Investor Categories: E-1, E-2, and EB-5

A person may obtain E-1 Treaty Trader Visa if he/she:

  • Will be in the United States solely to carry on trade of a substantial nature, which is international in scope, either on the alien’s behalf or as an employee of a foreign person or organization engaged in trade principally between the United States and the treaty country of which the alien is a national, taking into consideration any conditions in the country of which the alien is a national which may affect the alien’s ability to carry on such substantial trade; and
  • Intends to depart the United States upon the expiration or termination of treaty trader (E-1) status.

Substantial trade

Substantial trade is an amount of trade sufficient to ensure a continuous flow of international trade items between the United States and the treaty country. This continuous flow contemplates numerous transactions over time. Treaty trader status may not be established or maintained on the basis of a single transaction, regardless of how protracted or monetarily valuable the transaction. Although the monetary value of the trade item being exchanged is a relevant consideration, greater weight will be given to more numerous exchanges of larger value. There is no minimum requirement with respect to the monetary value or volume of each individual transaction. In the case of smaller businesses, an income derived from the value of numerous transactions which is sufficient to support the treaty trader and his or her family constitutes a favorable factor in assessing the existence of substantial trade.

Principal trade. Principal trade between the United States and the treaty country exists when over 50 percent of the volume of international trade of the treaty trader is conducted between the United States and the treaty country of the treaty trader’s nationality.

Items of trade include but are not limited to goods, services, international banking, insurance, monies, transportation, communications, data processing, advertising, accounting, design and engineering, management consulting, tourism, technology and its transfer, and some news-gathering activities. For purposes of this paragraph, goods are tangible commodities or merchandise having extrinsic value. Further, as used in this paragraph, services are legitimate economic activities which provide other than tangible goods.

Trade is the existing international exchange of items of trade for consideration between the United States and the treaty country. Existing trade includes successfully negotiated contracts binding upon the parties which call for the immediate exchange of items of trade. Domestic trade or the development of domestic markets without international exchange does not constitute trade for purposes of section 101(a)(15)(E) of the Act. This exchange must be traceable and identifiable. Title to the trade item must pass from one treaty party to the other.

An E-2 visa allows a foreign entrepreneur to enter the U.S. to manage or direct his/her investment.  This is a nonimmigrant (temporary) visa option that offers fairly quick way to enter the U.S. to start-up a business or purchase an existing business.  It can also provide a way to transfer essential or managerial employees to the U.S. if you already have an established E-2 business.  The E-2 visa is not limited to any specific types of businesses, and our past cases have included retail shops, property developers, wholesalers, and an art studio. 

As with any visa category, there are pros and cons with the E-2 investor visa. 

Pros:

  • Provides work authorization in the U.S. at the E-2 business. 
  • Provides derivative status for spouses and children under the age of 21.  An E-2 spouse can also apply for a separate work permit after he/she has entered the U.S.
  • Can be renewed indefinitely as long as the investment business remains real, operating, and viable.

Cons:

In addition to the above, there are key factors that will help you determine whether the E-2 is a viable option.  The key factors in determining whether the E-2 is possible include the following:

