The EB-5 Visa program
The EB-5 Visa program has been widely promoted as a legal basis for foreign business owners to gain conditional residency followed by permanent residency in the United States. The program is a great solution to the proposition “Ï want to live in America.”
Unlike other countries, the decision to become a permanent resident or U.S. citizen has some significant tradeoffs from a tax perspective. These tradeoffs should make a wealthy foreigner think twice about becoming a U.S. permanent resident or citizen particularly if there are other ways to emigrate to the U.S. without being locked into permanent residency or U.S. citizenship from a tax perspective. In otherwards, the cost of U.S. residency may prove to be too steep!
It is my view that the tax consequences of U.S. residency are not adequately discussed when business immigration options are being considered. Some of the subtleties of being an American taxpayer are often overlooked including the tax consequences of forfeiting U.S. residency or citizenship in the future after obtaining residency. The civil and criminal penalties of foreign bank account reporting and compliance may come as a complete shock to many foreigners.
It is a very common fact pattern around the wealth world that wealthy families have stockpiles of cash in all of the best known tax havens. What is less known and less appreciated are the compliance requirements for maintaining that pile of cash offshore in the event you are a U.S. citizen or resident.
Factually, the foreigners only needs to be in the U.S. for a short time until the political and economic situation in the home country approves. Alternatively, the foreigner’s children have been educated in the United States and remained in the U.S. because the combination of political and economic freedom are greater than the home country. In a number of cases, the children have married Americans that they met in college or graduate school. As a result, the senior generation needs a way to visit and remain for longer periods of time that the typical tourist visa allows particularly considering the combination of personal and political factors in the decision matrix.
It is not uncommon that many foreign business owners become aware of these adverse tax consequences after becoming a U.S. resident. I have been articulating this point through a series of articles that the decision to pursue the EB 5 may be premature in a number of cases. It is an excellent solution, but not necessarily for everyone. This article looks at the E2 Investor Visa as an alternative to EB5 Visa. Furthermore, it considers a strategy for investors to consider when their home country does not have a treaty with the U.S. for the E2 visa.
E2 Visa
The E2 is for treaty investors. The E2 visa requires a treaty of friendship, commerce and navigation between the United States and the foreign national’s country. The list is quite expansive but there are some countries which are noticeably missing such as Brazil, Mainland China, most Middle Eastern countries and Hong Kong. The treaty investor must hold the nationality of the treaty country in order to obtain an E2 visa. If the treaty investor is a business, ownership must be traced to the individuals who are ultimately the owners. At least fifty percent of the business must be owned by nationals of the treaty country. If the owners have dual nationality, the individuals must select the nationality of the country with E treaty status.
The E2 applicant seeks temporary entry to the United States with “an expression of an unequivocal intent to return abroad when the E status ends”. However, unlike other visas, the E2 applicant does not need to meet the requirement of maintaining a foreign residence abroad during the pendency of the E2 visa. Furthermore, the E2 investor can travel outside of the U.S. liberally. However, the E2 visa holder must indicate an intent to depart the U.S. upon termination of status or cessation of business activities.
The E2 investor is admitted to the United States “solely to develop and direct the operations of an enterprise in which he has invested or of an enterprise in which he is actively in the process of investing a substantial amount of capital.” The regulations require that the investor possess and control the funds and that the investment must be “at risk.” The investment must be irrevocable.
Unlike the EB 5 program with its minimum investment level, the Department of State guidance does not have a set dollar figure that constitutes a minimum investment to be considered substantial for E2 visa purposes. Instead the inquiry focuses on the total amount actually invested relative to the value of the business. A smaller business that is part of a joint venture may also qualify. The E2 investor needs to perform executive or supervisory duties. An E2 entity may be established in order to perform on a contract for services or goods with a U.S. business.
Upon approval, the foreign national receives Form I94 for up to two years after the date of admission. Based upon treaty provisions and reciprocity agreements under the E2 treaty, the visa may be valid for a longer or shorter period of time than two years. Importantly (for reasons to be discussed below) the E2 investor visa with Panama has a five year period under the treaty.
Spouses of E2 investors may accompany the E2 investor and spouses are eligible or to apply for employment authorization documents and a social security number. Renewal of the E2 visa may be accomplished on a streamlined basis. Depending upon the consulate, the E2 investor will submit Form DS-156E with financial statements and tax returns annually or periodically. The regulations for E2 do not limit the number of extensions that the E2 investor may receive.
In summary, the E2 Investor Visa provides the foreign entrepreneur with the ability to travel in and out of the United States without limitation as long as the E2 visa remains valid. The program does not suffer from the steep minimum investment requirements of the EB5 visa and is easily renewed. The number of E2 visas does not have an annual cap.
Family members have the ability to accompany the E2 investor including the ability to work while in the United States. Importantly, the E2 investor does not get locked into U.S. residency for tax purposes while retaining the ability to adjust status for permanent residency if desired in the future. The E2 visa does not suffer from the annual cap on EB5 visa and is adjudicated much more quickly than the E2 visa.
Part 1 of a 3 Part Series
- The Panamanian Second Passport Program – Considering Other Alternatives to the EB-5 Visa Part II – Considering Other Alternatives to the EB-5 Visa
- Considering Other Alternatives to the EB-5 Visa: Part I – Considering Other Alternatives to the EB-5 Visa
- Considering Other Alternatives to the EB-5 Visa: Part III – Considering Other Alternatives to the EB-5 Visa
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Gerald Nowotny
Law Office of Gerald R. Nowotny
266 Lovely Street
Avon, CT 06001
United States
860-404-9401
TaxManDotCom.com
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