The E-2 Treaty Investor Visa enables international investment in U.S. small businesses- Part I
For foreign business persons interested in investing in the United States, the visa that is most widely known is the immigrant investor visa; the so-called EB-5, which can allow qualified investors to invest in the United States and, if all goes well, be granted a greencard (“Lawful Permanent Residency”) at the end of the process. But, as we will be discussing in a future article, to succeed at the EB-5 gauntlet is easier said than done:
First, there is the expense: After November 20, 2019, the minimum qualifying investment will be $900,000 (up from $500,000), beyond the reach of most people, except for the wealthiest.
Second, there is the time factor: Processing time for the initial form that needs to be filed—the I-526– initiating the EB-5 process– is over 2 years.
Third, the process can be complicated, involving a lot of paperwork, and the reviewing of legal documents. Indeed, on average, investing in a Regional Center EB-5 project can cost the investor an additional $50-75,000 to cover administrative, investment advisory, and legal services. All said and done, the EB-5 presents an opportunity for well off-folks with time to wait, but it is an opportunity that poses its own risks and things can go wrong. The EB-5, in short, is not a visa for everybody.
There is, however, a humbler visa category out there that investors should consider—the nonimmigrant E-2 Treaty Investor visa (the “E-2”). The E-2 is not an immigrant visa, so obtaining an E-2 will not yield one a greencard (at least immediately). Nonetheless, for persons interested in starting up and managing and directing a business in the United States, or purchasing an existing business, the E-2 can qualify them to come to the United States, sometimes for up to 5 years at a time, with the potential for unlimited renewals if the business becomes successful. If you are a national of Mexico, Columbia, Costa Rica, Honduras, Panama, and Paraguay, nations that have treaty investor provisions in their trade agreements with the United States, it could well be the visa for you.
The big plus for an E-2 is that investment levels, depending on the business in question, can be lower than $100,000, a far cry from the minimal EB-5 investment of $900,000, which will be required after November 20, 2019. Second, the processing time for an E-2 is a few months, as opposed to several years in the case of the EB-5. Finally, although the E-2 is not, in and of itself, going to get one a greencard, it can become a jumping off point for a greencard down the road. Once in the United States, E-2s may be in a better position to change to another non-immigrant status more amenable to being converted to a greencard. Moreover, an E-2’s investment in an enterprise can count towards an EB-5 minimum investment, so that if that start-up begins generating profits for the investor and those profits are reinvested in the enterprise, EB-5 capital can accumulate to the point where the minimum EB-5 investment and job creation requirements can actually be met. That said, for the E-2 investor, the priority needs to be building the enterprise. If the business becomes a successful one, then, opportunities for permanent residency may well present themselves.
To qualify for an E-2 visa, several conditions need to be met. The most important are the following:
First, the investor must be a citizen of a “treaty” country, that is, a country that has a treaty with the United States providing that the nationals of that country can invest in the United States. Sometimes, these treaty provisions reside in Treaties of Friendship Commerce and Navigation; sometimes they are provisions contained in bilateral trade agreements. How it is that some countries have E-2 benefits and others do not is largely a function of history and politics. One would have thought, for example, that the U.S. and Brazil, one of Latin America’s largest economies, would have concluded a trading relationship that would have made it possible for Brazilian entrepreneurs to acquire E-2 visas to invest in U.S. based businesses, but, alas, policy disputes between Brazil and the U.S. have inhibited this effort.
Second, the investment needs to be a “substantial” one. There is no bright line test on this: Whether an investment is “substantial” depends on the kind of enterprise that is going to be developed. A $100,000 investment in a prospective auto-parts factory, which would require a total investment upwards of many millions of dollars, would not likely be considered a “substantial” investment, while a $100,000 investment to jump start a software development company, which often requires an investment of $100,000 – $150,000 to launch, would likely be considered “substantial.” If there is a rule of thumb to consider here, it is that the smaller the amount of money that is needed to launch an enterprise, the greater the percentage of those funds the investor would be expected to commit. On the other hand, the larger the investment needs to be to jump start the enterprise, the less of a percentage of the total investment the investor would be expected to commit, but the size of the investment, in absolute terms, would be expected to be material, i.e. if it would take $10 million to start up an auto-parts factory, a $1 million investment would likely be considered “substantial” even though it would account for only 10% of the total investment that would be required.
Third, the investment capital that the investor plans to deploy must be “at risk”, meaning that the investor must be prepared to lose the investment and feel the financial pain. For example, an investor, who has secured investment capital by mortgaging her own home and personal property, or taking funds out of savings, would likely be considered putting her capital “at risk.” But, an investor, who secures investment capital by mortgaging the business’s own assets, would not be putting capital “at risk” because, in the event of an asset foreclosure, it would be the business—not the investor– who would be incurring the loss.
In future articles in our treaty investor series, we will be discussing these requirements further, as well as the actual process entailed in obtaining an E-2 visa and the kind and extent of the documentation that is, generally, required.