The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
This is the first of a trilogy of blogs addressing the E-2 visa option post the November 21 change in EB-5 investment amount. Following the publication of the 3 blogs, we will host a webinar on this subject. The date will be published on Klaskolaw.com.
Foreign nationals seeking to utilize investment as the vehicle to trigger immigration to the U.S. face different strategy decisions in the post-November 20 world.
There are, and for decades have been, two choices for investors. EB-5, which leads to a green card and possibly ultimately citizenship, and the E-2 treaty investor visa, which can lead to long term immigration to the U.S. but no direct path to green card or citizenship. The E-2 visa has long been the visa of choice for nationals of the over 80 countries that have bilateral investment treaties with the U.S. However, nationals of the countries that have been the biggest users of the EB-5 vehicle – – China, Vietnam, India, Brazil, South Africa and many others – – do not have the benefit of bilateral investment treaties for the E-2 visa option.
A few years ago, I popularized the strategy of nationals of these countries obtaining a second citizenship in a country that has an investment treaty with the U.S. in order to open up the E-2 visa option. As expected, this option was slow to catch on but is now very popular in China and achieving increasing acceptance in other countries, including Vietnam, India and South Africa.
The option was used at first by EB-5 applicants subject to long quota or processing time waits as a way of spending the waiting time in the U.S. with their children going to school in the U.S. Over time, foreign national investors began considering the E-2 as an option instead of EB-5, rather than in addition to EB-5.
After November 20, many investors are now opting for the E-2 visa option by necessity. Before November 21, the difference between the citizenship by investment/E-2 visa option and EB-5 was often a relatively low amount. Although there are varying options for both citizenship by investment and E-2 visa, many applicants using that option invested between $350,000 and $450,000, compared with $500,000 for most EB-5 applicants. The difference was small enough to make investment amount not the driving factor for many investors.
That has changed after November 20. While the CBI/E-2 investment amount remains the same, the EB-5 investment amount has risen dramatically. For most direct EB-5 applicants, the amount is now $1,800,000. Regional center EB-5 applicants will have a much smaller choice of projects for the reduced $900,000 investment amount. The difference between the CBI/E-2 visa option and the EB-5 option is now significant enough that many investors will no longer be able to consider the EB-5 option.
As a result, it is very timely to analyze the differences between E-2 and EB-5. This blog will do so. For readers who are interested in a more general analysis of the requirements for an E-2 visa or the options regarding citizenship by investment, please refer to the following blogs available on our website: E-2 Versus EB-5: Both Investor Visa, and How Acquiring Dual Citizenship By Investment Can Be An Important Part Of A Successful U.S. Immigration Strategy.
In addition to the large difference in investment amount, two factors making EB-5 less attractive are not issues for E-2. While investors from China, India, and Vietnam are keenly aware of quota backlogs, there is no quota for E-2 visas. Likewise, EB-5 applicants are subjected to unprecedentedly long USCIS processing times, with 4 years now considered within the range of “normal”. With the huge influx of EB-5 petitions filed immediately prior to November 21, there is a justifiable fear that processing times could get even worse. This is not an issue with the CBI/E-2 alternative. Most E-2 visa applications are processed within 2 months or less. The processing time for citizenship in one of the 3 countries that have both CBI and bilateral investment treaties with the U.S. – – Grenada, Turkey, and Montenegro – – is generally 3 to 6 months.
As mentioned previously, a key difference between the two options is that EB-5 leads to a green card, which opens up the option of applying for U.S. citizenship 5 years later. E-2 is a visa, which is valid for 5 years (with the Grenada or Turkey citizenship), which can be renewed 5 years at a time indefinitely as long as the investment business remains viable. Some investors consider this to be advantageous compared to EB-5 since U.S. permanent residence results in taxation on worldwide income, whereas investors entering the U.S. on an E-2 visa, with proper tax planning and limiting the number of days per year spent in the U.S., can avoid taxation on worldwide income. While spending too much time outside of the U.S. may be problematic for EB-5 green card holders (it may be necessary to apply for a re-entry permit to avoid abandoning U.S. residence – – see Green Card Holder’s Guide to Travel, Residing Abroad and Preventing Loss of Permanent Residence), the E-2 visa holder can spend all of his time in the U.S. or a small amount of time in the U.S. as he wishes.
A disadvantage of the E-2 visa relates to children. It is advantageous that children can study in public school, private school or university with an E-2 visa that can be obtained quickly, once a child gets a green card through EB-5, the child can keep that green card forever. The child. However, on an E-2 visa loses E-2 status upon turning 21. Assuming the child is going to university, a change of status to F-1 student is usually an available option.
For the spouse, E-2 provides the very significant benefit of employment authorization without employer sponsorship for the length of the E-2 visa. For the EB-5 investor, employment authorization for the investor spouse does not accrue until obtaining conditional permanent resident status – – a process that usually takes years, not months.
There is far more flexibility in investment choices with the E-2 visa. While EB-5 is limited to projects meeting rigorous criteria sponsored by regional centers or projects that will create full-time jobs for 10 U.S. employees within a defined period of time, the opportunities for E-2 investments are far greater. An E-2 investment can be a franchise, a subsidiary of an overseas company, a startup company or purchase of at least 50% of an existing company. Although employees other than the investor are usually important for E-2 approvability, there is no exact amount of employees required. However, unlike with EB-5, the investor (or other nationals of the investor’s country of citizenship) must own at least 50% of the business.
Many EB-5 investors are attracted by not having to be involved in the management of the investment company, especially with regional center projects. Likewise, with E-2, the investor has the option of managing the company himself or hiring a manager. However, for E-2, the investor must satisfy the adjudicating officer that he will “develop and direct” his investment. This is a fairly flexible requirement, which falls far short of the requirement to actively manage a business.
The post-November 21 world of EB-5 is affected not only by increased investment amount, increased processing times and quota backlogs for some countries, but also by issues relating to documenting lawful source of funds and dealing with currency export restrictions. Documenting source of funds was often an onerous task for investments at the $500,000 level. It will be more onerous – – and in some cases impossible – – at the $900,000 or $1,800,000 level. Likewise, overcoming currency export restrictions, while often difficult at the $500,000 level, may be impossible for some investors at the increased investment amount. In contrast, while E-2 investors must invest lawfully obtained funds, there is no requirement of documenting the source of every dollar invested at the level required for EB-5.
Finally, a not insubstantial benefit of the CBI/E-2 option is that the entire process can be completed without ever dealing with U.S. Citizenship and Immigration Services. Given the unprecedented delays and unprecedented denials at USCIS, the fact that the E-2 visa can be filed and adjudicated at a U.S. consular office outside of the U.S. without ever filing an application with USCIS in the U.S. is a very significant benefit.
For some investors, the E-2 visa is the ultimate goal. Others may wish to convert E-2 to a green card some time in the future. That will be the subject of the second blog in this three-part series.
The material contained in this article does not constitute direct legal advice and is for informational purposes only. An attorney-client relationship is not presumed or intended by receipt or review of this presentation. The information provided should never replace informed counsel when specific immigration-related guidance is needed.
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