The EB-5 Reform and Integrity Act of 2022 (“RIA”) was passed by Congress and signed by President Joseph Biden on March 15, 2022.  It was a welcome Congressional update to the Employment Based Fifth Preference (“EB-5”) immigrant visa category and reauthorization of the Regional Center Program (“Program”) provisions of the original EB-5 legislation. The RIA included many changes to the EB-5 immigrant visa category.

Most importantly for past investors is that the RIA reauthorized the Regional Center Program and allowed all those investors who had previously filed an I-526 Petition before the Program lapsed at the end of June 2021 to continue with their journey to obtain Lawful Permanent Residence and green cards.

The RIA was very comprehensive and covered a wide range of changes to the Program. The primary features of the RIA include:

1. The Regional Center Program was reauthorized and improved for better integrity;
2. An increase in the EB-5 visas minimum investment requirements;
3. Changes to the criterion for Targeted Employment Areas;
4. Strengthened integrity procedures to improve EB-5 transparency and security;
5. The creation of new Reserved Visa categories for new investors;
6. Investors will benefit from enhanced protections.

In this series of articles, we will explain every aspect of the RIA and how it may impact foreign nationals that are considering making an investment into the U.S. to obtain Lawful Permanent Residence for themselves and their qualifying family members via the EB-5 visa category.

Increased Investment Amounts Of The RIA

The Increased Investment Amounts section of the EB-5 Reform and Integrity Act of 2022 (“RIA”) raises the minimum investment thresholds to adjust for inflation and ensure the continued effectiveness of the program in promoting economic growth and job creation in the United States.

Under the updated rules, the standard investment amount required for the EB-5 program has increased from $1 million to $1.05 million. For investments in Targeted Employment Areas (TEAs), which include rural areas or those with high unemployment, the minimum investment rises from $500,000 to $800,000.  The original investment amounts had not been increased since the EB-5 program was created in 1990.

These changes are intended to maintain the program’s ability to generate substantial capital for U.S. businesses and encourage investment in areas that need economic development. The increase in the minimum investment ensures that the program continues to meet its goal of creating jobs and stimulating growth in underdeveloped regions. By raising the investment levels, the RIA aims to make the program more effective and relevant to today’s economic conditions while continuing to attract foreign investment to the United States.

Reauthorization and Stability From The RIA

The Reauthorization and Stability section of the EB-5 Reform and Integrity Act of 2022 (“RIA”) focuses on the continuation and enhancement of the EB-5 Regional Center Program, which had previously lapsed in 2021. The Regional Center Program is a part of the EB-5 Immigrant Investor Program passed by the U.S. Congress is 1990. It allows foreign investors to qualify for U.S. permanent residency by making qualifying investments in designated regional centers sponsored businesses and projects that create jobs for U.S. workers.

The Regional Center Program had always been a “pilot” or temporary program. The reauthorization extended the Regional Center Program for five years, providing stability and predictability for both investors and businesses participating in the program. In addition, the Act introduces new safeguards to enhance oversight and ensure compliance with federal regulations. This includes stricter requirements for Regional Centers, such as increased transparency through regular reporting, regular audits, and improved tracking of investments and job creation. The RIA also mandates the creation of a database to monitor Regional Center compliance and the performance of EB-5 projects.

These measures are designed to restore confidence in the program, prevent fraud, and maintain the program integrity, which is essential for attracting future foreign investment to support U.S. job growth and economic development.

What Is Capital In The RIA?

In the EB-5 Reform and Integrity Act of 2022 (“RIA”), the definition of “Capital” as an investment for EB-5 has been updated.  Capital includes cash, as well as any real, personal, or mixed tangible assets that are owned and controlled by the investor and which are invested in, or contributed into, the business. Capital can also be assets held in trust for the investor, provided the investor has unrestricted access to them. This guarantees that the funds are accessible for investment purposes and job creation.

Capital must be evaluated using Generally Accepted Accounting Principles (GAAP) or other SEC-adopted standard accounting procedures at the time of investment, at fair market value in U.S. dollars. This guarantees uniformity and openness in the investment’s appraisal.

The definition of capital excludes several types of assets:

• Unlawfully acquired assets: Any funds or assets obtained through illegal means are not considered valid capital.
• Debt investments: Capital invested in exchange for loans, bonds, or other debt arrangements from the business is excluded, as the EB-5 program requires an equity investment rather than a debt (i.e. the investor is not loaning the Capital to the business).
• Guaranteed returns: Capital that is invested with a guaranteed return or any debt-related repayment agreement, as above, given back to the investor does not qualify. The EB-5 program is meant to support investments that carry entrepreneurial risk.  The potential for gain, such an interest from a loan in which the investor’s Capital has been deployed, is acceptable as long as it is not guaranteed.  In other words, there must also be a risk that the interest is not earned and then paid to the investor.
• Repayment rights: Any capital that is subject to agreements providing the investor with a contractual right to demand repayment (such as mandatory redemption or a put/sell-back option) is also excluded.
• Some benefit of value:  The investor must also be careful not to receive any benefit of value which might be deemed a guaranteed return on his investment.  For example, the promise of free hotel stays at a developer’s related property could be deemed such a guaranteed return.

