E-2 Treaty Investor: How Much to Invest?
Starting a new business can be intimidating. 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.
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. One of the questions we most often get from clients interested in the E-2 ("Treaty Investor") visa is how much 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, 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.
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 % of the required funds in the business. This amount of investment may be considered substantial. On the other hand, if the business costs $500,000, it may be enough to invest only 50%, or $250,000.
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.
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 email@example.com.