Tuk Tuk your Way from an E-2 to EB-5

By David Hirson, Mona Shah, and David A. Enterline

 

Is E-2 to EB-5 a viable plan?  What needs to be in place to make this work?  This Practice Advisory will discuss these questions and more to help you to best advise clients interested in taking this pathway from NIV status to green card via investment.  This can be a great option for those who have a business they want to run but do not want to wait two or more years to receive their visas status. 

With the increase in both adjudication times and visa backlogs, practitioners have been creative in coming up with solutions. The E-2 to EB-5 route has become increasingly popular and can be a viable and valuable route to the U.S. for business-savvy immigrant investors.

 

What is an E-2 Visa? 

An E-2 is a temporary and non-immigrant visa based on a reciprocal commercial treaty between the United States and the individual’s country of nationality[1]. It allows a citizen of an E-2 treaty country to be admitted to the U.S. if he or she is “coming to develop and direct the operations of an enterprise in which the applicant has invested a substantial amount of capital”[2].  E-2 investors may be accompanied or followed by spouses and unmarried children who are under 21 years of age. Spouses of E-2 workers may also apply for work authorization.

To qualify for E-2 classification, the treaty investor must: be a national of a country with which the United States maintains a treaty of commerce and navigation (even if his or her birthplace is elsewhere); have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States; be seeking to enter the United States solely to develop and direct the investment enterprise[3]. This is established by showing at least 51% ownership of the enterprise or possession of operational control through a managerial position or other corporate device.

 

To sum up:

Investment must be in a real and active commercial enterprise Such enterprise must be for profit Such enterprise must produce goods or provide services Idle investment (e.g. purchase of real estate) will not qualify Investor must demonstrate possession and control of the legally obtained investment funds Sources of funds can be from any country Investment funds must be irrevocably committed and at a “risk of loss.” There is no minimum investment amount for E-2. It must simply be substantial. What is a substantial amount is a subjective criteria and will depend on many factors, such as the type of business, the location, initial capital outlays to begin for that type of business, etc. The investor must show that the investment will not become a marginal enterprise – it must generate more than enough income to provide a minimal living for the investor and his or her family The investor must have a controlling interest in the business; i.e. more than a 50% stake

 

How long can I remain in the U.S. on an E-2 visa? 

One of the advantages of an E-2 visa is that there is no time limitation. An investor can remain in the U.S. on an E-2 visa for as long as the business is operational. The visa can be approved as quickly as three weeks. Investors from different countries have different visa validity periods with the maximum available of 60 months.  Sometimes a visa is approved in increments of 24 months. One disadvantage, however, is that any dependent child will not be included after he or she has reached twenty-one years of age.

E-2 visa holders do not have to live in the U.S. for any particular amount of time and may arrange their affairs so they are not subject to worldwide taxation. While in the U.S., however, the treaty investor is restricted to working only for the self-owned business that acted as the E-2 visa sponsor. This does not preclude additional businesses. The spouse, but not children, may apply for a work permit.

 

What is the cost involved for an E-2 visa?  

There is no minimum investment amount for E-2. The law simply states that the investor must invest, “a substantial amount of capital” in relation to the business. What this really means is that the amount invested depends upon the business or project.  One crucial factor for the E-2 visa is the substantiality of the investment. $350,000 may be substantial for a small grocery store but definitely not enough for a large manufacturing plant.  Additionally, the treaty investor must show that the investment will not become a marginal enterprise. A marginal enterprise is an enterprise that does not have the present or future capacity to generate more than enough income to provide a minimal living for the treaty investor and his or her family. A business that does not have the capacity to generate such income, but that has a present or future capacity to make a significant economic contribution is not a marginal enterprise.

 

What is an EB-5 Visa?

Section 203(b)(5) of the Immigration and Nationality Act (INA), allocates 10,000 "EB-5" immigrant visas per year to qualified individuals seeking lawful permanent resident status on the basis of making a capital investment in a new commercial enterprise to stimulate the growth of U.S. economy[4].

To qualify, the investor make an investment of either US$900,000 or US$1,800,000 into a new business that creates 10 full-time jobs for qualifying U.S. workers and the investor must be involve in the management of the business. For the management condition, being a limited partner in a partnership[5] or a member of a limited liability company will usually qualify the investor as being involved in the management.

The investor must also demonstrate that by his investment, he or she will create at least 10 jobs, or positions, for qualified U.S. workers.  Upon admission into the U.S. as a permanent resident, or an adjustment of status, the investor is given conditional resident status.  Within the 21st and 24th month of obtaining conditional status, the investor must petition to remove the condition[6]. 

