E-2 Treaty Investor Visa: A viable non-immigrant alternative to Permanent Residency in the United States
An article written by Calvin Mazlumyan IMCM, Immigration Consultant – Private Client Advisor at Global Residence Index.
A major concern high net worth U.S. citizens and permanent residents (Greencard holders) usually have, are the tax obligations to the IRS even after they move abroad. The U.S. is one of only two countries in the world where taxes are not based on place of residency. If you’re considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned. Renouncing your citizenship to avoid this taxation is not an easy task. Giving up on your permanent resident status maybe easier, but still a very bureaucratic process.
The E-2 Treaty Trader nonimmigrant visa offers a viable alternative to those who would like to live and work in the United States, while not be obligated to pay taxes on their worldwide income once they move back abroad.
As a non-U.S. citizen and non-permanent resident, you are generally only required to pay tax on your ‘U.S. Effectively Connected Income’ (money you earn while working in the United States). You will only be required to pay taxes on your worldwide income if you pass the IRS Substantial Presence Test in a given year.
You are considered a U.S. resident for tax purposes if you meet the Substantial Presence Test for the calendar year. To meet this test, you must be physically present in the United States on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
◦ All the days you were present in the current year, and
◦ 1/3 of the days you were present in the first year before the current year, and
◦ 1/6 of the days you were present in the second year before the current year.
As complicated as this calculation may seem, if you spend 120 days in the United States every calendar year on an E-2 Visa, you will not be deemed a U.S. tax resident.
The E-2 nonimmigrant classification allows a national of a treaty country to be admitted to the United States when investing a substantial amount of capital in a U.S. business. Certain employees of such a person or of a qualifying organization may also be eligible for this classification.
To qualify for E-2 classification, the treaty investor must:
- Be a national of a country with which the United States maintains a treaty of commerce and navigation;
- Have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States; and
- Be seeking to enter the United States solely to develop and direct the investment enterprise. This is established by showing at least 50% ownership of the enterprise or possession of operational control through a managerial position or other corporate device.
The investment is the treaty investor’s placing of capital, including funds and/or other assets, at risk in the commercial sense with the objective of generating a profit. The capital must be subject to partial or total loss if the investment fails. The treaty investor must show that the funds have not been obtained, directly or indirectly, from criminal activity.
A substantial amount of capital is:
- Substantial in relationship to the total cost of either purchasing an established enterprise or establishing a new one
- Sufficient to ensure the treaty investor’s financial commitment to the successful operation of the enterprise
- Of a magnitude to support the likelihood that the treaty investor will successfully develop and direct the enterprise. The lower the cost of the enterprise, the higher, proportionately, the investment must be to be considered substantial.
A bona fide enterprise refers to a real, active, and operating commercial or entrepreneurial undertaking which produces services or goods for profit. It must meet applicable legal requirements for doing business within its jurisdiction.
Qualified treaty investors will be allowed a maximum initial stay of two years. Requests for extension of stay in, or changes of status to, E-2 classification may be granted in increments of up to two years each. There is no limit to the number of extensions an E-2 nonimmigrant may be granted. All E-2 nonimmigrants, however, must maintain an intention to depart the United States when their status expires or is terminated.
Treaty investors may be accompanied by spouses and unmarried children who are under 21 years old. Their nationalities need not be the same as the treaty investor. Spouses and children may seek E-2 nonimmigrant classification as dependents and, if approved, generally will be granted the same period of stay as the investor. Spouses of E-2 investors in valid status are authorized to work anywhere in the U.S. incident to status.