  1. The investor must be a citizen of one of the treaty countries.  If you have dual citizenship, only one of your countries of citizenship has to be a treaty country. 
  1. The investment must be substantial and at risk. Although the law does not specifically define “substantial,” an investment of around $100,000 is usually sufficient to support an E-2 application.  It is possible to invest less than $100,000, but the investment must be proportional to the business at hand.  Although we have seen successful E-2 application for only $40,000 of investment, such approval is very rare.    Evidence that the investment remains “at risk” is also required.  Usually, this means purchasing goods, property, inventory, etc., the receipts for which establish the risk of loss.  Simply transferring capital to a bank account in the U.S. is not sufficient to show the investment is at risk.  The investor must demonstrate “irreversible” commitment to the business.
  1. The investment capital must be legally sourced.  The E-2 application must include evidence showing from where the capital originated.  We usually show this through taxes or income statements, bank records, deeds of sale, etc. 
  1. The investment capital must be tracked and at risk.  Evidence showing the path of the capital to the U.S. business is required.  Bank/wire records are the best evidence showing the path of the investment, but other documentation may also be able to satisfy this requirement. 
  1. Investor must own at least 50% of the business and must have high-level responsibilities.  In most cases, the investor must own at least 50% of the business and work to develop and direct the business and investment.  Evidence of ownership can include articles of incorporation or organization, stock certificates, and operating agreements.  The E-2 application must also include details on how the investor plan to operate the business based on his/her experience in the field.
  1. The business must be real and operating.  The E-2 application will have to include evidence that the business is a bona fide operation.  For start-up businesses, evidence can include Federal Employer Identification Number (FEIN) assignment letter from the IRS, business licenses, promotion material, lease/mortgage, bills for inventory or set-up, bank accounts, and photos.  For ongoing businesses, evidence should include all of the above, plus tax returns, recent bills or purchase orders, and quarterly employee wage reports.
  1. The business must not be marginal.  The E-2 business must meet the “marginality” test in that it must be capable of generating more than enough income to merely support the investor and his/her family.  A 5-year business plan that includes financial projections is usually sufficient to establish that a business will be more than marginal.     Even the investor may have other sources of income and does not rely on the income of the E-2 business, the E-2 business itself must meet the marginality test.
  1. The business should benefit the U.S. or local economy.  It always boosters the application if the investor can demonstrate that the E-2 business will benefit the local economy, such as by hiring U.S. citizens and sourcing from local vendors.    

Overall, the E-2 visa is a perfect vehicle for entrepreneurs outside the U.S. wanting to start or invest in a business in the U.S.  If you are interested in discussing whether the E-2 visa is an option for you, please contact us and we will be happy to guide you through the process. 

Employee of treaty trader or treaty investor.

An alien employee of a treaty trader, if otherwise admissible, may be classified as E-1, and an alien employee of a treaty investor, if otherwise admissible, may be classified as E-2 if the employee is in or is coming to the United States to engage in duties of an executive or supervisory character, or, if employed in a lesser capacity, the employee has special qualifications that make the alien’s services essential to the efficient operation of the enterprise. The employee must have the same nationality as the principal alien employer. In addition, the employee must intend to depart the United States upon the expiration or termination of E-1 or E-2 status. The principal alien employer must be:

  • A person in the United States having the nationality of the treaty country and maintaining nonimmigrant treaty trader or treaty investor status or, if not in the United States, would be classifiable as a treaty trader or treaty investor; or
  • An enterprise or organization at least 50 percent owned by persons in the United States having the nationality of the treaty country and maintaining nonimmigrant treaty trader or treaty investor status or who, if not in the United States, would be classifiable as treaty traders or treaty investors.

Spouse and children of treaty trader or treaty investor.

The spouse and child of a treaty trader or treaty investor accompanying or following to join the principal alien, if otherwise admissible, may receive the same classification as the principal alien. The nationality of a spouse or child of a treaty trader or treaty investor is not material to the classification of the spouse or child.

The Immigration and Nationality Act (the “Act”) authorizes the issuance of 10,000 immigrant visas (“green card”) per year for Immigrant Investors, commonly known as “EB-5” Immigration.

The investment amount was raised from $500, 000 to $900,000 in a TEA (Targeted Employment Area), and from $1,000,000 to $1,800,000 in a regular area in November 2019.   

To qualify for an immigrant visa under the EB-5 program, applicants must meet the following requirements:

1. Invest U.S. $1,800,000.  The U.S. $1,800,000 is the standard requirement, but the requisite amount of investment is reduced to U.S. $900,000 if the investment is made in a “Targeted Employment Area” (TEA), which is defined by law as either:

a. A rural area: any area not within either a metropolitan statistical area or the outer boundary of any city or town having a population of 20,000 or more), or

b. An area that has an unemployment rate of at least 150% of the U.S. national average.

2. Create ten jobs for U.S. workers

a. Only “direct” job creation will count in a traditional investment program.  Direct jobs are positions on payroll in the EB-5 business. 

b. “Indirect jobs” are jobs that have been created collaterally as a result of the investment in a Regional Center” (RC). Both direct and indirect job creation is counted for investments in an RC.

