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Practice Note
EB-5 Applicants from China May Face Cap Shortage

Impact of Projected EB-5 Quota Retrogression for China

Based on the demand for EB-5 visa numbers during 2013 and the volume of approved I-526 petitions at the National Visa Center, the Department of State has provided the AILA EB-5 and DOS committees with tentative projections for movement in the EB-5 category during the rest of the 2014 fiscal year. The forecast is somewhat murky given the low ¡§visibility¡¨ at USCIS, meaning that there is limited information available regarding how many visa numbers USCIS will request, a challenge that is exacerbated by the substantial I-526 backlog and the fact that I- 526 petitioners and their dependents cannot concurrently file for adjustment of status. With that in mind, the Department of State has advised the following:

  • If demand continues at the current pace, a cut-off date may need to be established for China, which accounts for more than 80% of total number usage. No other countries in the EB-5 category will be impacted. (It should be noted that in December 2012, the State Department predicted the establishment of a cut-off for China EB-5, but this never occurred because of the slow pace of I-526 approvals.)
  • If a cut-off date is established, it will not likely take effect until July 2014 at the earliest and is more likely to occur in August or September 2014. It is possible that numbers will again become current for some period of time at the onset of the new fiscal year on October 1, 2014.
  • Of the cases at NVC:
    • 966 have priority dates in 2011;
    • 2,969 have priority dates in 2012; and
    • 813 have priority dates in 2013.
    Therefore, depending on how quickly USCIS reduces the I-526 backlog, the EB-5 cut-off date may need to be retrogressed more than one year.
  • All EB-5s are created equal; the cut-off would apply to China EB-5 across the board, with no distinction between regional center and direct EB-5 petitions.

In anticipation of this potential quota retrogression, the AILA EB-5 Committee suggests the following:

1. Carefully monitor investors with children who may ¡§age out.¡¨

The Child Status Protection Act (CSPA) freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending. However, once the petition is approved, the child¡¯s age is no longer frozen if the conditional residence cannot be completed because the quota is not current for that investor. A Chinese investor with children nearing age 18 or older will want to freeze the child¡¯s age for as long as possible if China EB-5 priority dates retrogress. The longer the time the I-526 is pending, the longer the time the child¡¯s age is frozen. Thus, it will be beneficial for certain Chinese nationals who have children close to "aging out" to have the I-526 petition adjudication process take longer. For this reason, it would be advantageous for a Chinese national to receive a Request for Evidence and to delay responding to the RFE until the latest possible date.

China EB-5 priority date retrogression will make it imperative for counsel to carefully track the ages of a petitioner¡¯s children, to encourage prompt I-526 filing, and to strategize how to prolong the I-526 petitioning process if a child is close to "aging out." It will also be imperative for counsel to make certain that the immigrant visa is applied for within one (1) year of the priority date becoming current, in order to benefit from the period of time the child¡¯s age is frozen during the petitioning process under the CSPA.

2. Develop alternative strategies for direct EB-5 investors.

In a direct EB-5 investment, the investor is often the manager of the investment. Quota retrogression may delay for years the ability of Chinese nationals to immigrate after filing the I-526 petition and therefore to start up the business. The Chinese national cannot obtain an E-2 visa as there is no investment treaty with China. An investor who cannot immigrate to the United States for many years because of quota retrogression may not be able to demonstrate that he will be able to manage a direct EB-5 investment and may need to either find someone else to manage the business or develop a nonimmigrant visa strategy to come to the U.S. to start up the business.

Additionally, the investor must demonstrate that the commercial enterprise will employ no fewer than 10 qualifying employees within 2½ years of I-526 petition approval. A comprehensive business plan must be submitted with the visa petition demonstrating that the qualifying employees will be employed within that time period. It will be difficult to produce a credible business plan when an investor has no idea of when he will be able to immigrate to the United States.

3. Advise clients regarding regional center project issues.

Many regional center projects involve loans from the new commercial enterprise to the EB-5 project. These are often 5 year loans premised on all investors receiving conditional permanent residence before the loans are paid back. Investor clients should be advised that changes to loan agreements may be required and that such changes may affect their exit strategies. On the other hand, regional center projects would have longer periods of time in which to create the requisite jobs in the event that quota retrogression delays the onset of the conditional residence period of the investors.

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