The most important factor in qualifying for the EB-5 visa is that the investor must be able to demonstrate that the capital he or she uses for the investment was obtained lawfully. Proving the "source of funds" (SOF) is the most challenging aspect of the EB-5 visa[7].

 

Benefits of EB-5 Investing

Provided that the investor can prove his or her source of funds, and in some jurisdictions, abiding by the local currency exchange and remittance restriction[8], qualifying as an investor is otherwise relatively simple and can be one of the simplest of all the employment-based preference categories.  An EB-5 investor/petitioner need no business or management or background or experience, no minimum education level, no English language ability, and under certain circumstances, might be of any age[9].   

The end result is lawful permanent residence for the investor, spouse and qualifying children.

 

Summary of some key differences between E2 and EB-5

ELEMENT

E-2

EB-5

Visa Category

Non-Immigrant visa

Immigrant visa

Management

Manage and direct the business

Relatively passive; limited partner or member of an LLC[10]

Experience

Should demonstrate the ability to successfully run the business

No experience, education, language ability required

Investment amount

Must be “substantial”- a subjective criteria

US$1,800,000 or reduced to US$900,000 if in a Target Employment Area

Profit requirement

Cannot be “marginal” – more than just enough to provide a living

Must be a possibility to gain or risk of loss; no minimums proscribed

Family

Spouse can work (EAD); unmarried children under 21 also have E-2 status

Spouse and unmarried children under 21 can join principle petitioner; some countries have visa backlogs and thus age-out issues

Documentation of the business

Businesses are more individualized; documentation not as easy to boilerplate

Offering documents are often standard across different business/projects and often suitable for boilerplate templates

Loans

Generally cannot use borrowed money

Can invest borrowed capital

Processing times

Can apply immediately at U.S. Consulate

Petition processing times vary widely from 24-50+ months and 3-4 months through NVC processing to interview; several countries with long visa backlogs

Investor status

Citizenship of an E-2 qualifying country

Country of Birth

 

E-2 to EB-5 Transition

An E-2 visa does not automatically transition into EB-5. To petition for a permanent green card under EB-5, the investor must have invested the requisite capital amount, depending upon the location of the business, and have created (or be able to create) the required 10 full time jobs. What is important is that there is no minimum time requirement for an investor to stay in E-2 status and that the E-2 capital investment may be counted towards the EB-5 requirement.

Additionally, the entire investment must meet the EB-5 source of funds requirement, which standard is more extensive than the source of funds requirement for E-2 Visas.  Not every business is suitable for the EB-5 transition. Certain businesses work very well, such as a hotel or transportation.

EB-5 regulations only require a petitioner to be “in the process of investing”[11] the required minimum investment amount in order to file a Form I-526 petition. This can be rather difficult and tricky to accomplish in practice though; therefore, many EB-5 practitioners advise EB-5 clients to invest the full amount prior to filing or have a plan to finish investing the necessary amount in a reasonable amount of time after filing the Form I-526 petition. USCIS adjudicators will be looking to see if the full amount has been invested or not. If not, adjudicators will be looking to see when the full amount will be injected and will most likely issue a RFE for such information.

Due to this statutory language providing leeway, some EB-5 projects are comfortable accepting EB-5 investors who provide an initial investment along with signing a promissory note or providing a plan for how and when the remainder of the investment will be made. This kind of situation boils down to a negotiation between the EB-5 investor and business/project. Either way, everything must be clearly documented and presented to USCIS in the I-526 petition or at some later stage. In some instances, an EB-5 investor can get all the way to the I-829 petition stage and still be “in the process” of investing. The regulations allow for such a case to exist, but USCIS will issue a RFE asking for a concrete plan and evidence of how and when the investment will be made prior to I-829 approval.  

Escrow is commonly used in EB-5, but is not a statutory requirement. It is a practice of the market. In the past, when processing times were much shorter, it made sense for EB-5 investment funds to be placed into escrow and released upon approval of petitioner’s I-526 petition. Now though, due to protracted processing times, the overwhelming majority of EB-5 investments either: 1) “early release” investment funds upon filing of I-526 petition or 2) forego escrow conditions altogether. In direct EB-5 situations, where the business owner is the EB-5 applicant, there is no real need for escrow either. The path of the investment funds must be clearly documented every step of the way. Any break in the path of funds will be troublesome for the petition.

