E-2
vs.
EB-5
Understanding the
Differences and Transition
by Martin Lawler
E-2 and EB-5 Compared
Here is a comparison of the two visas available for investors
– E-2 and EB-5. A comprehensive study of the visa rules juxtaposed with the business model can help the investor choose the
option best for them and their family as well as the investor’s
possibility of transitioning from E-2 to EB-5. Knowing about
E-2 visas will also help those involved with EB-5 investments to
understand the alternatives some investors have.
The Basics
The E-2 is a temporary visa based on a reciprocal commercial
treaty between the United States and the individual’s country
of nationality. No treaty – no visa. The oldest such treaty was
entered into with the United Kingdom in 1812. Today, there
are 81.1 Since we do not have a treaty with India or with China,
nationals of these countries are ineligible for an E-2 visa. An E-2
visa requires:
•
Temporary stay in the United States.
Does not mature into a green card
•
A “substantial” investment in a U.S. company
•
U.S. company must be majority owned
by nationals of the treaty country
•
U.S. business is an operating business
and not a “marginal” enterprise
•
Employment creation
•
The visa applicant is an owner, executive,
manager or has essential skills
EB-5 green cards involve:
• Conditional followed by permanent resident status
•
Investment of at least $500,000 or $1 million
•
Creation of 10 full-time permanent jobs
•
Proving lawful source of funds
•
Obtaining one of 10,000 annual visas
Capital
An E-2 visa requires a “substantial” investment of capital in
a business enterprise. The Department of State’s Foreign Affairs
Manual (“FAM”)2 defines “substantial” as the amount of capital
the business needs.3 This is proved with a business plan and
other documentation. But beware; the consul running the E-2
visa section at the American consulate may have preconceived
ideas on the issue. For example, for the same business the consul
in Germany may be satisfied with $100,000, while in Taiwan,
Pakistan or Korea the amount could be $250,000. Service enterprises, according to the FAM, often do not need large amounts
of capital. But E-2 visas are not necessarily easier to obtain for
consulting or services companies, because some consuls are skeptical that such businesses are real and will be successful.
The FAM permits an E-2 investor to contribute assets to capitalize the U.S. business, which may be cash, intellectual property, or equipment.4 Investment of intellectual property (“IP”),
such as software combined with cash, a good business plan and
an office lease may be sufficient for an E-2 at a consul in Europe.
But, valuing non-cash assets may be challenging and involve
proof of the cost of its development and expert testimony about
its value. Goodwill is not considered sufficiently tangible to be
considered an asset to contribute to a new E-2 enterprise, but its
purchase can be included as part of the purchase price of a U.S.
business on which the E-2 visa will be based.
An investor in an EB-5 regional renter (“RC”) must contribute capital5 to a New Commercial Enterprise (“NCE”), which
is one created after Nov. 29, 1990. The NCE may develop a
project such as a hotel or equity or loan the capital to a job
creating enterprise. This structure is not permitted for an E-2
visa, which requires the capital to be invested directly into the
U.S. enterprise, as is the case with a “direct” EB-5 application.
For an EB-5 green card, the investment amount is at least
$500,000 in F&vWFVBV