3. In order for an investment of capital to qualify for an EB-5 visa, it must be in one of the following business arrangements:

a. A “new commercial enterprise”, defined as a business that was created after 11/29/1990;

b. An enterprise which will expand by at least 40% in either net worth or number of employees as a result of the new investment.  Requirements (1) and (2) above must still be met; or

c. A “troubled business”, defined as a business that has lost its net worth by 20% or more in the immediately preceding 12 or 24 months, and which was created after 11/29/1990. 

Traditional Investment

Under the EB-5 program, an immigrant investor may start any active business, such as a restaurant, trading business, motel, hotel, software or manufacturing company, etc.  The immigrant investor may have complete control of the business and create jobs directly by putting U.S. workers on the company’s payroll.  As long as the business meets the EB-5 requirements, the immigrant investor will be able to obtain U.S. permanent residence.  The advantage of the traditional investment is that the immigrant investor retains control of the business and is able to make adjustment of the business based on economic changes.  For entrepreneurs who are looking for opportunities to start a business in the U.S. and obtain U.S. permanent residence at the same time, the traditional investment presents an excellent opportunity. 

However, a traditional investment need not be wholly owned by the investor.  He or she may own even a small percentage of the business enterprise, so long as he or she can demonstrate that the EB-5 requirements are met, including documentation that an increase of ten U.S. workers is attributed to the investment amount and that the investor has a role in management, such as a place on the Board of Directors, as an officer of the company, or fills a significant management position. 

The disadvantage of the traditional investment is that the immigrant investor will face the challenges of operating a business in the U.S., which can present substantial challenges to a person who is not familiar with the business and legal systems of the U.S.  This may be even more difficult if the investor does not retain full control of management.

Further, while $900,000 or $1,800,000 is a lot of money, depending on the nature of the business and its location, an immigrant investor may need to commit more capital than the minimum requisite amount in order to start and operate a business that can create ten direct full time jobs. 

The Regional Center

In October 1992, the U.S. Congress created a pilot program for EB-5 investment, the Regional Center (RC).  A RC is generally an economic unit that is linked geographically.  It is usually organized by private sectors who want to attract foreign investment to start projects in the U.S.  However, some RCs aim to attract domestic U.S. investors as well as foreign investors. 

Regional Center designation must first be approved by the U.S. Citizenship and Immigration Services (USCIS). Organizers of RCs submit petitions to USCIS to demonstrate how projects in the RC will benefit the local economy and create new employment both directly and indirectly.  Direct job creation in an RC refers to jobs that the RC will create and put on the RC’s payroll.  Indirect jobs creation by an RC includes employment expansion induced or indirectly created by the RC.    

The most significant advantage of the RC is that both direct and indirect job creation will count for EB-5 purposes.  For example, an RC may create only 40 direct jobs.  However, due to the economic impact and business activities that the RC will stimulate in the local economy, as well as the buying power generated by the employees directly created by the RC in area, 100 additional indirect jobs may be created.  Therefore, a total of 140 jobs will be created, which will potentially allow 14 immigrant investors to obtain permanent residency through their investment in the RCs. 

An important attribute of the RC is that the investor is not required to have day-to-day management responsibilities.  Most RCs are formed as limited partnerships in which the investors will have authority only to make and vote on major corporate decisions.  The day-to-day management responsibilities fall in the hands of the general partner, who may be the organizer of the RC.  As long as the partnership is set up properly under the U.S. Uniform Partnership Act, the limited involvement of the limited partners is sufficient for EB-5 purposes.  There is no requirement that the immigrant investors live in the RC area either.  They can live anywhere in the U.S.

On the other hand, a major disadvantage of investing in a RC is that the investors will not have direct control of the operations of the business.  Their hope of obtaining U.S. permanent residency hinges on the success of the RC, in which they have little control.  Potential investors in an RC must carefully assess their ability to carry the risks of the investment.

