The U.S. Embassy in Israel recently announced that the United States and Israel have signed a treaty investor agreement, paving the way for Israeli citizens to be eligible for E-2 treaty investment visas. This is a long-awaited development. President Obama signed legislation that added Israel to the list of countries eligible for E-2 treaty investor status in June 2011. However, in the eight intervening years, there was a standstill in proceeding with E-2 visa issuance. Both countries needed to approve a bilateral agreement for implementation of the treaty, which required both Israel and the United States to authorize reciprocal rules for the issuance of investor visas, with comparable terms. Now that the Israeli government has authorized a comparable visa for United States citizens, E-2 visas will soon be an option for qualified individual investor applicants with Israeli citizenship, as well as for Israeli citizens who work for Israeli companies that apply for and are granted E-2 visa registration benefits.
Whom Does This Impact?
Israeli citizens seeking to invest in a new or existing business in the United States, and who intend to direct or control the business, may qualify for E-2 visas provided they meet key criteria, including a rule that the investment be substantial. A qualifying E-2 investment must also be at-risk and in a real, operating commercial enterprise. Additionally, eligible Israeli employees of Israeli-owned companies that complete an E-2 visa registration process at the U.S. Embassy, Tel Aviv branch may also be eligible for E-2 visas, provided they meet the requirement of coming to the United States to work in an executive, managerial/supervisory or specialist role requiring essential skills. Dependents of E-2 visa holders may apply for open-market work authorization in the United States, which also makes this an attractive visa option.
E-2 visa classification will undoubtedly be beneficial. Consulates should issue qualified Israeli citizens E-2 visas for up to five years. This is a significant convenience and advantage, when compared with the new office L-1 intracompany visa process, which requires an initial petition filing, and then a burdensome extension after only one year, through United States Citizenship and Immigration Services (USCIS). The E-2 visa also permits self-employment, which makes the visa more viable for entrepreneurs than other employment-based visas such as the H-1B or O-1 visa categories. In particular, self-employed Israeli entrepreneurs who wish to expand into the United States market, but who cannot necessarily meet the burdensome adjudication requirements and standards for an L-1 visa, may have an option for E-2 classification. Established or emerging Israeli companies that meet E-2 registration requirements will have a less cumbersome way to transfer personnel to their operations in the United States.
While the E-2 visa is an excellent resource in the toolkit of Israeli entrepreneurs and Israeli-owned businesses, securing an E-2 visa is not an immediate or automatic process. Consular officials construe the core eligibility criteria for E-2 visa classification strictly, so the process of presenting a well-documented application takes time. There is no commoditized or “turn-key” solution that investors can avail themselves of in preparing a sufficient application. In the adjudications process for E-2 visas, there is also a greater concern about stimulating the economy and employing U.S. workers, with consular officials expressly instructed to consider President Trump’s Executive Order on “Buy American Hire American (E.O. 13788)” when assessing the merits of a case. Thus, in general we expect that E-2 applicants that can demonstrate the potential to create jobs for American workers will have an edge in the adjudications process. We also expect the U.S. Embassy Branch in Tel Aviv that reviews applications to be rigorous in ensuring that the nationality, substantiality and other core requirements are satisfied before issuance of visas.
What Are the Core Eligibility Guidelines for E-2 Investor Classification?
There are several core eligibility criteria for E-2 visas relating to nationality and ownership, the substantiality of an investment, and the requirement that a business supporting an E-2 visa be a real and operating commercial enterprise. These requirements apply to both individual investor applicants as well as to an Israeli-owned corporation or business making a qualified E-2 investment in the United States. Below we have outlined several primary requirements relating to nationality and ownership, the parameters for substantiality of an investment, and the requirement that a business be real and operational, with a primary purpose of having commercial activity. We also offer some strategic considerations for individual and corporate applicants for E-2 benefits.
Important for all potential applicants to know is that E-2 visas are not a solution for permanent relocation to the United States. An E-2 visa does not lead to permanent residence. An E-2 visa applicant must also possess the intent to depart the United States upon termination of E-2 status. However, an applicant’s expression of intent to depart the United States after the termination of E-2 status should be accepted by consular officials, even if the applicant does not maintain a residence outside the United States and even if he or she is the beneficiary of an immigrant visa petition. Thus, the nonimmigrant intent requirement has a measure of flexibility and is not strictly interpreted in the E-2 context.
