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Advanced Issues for E-2 Treaty Investor Petitions

23:07 15 December in LAC Blog
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Advanced Issues for E-2 Treaty Investor Petitions:
The Statute, the Regulations, The Foreign Affairs Manual — and the Realities of Practice You Won’t Find in Any of the Above
By Christi Hufford Jackson, Fausta Maria Albi, and Sarah Buffett

INTRODUCTION

In recent years, the Obama Administration, and in turn the immigration-related agencies of the Department of Homeland Security, have expressed a commitment to support U.S. immigration options for investors and entrepreneurs.[1]  Despite this, the path to nonimmigrant investment in the United States remains less than clear, and highly subject to differing policies at different U.S. consular posts worldwide. This article will outline the legal criteria for E-2 investor eligibility, as well as explore the nuances which may make or break an application for an E-2 visa.

E-2 TREATY INVESTOR – THE LAW

For the basic eligibility criteria for E status, see INA §101(a)(15)(E); 8 CFR §214.2(e); 22 CFR §41.51; 9 FAM 41.51 Notes; 9 FAM 41.51 Exhibit I.

PROS AND CONS OF THE E-2 VERSUS THE L-1

E-2 Treaty Investor

The E-2 Treaty Investor visas tend to be the most utilized for investors and entrepreneurs. The main benefits of the E-2 visa classification are that E-2 nonimmigrants may engage in self-employment (in furtherance of the qualifying investment); there is no requirement that the investor maintain an active entity abroad; they may remain in the U.S. for an indefinite period; E classification may provide for beneficial tax treatment; those in E status are not required to maintain ties to their home country; and the E-2 practice is primarily consular, allowing the investor to avoid the high denial and request for additional evidence rates which result from L-1 intra-company transfer petitions filed with USCIS in the United States.

Further, the E visa classification is available to individuals in very diverse circumstances – from a sole proprietor/small start-up to large multinational companies.

L-1 Intracompany Transferee

For the basic eligibility criteria for L status, see INA §101(a)(15)(L); 8 CFR §214.2(l); 22 CFR §41.54; 9 FAM 41.54 Notes.

The primary benefits of the L-1 visa are that there is no need to register the company, or provide annual updates to the Consulate as one must with the E-2. Also, the intent to immigrate is irrelevant, and the status is available to individuals of all nationalities.

On the negative side, L-1 adjudication trends indicate that USCIS is erring on the side of more conservative adjudications, challenging and scrutinizing L-1 filings. At the June 2013 AILA Annual Conference, the Request for Evidence (“RFE”) rates for L-1 petitions were announced as follows:

California Service Center: L-1A 35%; L-1B 50%

Vermont Service Center: L-1A 28%; L-1B 40%

In addition, in 2013 the Office of the Inspector General for the U.S. Department of Homeland Security issued a report on the Implementation of L Visa Regulations[2] which indicates L-1 adjudications will become even more restrictive, especially with regard to new companies.

E-2 CRITERIA

Requisite Treaty Exists

A qualifying treaty of commerce and navigation must exist between the U.S. and the State of nationality of the E visa applicant (See 9 FAM 41.51 N1.2, N3). Such treaties may include Treaties of Friendship, Commerce and Navigation, or Bilateral Investment Treaties.[3]

Practice Advisory: Note that some countries have only an E-2 investor and not an E-1 trader treaty in effect.

Practice Advisory: The E-2 treaty with the United Kingdom requires the applicant to be an inhabitant of (i.e. normally resident in) the British Isles.

Individual and/or Business Possesses the Nationality of the Treaty Country

The treaty investor must, whether an individual or business, possess the nationality of the treaty country (See 9 FAM 41.51 N2). Further, nationals of the treaty country must own at least 50 percent of the business in question.

Excepting when an enterprise is owned and controlled equally (50/50) by nationals of two treaty countries, a business for which E visa status is sought may have only one qualifying nationality (See 9 FAM 41.51 N3.1). If the owner has dual nationality, the owner must choose which nationality to use, and hold himself out as a national of that country for all E visa purposes. When a company is equally owned and controlled by nationals of two different treaty countries, employees of ether nationality may obtain E visas to work for the respective company (See 9 FAM 41.51 N3.3).

In corporate structures, the nationality of the owners of the stock controls. If one entity owns another, one must trace the tiers of ownership to the individual owners in order to determine the nationality of the treaty enterprise.

Practice Advisory: The country of incorporation is irrelevant the nationality determination. However, if corporate stock is sold exclusively on the stock exchange of the country of incorporation, the nationality is presumed to be the location of the exchange (See 9 FAM 41.51 N3.2).

Applicant Has Invested or is Actively in the Process of Investing

The applicant must demonstrate possession and control of the capital assets, including funds invested. The investor must show that the funds were gained through legitimate means, such as earnings, savings, a gift, inheritance or contest. Note that inheritance of a business does not constitute an investment.

The source of funds does not have to come from outside the U.S.

