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E-2 Treaty Investor: How Much to Invest?

By the Staff of Immigration Law Associates, P.C.


Starting a new business can be intimidating, especially for someone who has never before owned their own company (whether or not they have managerial experience or experience in their particular industry). In addition to worrying about whether the company will be a success, a potential business owner may be concerned about not having enough money to start and successfully run the business.

For those from another country who wish to invest and work in the U.S., this concern may be amplified due to anxiety over the exact dollar sum of investment needed to obtain a visa. They may have heard numbers such as “$500,000” or “$1 million” and believe that since they don’t have that amount of money, they have no chance to invest and work in the U.S. Others may not have heard a specific number, but believe that whatever it is, it must be well out of reach.

However, while the $500,000 and $1 million figures relate to an immigrant program called “EB-5”, there is another, non-immigrant program called “E-2” that does not require nearly as much monetary investment. While many people may have heard of this visa category, few understand fully how it works.

One of the questions we most often get from clients who meet all other requirements and are otherwise eligible to file the E-2 (“Treaty Investor”) application is in relation to the amount of money they would have to invest in the business to obtain that status. The answer to that question depends on various factors, including the substantiality of the business, which is determined by a proportionality test, and whether the amount of investment is sufficient to establish a viable enterprise. These factors seem difficult to understand, but on the most basic level they mean that if the amount of money put into a business is the normal amount invested for that particular type of business, then that amount should be enough to obtain the E-2 status.

Going into more specifics in relation to the above-mentioned factors, the substantiality of the investment means that an investor must show that the amount to be invested is substantial in relation to the total cost of either purchasing an existing business or establishing a new business. This requirement is met by satisfying the proportionality test.

The proportionality test compares two figures, the amount invested, and the cost of an established business or, if it is a newly created business, the costs associated with establishing such a business. The cost of an established business is, generally, its purchase price, which is normally considered to be the fair market value, while the cost of a newly created business is the actual cost needed to establish such a business to the point of being operational.

For newly created businesses, the actual cost can usually be determined because the investor will have already purchased at least some of the necessary assets and, therefore, be able to provide cost figures for the additional assets needed to run the business.

The cost of a business is dependent on the nature of its business. While one type of company (such as a factory) may require a large amount of money to get properly set up, another type of company (such as a grocery store) may need less money. In other words, the amount of money needed to start the business depends on the type of business planned.

In comparing the amount invested in an enterprise to the cost or value of the business, the proportionality test assesses a percentage of investment in relation to the cost of the business. For example, if a business costs $100,000 and the investor has invested $90,000, the investor has invested 90 percent of the required funds in the business. This amount of investment can be considered substantial.

To understand how the proportionality test determines whether an investment is substantial, you can imagine an inverted sliding scale. The lower the cost of the business, the higher a percentage of investment is required. On the other hand, a highly expensive business would require a lower percentage of investment. There are no set percentages that exist in order for an investment to be considered substantial, but if your business is generally considered to be of a lower cost, your investment should be as close to 100% of the investment cost as possible.

When we refer to the requirement that the amount of investment be sufficient to establish a viable enterprise, we’re really stating that the amount of money invested needs to be enough, not only for the business to get started, but to become capable of succeeding.

Because these factors are considered in the government’s decision-making process, an E-2 can be granted for a relatively low investment amount as long as that sum is sufficient to establish a viable business.

In addition to the relatively small investment amount required by the E-2, some other advantages of this status are that a person can extend their status indefinitely and that his or her spouse can come with them and work in the U.S., if they so choose. Children under 21 years old can also accompany the E-2 investor and attend school.

Once it has been determined that an investor has enough money to invest in the business, the biggest hurdle for many will have been crossed. However, any potential investor/applicant should also be aware of all of the requirements for the E-2 Treaty Investor Status.

Some of these requirements include the fact that the investor must:

  1. be a national of a treaty country (a list of these countries can be found here: http://travel.state.gov/content/visas/english/fees/treaty.html)
  2. have already invested or be actively in the process of investing before applying
  3. invest funds obtained legally (and must have documentation to prove this)
  4. be sure that all of the funds invested are “at risk” and irrevocably committed (meaning that the investor will be personally subject to risk of loss of their own money)
  5. have already started the business (such as signing a lease, setting up a business bank account and/or website, purchasing whatever is needed to get the business up and running, and hiring employees)
  6. be in a position to “develop & direct” the business and should have the skills to do so
  7. intend to return to their home country after expiration of E-2 status (which can be indefinite if the E-2 is perpetually renewed)

Other factors that could be considered in deciding whether to grant this status include whether the investor will depend solely on the E-2 enterprise to earn a living (which can be satisfied by showing other sources of income or if the business plan shows that the company will bring in income substantially above the amount one needs for a living), whether the investment will create an increasing number of jobs (and at least 2 to 3 jobs initially), and whether the investor will work simply as a skilled or unskilled worker or if he will manage and has the experience necessary to successfully manage the business.

If you would like to discuss your plans for starting a business and obtaining the E-2 status (or renewing your current status), please contact our office at (847) 763-8500 or email us at info@immig-chicago.com.  

 

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