DHS Proposes Massive Increase in EB5 Investment Requirements

The U.S. Department of Homeland Security (DHS) published a proposed rule, on January 13, 2017, in the Federal Register, that would make a number of modifications to the employment-based, fifth preference (EB5) immigrant investor program, including a massive increase in the minimum investment required to qualify for the program. If implemented, this regulation would substantially increase the standard minimum investment needed to qualify to $1.8 million, and increase the amount required for investments in a targeted employment area (TEA) to $1.3 million.

Current Investment Requirements

Presently, in order to qualify for the EB5 program, the minimum investment required to qualify is $1 million. If, however, the person invests in a commercial enterprise that is located in a TEA – that is, a rural area or area with high unemployment, the minimum investment amount required drops to $500,000. The vast majority of EB5 investments – about 97 percent – are made at the $500,000 level. These minimum investment amounts apply whether it is a direct investment or an investment in a regional center project, and they have remained unchanged since 1990. The MurthyDotCom NewsBrief, EB5 Regional Centers (12.Jan.2017) provides more information on the regional center program.

Proposed Investment Increases

Under the proposed rule, the amount required for a standard (i.e. non-TEA) investment would be increased from $1 million to $1.8 million, an 80 percent increase, which represents an adjustment for inflation. The TEA investment amount, currently set at $500,000, would shoot up by a whopping 270 percent, to $1.3 million. In addition, the minimum investment amounts would automatically be adjusted every five years, based on inflation.

Proposed TEA Designation Process Change

Since 1991, EB5 investors have been permitted to provide evidence that an investment is being made in a TEA, and thus qualifies at the $500,000 level, by submitting statistical evidence or a letter from an authorized body of the government of the respective state. The proposed rule would eliminate the ability of states to designate TEAs, and instead have the DHS make such determinations, by applying a set of standard benchmarks. The reason for this change is that the DHS has found inconsistent application of TEA standards among different states, because states have an incentive to apply TEA standards loosely in order to attract investors.

Conclusion

It is important to understand that this is only a proposed rule. The DHS will accept comments from the public on this proposal until April 11, 2017. The agency will then review the comments and decide how, or even if, to proceed with a final rule. Instructions on how to submit comments to the DHS are listed on the first two pages of the proposed rule.

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