By: Joseph Barnett, Esq., Bernard Wolfsdorf, Esq., and Robert Blanco, Esq.
80 countries have treaties with the U.S. that permit foreign nationals to obtain E-2 Treaty Investor visas, which allow an investor or certain key executives permission to work in the U.S. However, the E-2 visa does not lead to a U.S. green card, and minor children can only stay on their parent’s visas until reaching 21 years old. So, the question arises: How may an E-2 Treaty Investor convert his/her nonimmigrant visa to an EB-5 investor green card to allow him/her to remain permanently in the U.S., and after 5 years, apply to be a U.S. citizen.
Careful planning and having a detailed strategy is essential to ensure that E-2 investors carefully structure their E-2 business in order to possibly convert the visa into an EB-5 green card.
Introduction
The E-2 Treaty Investor visa grants nonimmigrant status to nationals of a treaty country (not Brazil, Russia, India, or China) who invest a substantial amount of capital in a U.S. business. Qualified Treaty Investors are issued an E-2 visa valid for up to five years, depending on their country of citizenship and reciprocity. Extensions of stay may be granted in increments of up to two years each, as long as the E-2 investor continues to operate the business enterprise, but international travel requires an application for visa renewal at a U.S. Embassy or Consulate.
On the other hand, the EB-5 Immigrant Investor Visa grants immigrant status to qualified alien entrepreneurs, allowing them to remain in the U.S. indefinitely, and after 5 years, to apply for U.S. citizenship.
Here are 7 critical items to know about converting from E-2 nonimmigrant status to EB-5 green card.
1. Lawful Source of Funds Both the E-2 nonimmigrant visa and the EB-5 immigrant visa require an analysis to provide the lawful source of funds invested in the U.S. However, the rules and adjudication policy of USCIS regarding source of funds is much more detailed and complex for EB-5. For example, if the source of the investment in an E-2 enterprise is the sale of a real estate abroad, it is sufficient to include (i) a real estate sales contract, (ii) ownership documents, and (iii) bank statements confirming receipt of funds to the Treaty Investor’s account. For EB-5, however, an alien entrepreneur is required to demonstrate the same as well as the source of the capital used to acquire the real estate (such as employment income accumulated over many years). Additionally, there are strict rules regarding the use of loan proceeds as the source of EB-5 capital that are not applicable for E-2 status. A loan for an E-2 Treaty Investor’s company, however, must be secured by the investor’s personal assets, as opposed to the E-2 Treaty Investor’s company’s assets. Accordingly, an E-2 Treaty Investor desiring to convert from E-2 to EB-5 should follow the stricter EB-5 “source of funds” rules. Please also note that retained earnings or revenue generated by the E-2 operating enterprise may not be used to reach the minimum investment amount to qualify for EB-5. Instead, the capital must be distributed from the E-2 operating enterprise to the E-2 Treaty Investor individually, and taxes must be paid before the investment in the “new commercial enterprise” for EB-5 purposes. Even then, sometimes it is advisable to start a new commercial enterprise for the EB-5 petition. Moreover, detailed records of all initial investments must be kept to document the minimum EB-5 capital amount has been invested.
2. Business Plan The submission of a business plan is recommended for an E-2 visa but is required for an EB-5 Immigrant Investor. However, an EB-5 business plan is generally more comprehensive and detailed, must demonstrate the need for sufficient job creation and must comply with all requirements listed in Matter of Ho. If possible, it is worth the effort to create an EB-5 compliant business plan when applying for an E-2 visa to reduce costs.