There is often a misconception that investing in an RC guarantees the investment and success of the “green card” application, because many RCs are supported by local and state governments, and because the RCs have been “approved” by USCIS.  Unfortunately, that is not true.  RCs are supported by local and state government because of the potential job creation for the local economy.  USCIS’s approval of the RC means that USCIS agrees on the business model and job creation projections of the RC.  Each investor must still qualify individually. 

The RCs must follow through with their business plan as presented to USCIS.  Material deviation from the business plan for an RC, even due to economic necessity, must first be approved by USCIS.  Otherwise, the RC designation and the investors’ immigrant petitions are in jeopardy. 

However, more than 90% of EB-5 investors invest in RCs because they offer many advantages to the investors.  While the proliferation of RCs offers choices to immigrant investors, they are not created equally.  Some are new while others have been in operations for several years.  Not many RCs can offer well-documented track records because they are new, and the immigration process takes several years as explained below.  Therefore, investors must be careful in choosing the RC that will best fit their needs.  Investors must understand that if the RC fails as a business, they will lose both their investment dollars and the opportunities to obtain a green card.

The Process

Step 1 – After making the investment decision, and committing to the investment vehicle, be it an independent investment or purchase of an interest in an RC, the investor submits an immigrant application to USCIS by filing Form I-526.  The petition must include a detailed and convincing business plan which meets USCIS’ requirements and demonstrates the commitment of the appropriate level of investment capital.  For those who are investing in the RCs, the I-526 petition is submitted with the RC’s information and official designation documentation.  The current processing time of the I-526 is over 2 years, and USCIS will prioritize processing I-526 petitions for investors whose priority dates are current. 

Step 2 – After the I-526 is approved, and when the investor’s priority date becomes current, the investor completes additional paperwork which will lead to an interview at a U.S. consulate.  If the investor is legally present in the U.S.,  he/she will submit the Form I-485, an application to adjust status in the U.S.  The estimated processing time is approximately 9 to 12 months. 

Step 3 –After a successful consulate interview, the investor can enter the U.S. as a conditional permanent resident, i.e. receiving a temporary “green card” for two years.  Those who file an I-485 application in the U.S. will achieve conditional permanent resident status without travel outside the U.S. 

Step 4 – Two years later, investors must apply to remove the conditional aspect of their permanent residency by filing USCIS Form I-829.  The purpose of the I-829 application is to demonstrate to USCIS that the full amount of the investment was made, and that ten new jobs were indeed created according to the plan presented in the I-526 petition. 

The current processing time of the I-829 petition is over two years.  Once the I-829 application is approved, the investor’s permanent residency will be “permanent.”  After that point, the law does not require the investor to continue with the investment.  The business may close or downsize the business, and such events will not affect the validity of the permanent green card.  Those who invested through an RC can withdraw their investment, dependent upon their contract with the RC.  While a guaranteed return of the investment capital is prohibited by law, most RCs provide some variant of an “exit strategy.” 

If the I-829 application is denied, the investor loses his/her status in the U.S. and may become subject to removal or deportation. 

If the investor chooses, he/she may apply for U.S. citizenship five years after the date the conditional permanent residency was granted. 

Common Challenges to EB-5 Investment Applications

Source of Funds:

USCIS is extremely strict in requiring investors to demonstrate the source of the capital invested.  If the investment was contributed in cash, every dollar must have been legally obtained and accounted for.  While loans or gifts from family are permitted, USCIS will demand to know that the loans/gifts came from a legal source.  In addition, loans cannot be secured by assets of the EB-5 investment. 

USCIS typically will require the investor’s bank statements, personal income or tax documents, as the primary proof that the capital belongs to the investor and that it was obtained legally by the investor.  If a child receives a gift from his/her parent, USCIS will want to see that the child has paid the appropriate gift tax, if there is a gift tax in the country. It is also common for USCIS to trace the source of the parents’ money as well.   

The meticulous requirement of the documents needed to demonstrate the legal source of investment capital can create anxiety for many investors.  However, it is absolutely necessary to show that the money invested came from a legal source. 

Transferring funds to the U.S.

