Canada also offers the Immigrant Investor Program, which is passive in nature but has a much higher net worth and investment requirement.  With these two avenues, Canada has been able to gradually increase as well as diversify the foreign investors it attracts.

This September, the Regional Center Program will expire, but this is not the first time.  Congress has continuously extended the program periodically.  Last month, Congressman Jared Polis of Colorado introduced a bill in the House to permanently extend the program.  His bill is called the “American Entrepreneurship and Investment Act of 2015.”  Permanence, however, does not yet seem likely, as the program requires amendments and reform to resolve loop holes that create problems subject to much criticism from the public at large.  What will likely occur is that another three or five-year extension is granted.  



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