However, Capital invested in a business with a buyback option may still qualify if the option can only be exercised at the discretion of the New Commercial Enterprise, and without guaranteeing the return of a fixed amount of investment Capital. If made before an investor completes his EB-5 process, this provision must result in the investor withdrawing their petition unless they meet all other EB-5 process requirements, such meeting the investment Sustainment Period.

Rural Areas In The RIA

In the EB-5 Reform and Integrity Act of 2022 (“RIA”), the term “rural area” is used to identify locations that are eligible for the lower investment threshold of US$800,000 rather than the base investment amount of US$1,050,000.  It is designed to promote investment in infrastructure, development, and economic growth in less populated areas

According to the RIA, a “rural area” is any place that is:

1. Not in a Metropolitan Statistical Area (“MSA”): According to the Director of the Office of Management and Budget, areas that might be otherwise be considered “rural” but are within the geographic area of a “MSA”, are ineligible for the rural area designation.
2. Beyond the limits of towns or cities with 20,000 or more residents: An urban area is defined as the outside limit of any city or town with 20,000 or more residents.

This concept is important to encourage investment in rural communities that face challenges like lower population densities, restricted access to services, and fewer economic prospects in attracting the economic assistance they need.  In adding rural areas to the EB-5 program, Congress hopes to drive investment to these areas which can benefit from this and other programs designed to address their particular needs.

Infrastructure Project, Rural Area, and Targeted Employment Area in the RIA

In the EB-5 Reform and Integrity Act of 2022 (“RIA”), three important terms are Infrastructure Project, Rural Area, and Targeted Employment Area (“TEA”). Here’s a clear explanation of each:

Infrastructure Project

An infrastructure project refers to a capital investment project administered by a governmental entity, such as a federal, state, or local agency. It typically involves a job-creating entity that works with a new commercial enterprise to receive capital investments from EB-5 investors. These projects are characteristically for improving public infrastructure with the added benefit of creating jobs and helping to stimulate local economic growth.

Rural Area

According to EB-5 regulation, areas that are within the geographic boundaries of a metropolitan statistical area are not eligible for the rural area designation, ensuring that the rural area classification is applied to regions that outside metropolitan zones and truly rural. A Rural Area excludes areas within the boundaries of cities or towns that have a population of 20,000 or more, based on the most recent decennial census. Rural areas are significant in the EB-5 program because they encourage investment into rural areas that often face economic challenges and benefit from investments that create jobs.

Targeted Employment Area

Any Rural or High-unemployment area identified by the Secretary of Homeland Security is considered a Targeted Employment Area. EB-5 Projects located in TEAs are eligible for the lower minimum investment amount of US$800,000 instead of the base investment amount of US$1,050,000. Since TEAs frequently experience greater unemployment rates or other economic difficulties, they are given preference for EB-5 investments. EB-5 investors can qualify for lower investment requirements by investing in a TEA, which makes it a desirable choice for people who want to have a significant influence on areas that are experiencing economic hardship.

Affiliated Job-Creating Entity From The RIA

The term “affiliated job-creating entity” is an important term of the EB-5 Reform and Integrity Act of 2022 (“RIA”). Under the EB-5 Immigrant Investor Program, foreign investors who participate make an investment in a new business that employs U.S. workers and can obtain lawful permanent residence in the United States. A company that is owned, run, or controlled by individuals associated with the new business endeavor or the EB-5 Regional Center is considered an “affiliated job-creating entity” in this context. According to this, a company falls under this category if it has ties to the people who control the business or Regional Center.

These associated entities play a critical role in achieving the job creation objectives of the EB-5 program. These entities are not isolated in their activities; rather, they are closely linked to new business ventures and regional hubs that manage the flow of capital and ensure the development of employment-generating projects.

The RIA protects the integrity of the EB-5 Program by ensuring that these businesses are managed properly and that investments are directed toward job creation in a way that is both efficient and legal.

Investors must understand how companies that create jobs are set up. It dictates the utilization of their capital and the creation of jobs that meet EB-5 Program conditions. To safeguard the investors and the success of the projects they support, Regional Centers must make sure that these associated firms abide by all applicable laws.