 

Grenada’s E-2 Program

Participants looking to obtain a second passport from one of more than a score of Citizenship By Investment Programs may consider choosing to become Grenadian citizens. The investor can choose between a donation of $200,000 or an investment into an approved real estate project o as low as $220,000. The real estate option has benefits for those who are using the E-2 as a stepping-stone to the United States because it demonstrates a nexus to Grenada through an official residence. The investment comes with a tax ID, physical address and permanent residence that you don’t easily obtain with the donation.

Indian or Chinese citizens, for example,  can take advantage of the option to become citizens of Grenada via the E-2 program and then come to the U.S. under the EB-5 umbrella—without ever traveling to Grenada. The entire process can be completed from China, as there is no permanent residency requirement.

Grenada’s E-2 process is a speedy one. It can take as little as three to four months to receive a passport, and as of December 18th, that Grenadian passport will allow you to travel visa-free to 130+ countries including Russia, China and the UAE.

The E-2 is not a Dual Intent visa. It is important that practitioners time the filing of the green card after the E-2 – not the other way around. It is advisable to leave at least 4-6 months between the filing of each petition.

 

Acceptable Use of Capital for E-2 vs EB-5

Use of Same Capital?

The same capital that is used for the E-2 can and is often used. For this reason, the source and path must be carefully documented. The profits from the E-2 business can be used for EB-5 purposes, though it is advised

Distribution of Profits to Investor: Maintaining Minimum Investment Through Removal of Condition

In an E-2 business, the E-2 investor can take funds from the E-2 company and use them as part of the EB-5 minimum investment amount so long as such funds meet the following requirements:

Such funds taken out of the E-2 business do not cause the E-2 business to fail, not be viable, or not meet the requirements of marginality (The original E-2 investment amount can already be calculated as part of the EB-5 investment amount if the E-2 and EB-5 business are the same. If the E-2 and EB-5 businesses is the same investments/businesses, then the minimum EB-5 investment capital must remain in the EB-5 business in order for the investor and business to retain eligibility for the EB-5 visa) All relevant taxes are paid on funds taken out of the company. This means that funds being withdrawn  are counted as “distributions” and “retained earnings”. A qualified tax professional should be enlisted to help with properly documenting these distributions and earnings along with the payment of related taxes.

After funds are properly withdrawn from the E-2 company, then the E-2 investor is free to use these funds as he or she sees fit. This can include using these funds to make an EB-5 investment into a new business or may reinvest into the existing business to reach the minimum investment requirement for EB-5.

We can consider the following 2 scenarios

 

Scenario 1: E-2 business and application eventually leading to an EB-5 investment and petition in the same business

In this scenario, a successful E-2 petitioner (named “Rose”) is already in the U.S. and has a continuously viable E-2 business. She has been regularly consulting with her immigration counsel to carefully plan how to turn her E-2 business and investment into a successful EB-5 investment. The E-2 business only necessitated an initial investment of US$500,000 to get up and running. This E-2 business is also still located in a Targeted Employment Area (“TEA”). Since its start, this E-2 investment has been very profitable and Rose is planning to take $400,000 in distributions, pay all applicable taxes, and then use $400,000 to reinvest into the E-2 business to meet the $900,000 minimum investment amount for EB-5. Rose’s accountant and immigration attorney work with her to correctly document her company’s profits and distributions which lead to her retained earnings used as the remainder of her EB-5 investment. Her immigration attorney explained to Rose that even though her business is doing well and has a high valuation, she must still withdraw the necessary distribution in order to have her EB-5 investment meet the “investment” requirement. Rose understands that she cannot use her company’s “future profits” as her EB-5 investment. Her investment must be clearly documented as lawful and as her own separate funds, not funds that still belong to her business. In the source of funds section of her I-526 petition she is clearly able to document where her initial $500,000 investment lawfully came from as well as how the remaining $400,000 became her own personal funds before reinvesting. Rose clearly showed the full $900,000 investment into her company, with no overlap between her initial investment and the final investment. The original $500,000 was left untouched in the E-2 business in order to ensure her E-2 business and visa remained valid. In addition to working with her immigration attorney, Rose is also working with an experienced EB-5 business plan writer to ensure her EB-5 business plan is Matter of Ho-compliant. This business plan also includes detailed plans and timelines of when Rose’s successful E-2 business will hire enough employees to meet at least the minimum 10 full-time positions created. Rose’s immigration counsel may advise her to leave and then return to the U.S. (at least 90 days)[12] before she files her I-526 petition. This affords Rose a full 2 years in which her I-526 petition can be adjudicated before she has to worry about dual-intent issues. (Note: E-2 visas do not allow dual-intent.)