3. Minimum Required Investment Amount An investment in an E-2 operating enterprise must be “substantial” and not “marginal” (to generate significantly more income than just to provide a living to the E-2 Treaty Investor and his family), but there is no minimum required investment amount. On the other hand, a qualifying investment for an EB-5 alien entrepreneur is $1,000,000, unless the operating enterprise is located within a Targeted Employment Area (“TEA”) at the time of filing the Form I-526 (though, these minimum investment amounts may increase soon). Additionally, EB-5 regulations indicate that a TEA is an area which “at the time of investment” is a rural area or an area which has experienced unemployment of at least 150 percent of the national average rate. Accordingly, the E-2 enterprise should be located in a TEA prior to an E-2 Treaty Investor’s initial investment, and throughout all times during operation and any additional investment, to ensure a lower minimum investment amount when applying for an EB-5 green card. The current regulatory proposal is to increase the TEA amount to $1.35 million, and $1.8 million for non-TEA investments. Last year’s House of Representative’s bill 5992 attempted to increase the minimum investment to $800,000, with $1.2 million for non-TEA investments.
4. Job Creation An E-2 enterprise is not required to create a minimum number of jobs for qualifying U.S. workers; instead, the E-2 Treaty Investor must demonstrate that job creation is consistent with the needs of the E-2 operating enterprise. However, creating jobs is a critical element to establishing that the E-2 enterprise is not marginal. On the other hand, an EB-5 commercial enterprise is required to create a minimum of ten jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor’s admission to the United States as (or adjustment of status to) a conditional lawful permanent resident. A schedule showing the future hiring of employees and their job descriptions should be included in the business plan submitted with the E-2 application, and where possible, this should be integrated into the EB-5 business plan. Most importantly, one must show the investment amounts will create the additional jobs, so it must be clear from the beginning of the enterprise how much will be invested and how many jobs will be created.
5. Qualifying Employees; Indirect and Induced Job Creation EB-5 regulations define a “qualifying employee” as a U.S. citizen, a lawfully admitted permanent resident, or other immigrant lawfully authorized to be employed in the U.S. The definition does NOT include the alien entrepreneur, the alien entrepreneur’s spouse, sons, or daughters, or any nonimmigrant alien. Further, prior employees of the E-2 operating enterprise may not count, unless the applicant can show how the investment contributed to the job creation. Otherwise, employees may not be counted for EB-5 purposes, unless it is a “troubled business” which has experienced losses. To be a troubled business, the entity must (i) have been in existence for at least two years, (ii) have incurred a net loss during the twelve or twenty-four-month period prior to filing the application, and the loss for such period must be at least equal to 20% of the troubled business’s net worth prior to such loss, and (iii) the business must employ at least 10 full time legal U.S. workers and must be expected to maintain at least that employment over the next few years. Such investors who can show they have invested at least $1,000,000 (or $500,000 if in a TEA) may qualify for an EB-5 green card. Additionally, an EB-5 “new commercial enterprise” may only count indirect and induced job creation if it is associated with a USCIS-designated Regional Center.
6. U.S. Residency If an E-2 Treaty Investor can direct and develop the operating enterprise, he or she may travel freely and re-enter the U.S. with a valid E-2 visa. There is no requirement to remain in the U.S. for a specific period. On the other hand, an EB-5 Immigrant Investor must establish residency and be resident in the U.S. to maintain his or her status. An EB-5 investor must reside permanently in the U.S. and any absence over six months can break the continuity of residence, whereas any absence of over one year will generally result in the permanent residence be terminated, or deemed abandoned, unless a prior re-entry permit is approved
7. Taxes An E-2 Treaty Investor may still be considered a nonresident for U.S. tax purposes, unless he or she meets the “substantial presence” test. An E-2 Treaty Investor who remains in the U.S. for less than approximately 128 days a year may, with proper tax planning, be taxable only on income from sources within the U.S. However, an EB-5 investor is considered a “resident alien” for tax purposes at the time of obtaining conditional lawful permanent residency in the U.S. and must declare his or her worldwide income and assets in the U.S. to the Internal Revenue Service. As an immigration specialty law firm, Wolfsdorf Rosenthal LLP does not provide tax advice. Our firm advises individuals to discuss these matters with an experienced tax advisor.
Please contact your Wolfsdorf Rosenthal LLP immigration attorney today if you have any questions or to request assistance regarding the E-2 Treaty Investor or the EB-5 Immigrant Investor Visa.
