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The EB-5 Quota Backlog: Will It Happen and What It Will Mean?

by H. Ronald Klasko

EB-5, like every other employment-based immigrant category, has a numerical quota limitation set by Congress. For EB-5, that limitation is approximately 10,000 visas. However, this does not mean that 10,000 investors can immigrate through EB-5 each year, but rather, the limitation on investors is closer to 4,000 per year, as the 10,000 limitation includes both investors and family members.

Given that far more than this number of investors have filed EB-5 petitions each year in recent years, why has the quota not been reached? This is an example of where USCIS processing delays may actually help. Because of the slow pace of approvals, less than the minimum number of investors required to fill the quota have actually obtained immigrant visas in this fiscal year, which ended September 30, 2013. 

So what does the future hold?  There are a few possibilities. If there is no new immigration legislation, the chances are high that there will be an EB-5 quota backlog limited to Chinese nationals in the fiscal year beginning October 1, 2014. The reason that this will only apply to Chinese nationals is because of a per country quota limitation which will kick in for Chinese nationals and likely result in a backlog for them somewhere around the middle of the fiscal year (approximately Spring 2014). Because Chinese nationals comprise 75 to 80 percent of all EB-5 visa issuances, when the per country limitations are applied to China there should be plenty of EB-5 visas remaining for the rest of the world.

As of the date of publication, there remains a reasonable chance that comprehensive immigration legislation will be signed into law, most likely in November 2013. If this happens, it is very possible that a new law would result in more visas being available for EB-5 investors. This would likely be done not by increasing the EB-5 quota but by removing family members from the EB-5 quota, which will allow for 10,000 actual investors. The end result of this would greatly reduce the likelihood of a quota backlog for Chinese or other foreign nationals in the EB-5 category for the foreseeable future.

It is also possible that new immigration legislation would include an increase in the minimum investment amount required for an EB-5 investor. This is highly speculative but, if it occurred, it could reduce demand on the part of EB-5 investors, which could also lead to reducing or eliminating the possibility of EB-5 quota retrogression.

If there is EB-5 quota retrogression for Chinese nationals, what would it mean?  It would not mean that an EB-5 investor could not make his investment or file his EB-5 petition, and it would not mean that the EB-5 petition could not be approved.  However, it would mean that, following the EB-5 petition approval, the conditional immigrant visa interview at the U.S. Consulate in Guangzhou would have to be delayed until an EB-5 quota number is available for that investor. At this time, it is very difficult to predict the extent of the delay, but it would likely be at least several months and possibly one year or more. If the Chinese investor is in the United States and applying for adjustment of status, the investor would not be able to file the adjustment of status application until the quota number is available.

For most investors, this would simply be an unwelcome delay in completing the immigration process.

The most significant effect would be on investors with children who are approaching the age of 21. Presently, the filing of the EB-5 petition before the child turns 21 results in the child’s age being “frozen.”  This means that, unless the investor purposely delays the process, the child will be able to obtain his or her green card at the same time as the parent even if the child is over age 21 by the time the green card is issued. The Child Status Protection Act establishes this procedure. Unfortunately, the Child Status Protection Act does not freeze a child’s age during periods of quota backlog. In such cases, the eligibility of the child would become more complicated. Because of the very real possibility of a child aging out, investors with children approaching age 21 should seriously consider moving forward with their EB-5 petitions as promptly as possible.

Any delay in issuance of the conditional immigrant visa because of a Chinese quota backlog would also result in a delay in filing the condition removal petition. The two-year deadline for filing the condition removal petition dates from the date of entry to the United States with the immigrant visa (or date of adjustment of status for investors in the United States). If this date is delayed by a year or more, it means that the condition removal date is pushed back a year or more. For project developers and regional centers this means that there is more time to create the necessary number of jobs required for condition removal. However, it also means that any exit strategy for the investor’s money will be delayed, since the investment must be sustained through condition removal.

One further indirect effect of EB-5 quota retrogression would likely be a reexamination of USCIS’ so-called “two and a half year rule.” This artificially-created policy requires a demonstration that the necessary number of jobs will be created within two and a half years of the approval of the EB-5 petition. This is premised, in part, upon the assumption that the investor will be removing conditions within two and a half years of EB-5 petition approval. This is unrealistic at the present time and would become impossible in the event of quota retrogression. Hopefully, quota retrogression would lead USCIS to reconsider this artificial and unfounded policy.

In summary, at the present date, quota retrogression in the EB-5 category for Chinese nationals is a very real possibility in the coming year. If there is no new legislation, it will almost certainly be a new part of the EB-5 planning and strategy process. Investors would be well advised to consider this when planning for EB-5 investments starting at the present time.

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