Investment involves placing funds at risk in the commercial sense, in the hope of generating a financial return. Therefore, non-profit organizations are not eligible for E-2 investor status.

To be considered “in the process of investing,” the funds must be irrevocably committed (See 9 FAM 41.51 N8). The purchase or sale of a business may be conditioned upon the issuance of the E-2 visa if the assets to be used for the purchase are held in escrow for release when the condition is met.

Leases are investments only to the extent of one month payment or advance payments. The fair market value or purchase price of equipment, machinery and other tangible or intangible assets may constitute investments if they will be used for the commercial enterprise and not for personal purposes.

Also, to be “in the process of investing” the applicant must be close to the start of actual business operations, not just at the stage of signing contracts, which the State Department views as easily breakable, or looking for a suitable location for the business. Possession of funds in a bank account alone are not sufficient.

Practice Advisory: Posts differ on their interpretation of what constitutes “close to the actual start of business.” For example, Rome, and more recently Dublin, take the position that the treaty enterprise must be open and doing business to be considered “close to the actual start of business,” or perhaps their rationale is that the business must be open in order to meet the “real and active” business requirement. While the investor may be able to bring the business to the point of the grand opening while coming to the U.S. occasionally in business visitor status, this interpretation of “close to the actual start of business” or “real and active” is problematic when key employees must be transferred in order for the business to open. For example, for a specialty restaurant relying on obtaining E-2 essential skills visas for its executive chef and master pastry chef, taking the position that the restaurant must be open to the public before these key employees may come to the U.S. may significantly impact its business model and prevent the restaurant from providing the quality of food it intends to at the inception of its business.

Enterprise is a Real and Operating Commercial Enterprise

The enterprise must be a real, active, for-profit commercial or entrepreneurial undertaking, producing some service or commodity (See FAM 41.51 N9). A paper organization or speculative investment held in anticipation of a future rise in value, such as undeveloped land or passively held stocks, do not qualify. As noted above, non-profits do not qualify either.

Applicant’s Investment is Substantial

No set dollar figure constitutes a minimum amount of investment such that it will be considered “substantial” for E-2 visa purposes. Rather, substantiality is determined by the proportionality test; that is, whether the investment is substantial in relation to the total cost of purchasing an established enterprise or creating the type of enterprise under consideration. Further, in order to be considered substantial, the investment must be sufficient to ensure the investor’s commitment to the successful operation of the enterprise (See 9 FAM 41.51. N10.).

The cost of an established business is generally its purchase price, which is normally considered to be the fair market value. The cost of a newly-created business is the actual cost needed to establish such a business to the point of being operational.

Practice Advisory: An indication of the nature and extent of commitment to a business venture may be evidenced by invoices or contracts for substantial purchases of equipment and inventory; appraisals of the market value of land, buildings, equipment, and machinery; accounting audits; and permits and licenses required by various government agencies.

Practice Advisory: A detailed business plan is critical to the proportionality determination, as the cost of the business is dependent on the nature of the enterprise.

Investment is More than a Marginal One Solely for Earning a Living

A marginal enterprise is defined as one which lacks the present or future capacity to generate more than enough income to provide a minimal living for the E-2 investor and his or her family within two to five years. Marginality is a critical issue for E-2 renewals (See 9FAM 41.51 N.11).

Practice Advisory: Hiring U.S. workers is key to overcoming the consular officer’s marginality concerns.

Applicant is in a Position to “Develop and Direct” the Enterprise

A national or nationals of the treaty country must develop and direct the activities of the enterprise (See 9FAM 41.51 N12). The type of enterprise will determine how the consular officer applies this requirement. If the enterprise is a sole proprietorship, the E-2 investor(s) must personally play an active leadership role in the company and control 50 percent or more of the entity. If the U.S. enterprise is owned by a foreign parent, the foreign parent must control 50 percent or more of the entity and its employees must show that he or she will develop and direct the U.S. enterprise.

Applicant, if an Employee, is Destined to an Executive/ Supervisory Position or Possesses Skills Essential to the Firm’s Operations in the United States

To determine whether the employee qualifies as an executive or supervisor, the consular officer will consider the title of the position in the U.S., where the position falls within the organizational structure, the duties of the position, the degree to which the applicant will have ultimate control and responsibility for the firm’s overall operations or a major component thereof, the number and skill levels of the employees the applicant will supervise, the level of pay, and whether the applicant possesses qualifying executive or supervisory experience (See 9FAM 41.51 N14.2).

Practice Advisory: In order to qualify as an executive or supervisor, it is important that the executive or supervisory duties be the primary function of the applicant, as opposed to incidental or collateral functions.

To qualify as an essential employee, the applicant must possess special qualifications that make the service to be rendered essential to the efficient operation of the treaty enterprise (See 9FAM 41.51 N12.3). Factors which the consular officer will consider include the degree of documented expertise of the applicant in the area of specialization, the uniqueness of the skills, the job duties, salary, whether training is required, and whether there would be U.S. workers available to do the job.

