EB5 Investors Magazine "Top 25 issue" Volume 9 Issue 1 - Page 93

IS E-2 REALLY A “ CLOSE RELATIVE ” OF EB-5 ?
E-2 is a temporary non-immigrant visa based on a reciprocal treaty between the United States and the individual ’ s country of nationality . It allows a citizen of an E-2 treaty country to be admitted to the U . S . “ to develop and direct the operations of an enterprise in which the applicant has invested a substantial amount of capital .” 1
The basis for issuance of the E-2 visa – investment of personal capital – is very similar to the definition found in EB-5 regulations . For the purpose of E-2 , the term “ investment ” is defined as the placement of the capital , including funds and assets , by the investor into the commercial enterprise at risk and with the goal of generating profits .
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However , compared to the EB-5 category , regulations governing E-2 visas do not prescribe a minimal amount of investment capital and do not have a distinct job-creation requirement , making this visa an attractive option for small businesses or foreign investors willing to “ test ” the U . S . business environment without accepting full tax liabilities of a permanent resident status .
" One of the factors making transitioning from E-2 to the permanent resident status difficult is the lack of proper planning of the source of funds documentation at the inception of the E-2 enterprise ."
Unlike L and H visas , E visas do not have a limitation on how many times they may be renewed . Thus , it is not uncommon for E-2 holders to start considering immigrant options after years , even decades , of staying in the U . S . in a non-immigrant status . For many long-time E-2 visa holders , EB-5 has been proven to be a viable ( and sometimes the only available ) option to convert their status into a green card .
In many cases , the E-2 visa holders start inquiring about the possibility of converting their temporary stay in the U . S . into a permanent status when some external factor comes into play . It may be an investor ’ s child coming to the age when the child cannot stay in the U . S . as a minor dependent of the primary visa holder . It may when the investor disposed of the assets and liquidated a business abroad and is ready to establish a tax resident status in the U . S . Recent massive disruption in operation of consular posts abroad during the COVID19 pandemic generated a wave of inquiries from the E-2 investors stuck without the ability to renew their visas abroad . Many of those E-2 visa holders realized the convenience of the permanent resident status not dependent on uncertainties of visa processing and travel restrictions . Unfortunately for many successful entrepreneurs , not every E-2 enterprise can be easily converted into EB-5 .
COMMON CHALLENGES IN TRANSITION FROM E-2 TO EB-5
One of the factors making transitioning from E-2 to the permanent resident status difficult is the lack of proper planning of the source of funds documentation at the inception of the E-2 enterprise . The major condition imposed on the EB-5 petitioners is the requirement that the investment capital be obtained lawfully and clearly attributed to the investor . 3 Because E-2 is much more forgiving on the source of funds requirements than EB-5 , the visa application is not intended to provide in-depth analysis of the source and trace of funds , generally limiting the scope of documentation to the bare demonstration of legitimacy of the capital and cognizable path of the money to the investment enterprise . Further , since EB-5 comes into place after the E-2 investor has spent several years running the business in the U . S ., many documents become unavailable or difficult to obtain with the passage of time .
Another important consideration in planning a move from E-2 to EB-5 is the capacity of the business to generate requisite places of employment . Unlike E-2 that does not prescribe how many employees should be hired , EB-5 is very particular on job creation requirements . It is not uncommon for E-2 businesses to manage their payroll liability by hiring people part-time or engaging independent contractors for certain duties – all practices non-acceptable for EB-5 . Hiring 10 or more permanent full-time workers may be commercially non-feasible
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