WHAT DOES THIS MEAN FOR FUTURE AND CURRENT INVESTORS?
WE ADVISE TO APPLY BEFORE THE PROPOSED CHANGES TO EB5 PROGRAM ARE IMPLEMENTED
On September 30th, 2015 the wildly popular EB5-Regional Centre Program – the tool that offers foreign investors a green card in exchange for economic investment – expired.
Created in early 1990s as a means of bringing private investment into the U.S in order to encourage job creation, the EB5 program drove steady economic growth and so far has created 85,500 job opportunities for Americans from coast to coast.
So what does this momentary pause mean for investors now and in the foreseeable future?
Currently, and after pressure from developers, the U.S. Senate has agreed to a temporary extension of the EB5 program until December 11, 2015 whilst it is debating the future of the program. Until the end of the extended period Congress will protect the minimum investment threshold of USD500, 000 to new investors who apply for the EB5 Regional Centre Program between now and then.
The focus of the debates will revolve around addressing the faults in administering and applying the qualifying requirements under the program so that the application process weeds out the abusers, does not drive away investors, does not halt development projects, currently worth USD13.2 billion, and provides fairer distribution of investments into ‘Target Employment Areas’, in rural areas and areas with the highest level of unemployment. The reforms ought to increase oversight and enforcement and it is hoped that it will maximize the amount of dollars invested. However, if Congress does not renew the program the country is set to lose an estimated USD6, 8 billion in investments and tens of thousands of jobs.
Generally speaking it was the discovery of uneven distribution of direct foreign investment that sparked the rush to reform. It was detected that most developers on the West and East Coast set out to attract the most investment despite the fact that the developments in those areas did not specifically qualify as ‘Target Employment Areas’ as both regions enjoy the lowest employment rate. Equally, in defence of developers, it was the investors’ preference to invest into cool, sexy and luxurious projects in attractive locations rather than in lesser popular destinations. This is in conflict with the real intent of the EB5 to deploy capital for projects in deprived areas, generally in rural America or areas with high unemployment, regions that are the most in need of investment and job creation.
Congress also aims to address its current EB5 visa threshold which is currently set at 10,000 per EB5 fiscal year. The lawmakers wish to introduce a system which will guarantee an even proportion of visas is granted per development and that they are equally distributed amongst the developers. It was found out and critiqued by The Wall Street Journal that developers in ‘richer regions’ not only combined low and high unemployment rate to qualify for EB5 financing but also were able to recoup 20% of the total visa threshold leaving other developers out to dry.
Both the U.S. House and Senate seek to bring more transparency and introduce a firmer regulatory framework to avoid discrepancies and to improve and encourage developments in regions that felt the worst effects of the Great Recession.
For now this pause provides potential investors as well as Congress time to get it right or to end up with legislation that must be revised in the future in order to combat fraud and abuse.
The greatest advice to prospective EB5 investors is to use the window of opportunity and apply now before Congress introduces changes or scraps the program entirely. This can happen at any time during the extended period. It has been advised for anyone who possess investment certificates of USD550, 000 to urge their immigration attorney to file their green card application before the new law comes into effect.
It is, however, highly likely that the program will remain open but the EB5 investment will go up, the definition for ‘Target Employment Area’ designation will change and further requirements will be introduced for potential investor making it more difficult to meet the requirements of the new law.
Despite the issues described above overall the EB5 program has served its’ purpose of attracting investments, creating jobs, securing positive returns on capital investments and granting green cards to foreign investors. However, with the current debate taking place it would be rather disappointing for the USA to get rid of a tool which has already proven its worth by having positive impact both economically and socially within the U.S.A.