Applicant Intends to Depart the United States when the E-2 Status Terminates

The applicant need not have a residence in a foreign country which they do not intend to abandon. In fact, the applicant may sell his or her residence abroad and move all household items to the U.S.

In the absence of evidence to the contrary, the applicant’s written statement of an unequivocal intent to return to their home country when the E status ends is normally sufficient.

CONSULATE-SPECIFIC ISSUES

Mexico

Practice Advisory: Practitioners should be aware of ancillary reasons for investment, and be prepared to address the consular officer’s concerns that the primary purpose of the E-2 application may not be investment, but rather a desire to move the investor’s family to the U.S.

The above is of particular concern for Mexican nationals. In addition to the economic motivations for Mexican investment in the United States, there is a very personal motivation for many Mexicans: with the rise in drug-cartel related violence[4] and kidnapping of businesspeople for ransom, many Mexicans with means are seeking to begin businesses in the United States, both for the business opportunity, but also for the very important side benefit of moving their family into a safer environment.

While it is not permissible to use a nonimmigrant work visa for the sole purpose of moving to the U.S., to the extent that the investor or entrepreneur is qualified and prepared to begin a legitimate business in the United States, there is no legal restriction on obtaining dual benefits – both for the economic interests of the U.S. and the personal interests of the foreign national.

Department of Homeland Security concerns about the primary purpose of the investment are also evident in the L-1 context. The 2013 OIG Report clearly indicates concern about the above fact pattern, recommending additional scrutiny of “criteria and proof required when a foreign company seeks to use an L petition to open a new office in the United States. That almost any foreign business proprietor can effectively petition himself and his family into the United States may not be in accord with congressional intent” (emphasis added).[5]

The OIG Report also reflects concern regarding closure of the foreign qualifying entity, which would invalidate the L-1: “Another ploy involves a foreign sole proprietor who opens a new office in the U.S., petitions for family members, and then closes the foreign business altogether.”[6]

CONCLUSION

The processes to be followed and standards applied to E visa cases vary from Consulate to Consulate and can be dependant upon current country economic conditions. Being able to forgo the USCIS petition process required for non-blanket L-1’s is not always a time saving measure if the E visa unit takes several months to process particular types of new company E registrations. Client discussions should include the pros and cons of the E visa process and eligibility requirement compared to L-1 and even H-1B visas to determine the strategy that most closely meets your client’s needs.

__________________________

[1] During an August 2011 Press Conference, Secretary Napolitano and Director Mayorkas announced an objective to “continue to attract the best and brightest from around the world to invest their talents, skills and ideas to grow our economy and create American jobs.”[1]   In support of this position, Director Mayorkas cited a study commissioned by the National Venture Capital Association entitled “American Made – The Impact of Immigrant Entrepreneurs and Professionals on U.S. Competitiveness,” which found that the current market capitalization of publically traded immigrant-founded, venture-backed companies in the U.S. exceeds $500 billion. He also cited the “significant wealth-creating abilities of immigrant entrepreneurs,” acknowledging “many of the largest U.S venture-backed public companies such as Intel, Selectron, Sanmina, SCI, Sun Micro Systems, Ebay, Yahoo, Google and many others were started by immigrants.” The Director also noted that “[i]mmigrant-founded U.S. publically-traded companies employ approximately 220,000 people in the U.S. and more than 400,000 people worldwide.” Perhaps of most interest to practitioners, Director Mayorkas also stated, “Our current immigration laws support foreign talent who will invest their capital, create new jobs for American workers and dedicate their exceptional talent to the growth of our nation’s economy” (emphasis added).”   Transcript of USCIS Press Conference, “USCIS Announces Initiatives to Promote Startup Enterprises and Spur Job Creation,” (August 2, 2011), published on AILA InfoNet at Doc. No. 11081021 (posted August 10, 2011).

[2]   “Implementation of L-1 Visa Regulations,” Department of Homeland Security, Office of Inspector General, OIG-13-107, (August 9, 2013), published on AILA InfoNet at Doc. No. 13082748 (posted August 27, 2013).

[3]   Treaties in effect are listed at 9 FAM §41.51, Exhibit I.

[4] As of July 16, 2013, an estimated 60,000 people were killed in drug-related violence in Mexico since late 2006. Ciudad Juarez, a city of about one million people located in the State of Chihuahua, just across the border from El Paso, Texas had the unfortunate distinction of being the most violent city, with some 3100 people killed in 2010. Incidentally, Juarez is also home to the busiest U.S. consular post in the world; the Post warns visitors to beware of unscrupulous vendors and outright robbers. However, since 2010 the violence in Juarez has now dropped markedly, with cartel activity shifting to other areas in Mexico.   “BBC News Latin America & Caribbean, Q&A: Mexico’s drug-related violence.” Posted July 16, 2013 at http://www.bbc.co.uk/news/world-latin-america-10681249 (visited September 3, 2013).

[5] Id.

[6] Id. at 22.

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