 

Scenario 2: From the start, the E-2 business and petition is structured to meet all EB-5 requirements[13], petitioner funds the required EB-5 minimum investment amount, and files I-526 petition right after entering the U.S. on E-2 visa.

In this scenario, Petitioner (named “Ronald”) works closely with his immigration counsel to structure his E-2 business and investment to meet all requirements of both the E-2 visa and the EB-5 visa. Ronald plans to start a successful E-2 company in the U.S., and invests the full US$1.8 million to meet the EB-5 minimum investment requirement (Ronald’s business is not located in a TEA, so he must invest at least US$1.8 million). Ronald’s business plan is Matter of Ho-compliant and details when he will hire at least 10 full-time employees. He enters the U.S. on his E-2 visa and immediately files his I-526 petition.

Both Rose and Ronald worked closely with their immigration attorneys to avoid causing dual-intent issues[14] between their E-2 and EB-5 petitions.

 

In Conclusion: 

As foreign direct investment continues to grow in the United States, E-2 visas increase in popularity.  The E-2 visas have been called the next best thing to U.S. permanent residence, as it is possible to obtain through self-employment and comes with an unlimited number of extensions. There are no annual limits on the number of E-2 visas that can be issued to qualified applicants.  However, with no direct clear path to permanent residence, a prospective E-2 investor should consider modeling the investment and the business so as to provide him or her an opportunity to convert his status into permanent residence via an EB-1 or an EB-5 visa in the future if he or she so decides.

 

About the authors:

David Hirson has more than 35 years of experience in corporate immigration law, specializing in business and investment immigration. David is the founding and manager partner of David Hirson & Partners, LLP (“DHP”), and he is internationally-recognized for his decades of success in investment immigration. He has been certified as a Specialist in Immigration and Nationality Law by the State Bar of California, Board of Legal Specialization continuously since 1990. David’s success with investment immigration has spanned decades, as seen by his involvement with the EB-5 program since its inception in 1990. DHP’s attorneys have over 70 years of combined experience in advising individuals, start-ups, large corporations, hospitals, and universities in navigating complex areas of employment immigration. The firm’s business and employment-based immigration practice provides a full range of services, including EB-1-1(A), EB-1-2(B), EB-1-3(C), National Interest Waivers (NIW), EB-2, EB-3, EB-5, H-1B, E-1/2, L-1(A)/2(B), H1B, and other immigrant and non-immigrant visas. DHP is one of a select few firms that also specialize in immigration for franchise businesses who have foreign partners/managers. David’s firm also works closely with individuals and HR departments to understand their needs and customize an immigration plan that surpasses their expectations.

Mona Shah U.K. born, Mona Shah is a dual-licensed attorney and former British Crown Prosecutor. Shah has over 26 years of legal experience with extensive knowledge of all facets of U.S. immigration law. Her expertise ranges from specialist business law to complicated, multi-issue federal deportation litigation before the U.S. Courts of Appeal. Recognized as one of the industry leaders in EB-5, Shah has received many accolades for her work, including being voted a top 25 EB-5 attorney in the U.S. five years in a row; Top lawyer by Who’s Who International; and Top attorney of North America. A part-time adjunct professor at Baruch College, Shah is also a published author, a Lexis Practice Editor and co-editor of the Trade & Invest magazine (BLS Media). Shah regularly speaks worldwide and has been interviewed by mainstream news channels, including Fox Business News and Al Jazeera, and quoted in major newspapers, including the New York Times. hosts and produces EB-5 Investment Voice Podcast series (80-+episodes). Shah is a member of the Presidential Advisory Board and Public Policy Committee of IIUSA.

David A. Enterline is Of Counsel of WTW - Taipei Commercial Law Firm, in Taipei, Taiwan, and Managing Partner of Enterline and Partners Consulting in Ho Chi Minh City, Vietnam.  David has lived and worked in Asia for more than 26 years predominately practicing U.S. immigration law in China, Hong Kong, and Taiwan, and more recently, Vietnam. David focuses on representing high net worth individuals from across Asia seeking to immigrate to the U.S. via the EB-5 Immigrant Investor visa, as well as other U.S. business and investment visa categories.  He is active in the AILA Bangkok District Chapter having served in various leadership positions and currently serves as Treasurer.