Yesterday, the Obama administration announced potential changes that could significant impact the EB-5 investor visa program. The EB-5 investor visa was originally established by Congress in 1990 to attract foreign investment and stimulate the economy in hopes of spurring job creation in the United States.

Under the EB-5 program, foreign investors are eligible for lawful permanent residence if they invest in a new (or expanded) commercial enterprise that creates at least 10 jobs. The minimum investment for an EB-5 visa under the current rules is $1 million (if the investment is in a commercial enterprise located in a “targeted employment area,” the minimum investment is only $500,000). Perhaps the most significant change to the EB-5 program is a proposed increase in the minimum investment required for an EB-5 visa, although there are other significant proposed changes that potential EB-5 investors need to be aware of:

Minimum Investment

Under the proposed rules changes, the minimum investment for an EB-5 visa increases significantly. For commercial enterprises outside targeted employment areas, the minimum investment will increase from $1 million to $1.8 million. It is a similar $800,000 increase—from $500,000 to $1.35 million—for commercial enterprises in targeted employment areas. These amounts will automatically adjust every five years based on the Consumer Price Index for All Urban Consumers.

While DHS says the increases are necessary to keep pace with inflation, there are costs associated with the proposed changes. Most notably, the proposed increases may result in fewer investments, in turn resulting in few jobs being created. Also, current EB-5 projects may be stalled from moving forward because of a lack of capital. The increased investment amounts may also make similar programs offered by other countries look more attractive.

Priority Date Retention

Over the past decade, the EB-5 program has seen exponential growth. Each year, only 9,940 EB-5 visas are allocated to foreign investors. Since 2008, however, the number of EB-5 petitions has grown from 600 to 25,000 annually. As a result, foreign investors are frequently forced to wait more than a year before the can obtain conditional permanent residence, and because much of the increased demand is attributable to investors from China, the U.S. Department of State had to limit the number of visas available to Chinese investors. Given this backlog, an investor’s priority date—i.e., the date their EB-5 petition was filed—has become even more important.

To put it plainly, an investor’s priority date is his or her place in line. Under the current rules, EB-5 petitioners lose their priority date—their place in line—if they refile their petition. For instance, if a foreign investor invests through a regional center that later is terminated through no fault of the investor, the investor will be forced to refile his or her petition—and as a consequence, lose his or her priority date. Or if a foreign investor invests in a project that later stalls and is unlikely to succeed, the investor will have to refile his or her EB-5 petition to reinvest in another project. Again, the investor will lose his or her priority date. This is generally not the case for EB-1, EB-2, and EB-3 visas. In order to harmonize the EB-5 visa with the other investor visas, DHS is proposing to allow foreign investors to retain their priority date to (1) address situations where the petitioner becomes ineligible due to circumstances beyond their control; and (2) to provide investors greater flexibility to deal with changing business conditions.

Designation of TEAs

The designation of targeted employment area (“TEA”) under the EB-5 program is crucial because, as discussed above, the minimum invest in a TEA to qualify for an EB-5 visa is only $500,000—rather than $1 million—under the current rules. Generally, a TEA is a rural area or an area with unemployment rate that is more than 150% of the national average. To demonstrate a commercial enterprise is in a high-unemployment TEA, investors must provide either (1) evidence that commercial enterprise is principally doing business in metropolitan statistical area, specific county within a metropolitan statistical area, or a county in which a city or town with a population of 20,000 has experienced an average unemployment rate of 150 percent of the national average rate; or (2) certification from the state that the geographic or political subdivision of the metropolitan statistical area or of the city or town with a population of 20,000 or more in which the enterprise is principally doing business has been designated a high unemployment area.

Under the proposed rules, DHS is making two significant changes to TEA designations. First, states will no longer be able to designate high-unemployment TEAs. Instead, those designations would be made by DHS. Second, any city or town with a population of more than 20,000 will qualify as a TEA if its unemployment is more than 150% of the national average. DHS believes these changes are necessary to ensure that the reduced minimum investment for TEAs is applied consistently and limited to true areas of high unemployment.

Separate Filings for Derivatives

The proposed rules changes clarify the process for derivatives when they are not included on the original I-829 petition to remove conditions on permanent resident status. Ordinarily, an investor’s derivative should be included on his or her Form I-829. But sometimes that doesn’t happen—e.g., when the investor dies during the conditional residence period. The current regulations do not address this situation. The proposed regulations provide that where dependent family members cannot be included on the principal investor’s Form I-829 because the principal investor has died, all of the dependents may file a single Form I-829 (in all other cases, any dependent not included on the investor’s Form I-829 must file a separate Form I-289.