Many countries have currency control and limits on remission of capital outside of the country.  While USCIS does not typically request proof that the money invested was transmitted to the U.S. legally, the logistic issues of transferring money or assets to the U.S. should be visited early on. 

Be Aware of Claims of Quick Exit and Guarantee

Investors should be aware that the law prohibits any guarantee of a return on the investment capital.  The investment must be “at risk” in order to qualify for EB-5 investment.  The timeline described above demonstrates that the investment capital will be committed for at least five years, whether the investment was made traditionally or through an RC.  Investors should understand that the EB-5 immigration program requires a substantial commitment of time and resources.  Investors should be aware that they could lose all of the investment and still not receive their “green card.”

Family members

The spouse of the investor can immigrate with the investor, along with unmarried sons and daughters under 21 years old.  However, due to substantial backlog in some countries, most notably China, a child may “age out” because the parent’s priority date becomes current, meaning that the child will turn 21 before his/her parent obtain the green card.  This will totally defeat the purpose of the EB-5 immigration if the parent is doing it for the child. 

Please also note that jobs created by the investor for the investor’s spouses and children will not count towards any employment created by the investment. 

Job Creation

Only jobs created for U.S. citizens, permanent residents, and other individuals authorized to work in the U.S. will count.  Jobs created for non-immigrant workers, such as workers on H1B, TN, or H2B status will not be counted.  Investors must be careful, especially those who rely on direct job creation, to ensure that all of the employees are legally authorized to work in the U.S. and will count towards the ten jobs creation. All U.S. employers must follow proper procedures to verify the work eligibility of individuals on the payroll.  It is not uncommon for USCIS to run database checks of information of the employees / jobs created by the investors to ensure that they are “U.S. workers.”

Part-time Jobs do not count.

For EB-5 purposes, only full-time employment may be counted.  Two part-time jobs cannot be combined to create a full-time job.

Documentation

1. Establishment or purchase of the commercial enterprise:

  • Organizational documents such as articles of incorporation, partnership agreement, business trust agreement, etc.;
  • Certificate evidencing current authority to do business in the state of operation;
  • If the investment is in an existing business, evidence that it resulted in a 140% increase in net worth or number of employees;

2. Establishment of the entire investment amount or that the applicant is actively “in the process” of investing the required amount of capital:

  • Bank statements showing the amounts deposited in the U.S. business account of the enterprise;
  • Evidence of assets purchased for use in the enterprise and evidence of their value;
  • Evidence of the required amount transferred to the new enterprise in exchange for stock; or
  • Any combination of the above.

3. Evidence that the capital invested was obtained through lawful means:

  • Business and personal tax returns for the last five years;
  • Other evidence of the sources of income;
  • Personal financial statements prepared by an independent accounting entity;
  • Documentation that the capital invested by other investors has been derived by lawful means [it will not be necessary to reveal as much detail about the investments of non-applying investors, but they should be identified and should state that their investment was derived by lawful means].

4. Establishment that the investment in the enterprise will create at least ten full-time positions [the applicant should be aware that he or she will have to establish that the employees are U.S. citizens, permanent residents, or other immigrants who have unrestricted employment authorization; full-time employment requires a minimum of 35 hours per week]. Job sharing arrangements in which two or more qualifying employees share a full-time position will count as full-time employment, but part-time positions cannot be combined to equal a full-time job]:

  • Photocopies of the USCIS I-9 forms for at least ten employees if such employees have already been hired;
  • Quarterly tax reports;
  • A comprehensive business plan showing that at least ten new employees will be necessary for the business, including approximate dates within the next two years when such employees will be hired;
  • Agreement allocating ten new employees to the applicant’s investment, if necessary.

5. Unless the investment is in an RC, establishment of the management responsibilities of applicant:

  • A statement from the company verifying the position and title of the applicant and a description of the proposed duties;
  • Evidence that the applicant is a corporate officer or holds a seat on the enterprise’s board of directors; or
  • If a partnership, evidence that the applicant will be engaged in either direct management or policy making or is a limited partner (if in an RC).
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