Israeli Nationality of an Investor or a Company Making a Qualifying E-2 Investment
Nationality is a key requirement of E-2 classification. With an individual investor, nationality is clear-cut. The investor must be an Israeli citizen. Where the investor owns at least 50% of the business, the nationality requirement is satisfied. Where an investor for E-2 purposes is an organization and the applicant is an employee, nationals of Israel must own at least 50% of the U.S business. The definition of ownership is literal and strictly construed, meaning that Israelis must own at least 50% of the shares of stock of a business. For individual investors with outright ownership of a new venture, there should be no inquiry into when Israeli citizenship was acquired. There is also no requirement that an Israeli citizen be domiciled (either in fact or for tax purposes) in Israel to secure benefits under the E-2 treaty, although investment by U.S. permanent residents does not qualify.
For corporate applicants seeking to qualify an Israeli-owned enterprise in the United States for E-2 benefits, nationality traces down to the owners of shares of stock of an entity (or to the members of a company organized under a limited liability company statute). The place of incorporation of a business is not relevant. Because traceability of ownership is key, Israeli applicants must comply with requirements of the U.S. Embassy to produce a formal CPA letter to indicate the nature of the enterprise, its structure, the ownership distribution and nationality of shareholders.
The evidentiary burden regarding nationality must be satisfied for an E-2 visa to be issued. If a business in turn owns another business seeking E-2 visa benefits, or if there is a consortium of owners of a new business seeking E-2 registration, consular officials will review the ownership structure of each business and shareholder in the ownership chain.
An Investment Supporting an E-2 Application Must Be Substantial.
E-2 visas require a substantial investment in a new or existing business in the United States. Substantial in this context does not mean a specific dollar amount. However, the investor must irrevocably commit funds sufficient to ensure the successful operation of the business. Additionally, the investment must be large enough to support the likelihood that the investor will be able to successfully develop and direct the business. When evaluating whether an investment is substantial, a consular official will look closely at context to ensure that, in proportion to the enterprise as a whole, the investment is substantial or material to the success of the business. A fractional investment in a business, where the investor’s funds are not meaningful to the success of the business, would likely be insufficient. However, an investment may be comprised of equipment, lease payments, inventory and other goods transferred to the business in the United States. Potential investors should consult qualified counsel to understand the substantiality requirement, which is not always obvious, before making an investment with the goal of securing an E-2 visa.
In assessing substantiality, consular officials will evaluate the scope of an enterprise’s business plan to ensure that the business will make a significant economic contribution within five years from a business becoming operational. Investments in marginal businesses are insufficient for E-2 visa purposes. Under U.S. Department of State policy for E-2 visas, a marginal business is one that does not generate enough income to provide more than a minimal living for an investor and their family, within five years from becoming operational. In start-up scenarios, applicants should be able to establish that the costs for starting a business in question are reasonable and customary for bringing a business onto an operational footing. Market data verifying the feasibility of the start-up is also very helpful evidence.
All applicants for E-2 visas should consider carefully the risk of business failure, or of not realizing projections in a business plan, before proceeding. In adjudicating a request to renew an E-2 visa registration five years after approval, consular officials will scrutinize federal tax returns and the Form 941 filings of a business. A Form 941 is a quarterly report filed by an employer to report income taxes, social security tax and/or Medicare tax withheld from employee paychecks. There are more amplified risks for E-2 investors seeking smaller franchise opportunities to support E-2 classification, or for investors intending to build one-person consulting or services business models. These businesses may struggle to meet the substantiality requirement. While consular officials will review the totality of the facts and circumstances in an application, substantiality of an investment is a core component of eligibility that an applicant must consider before proceeding.
A Business Supporting an E-2 Application Must Be Real and Operational.
A business supporting an E-2 visa must be real and operational. Passive investments, such as investments in real estate or real estate funds, or in limited partnerships or limited liability companies where the investor has no control over the investment, do not merit E-2 classification for an investor. Put another way, if an investor is purchasing a security such as a limited partnership interest in a real estate fund, or investing in stocks or bonds, the investor would not be making an investment into a real and operational business within the context of the rules for E-2 visa classification. This does not rule out E-2 visas for investment companies, such as family offices or funds, which oversee a substantial investment portfolio. However, purely passive investments do not support E-2 visa classification.
A business must be real and active, producing a service or commodity, to merit a grant of E-2 classification. U.S. Department of State guidelines on E-2 visas expressly prohibit granting E-2 classification in cases where an investment is speculative and held for potential appreciation in value, such as undeveloped land or stocks. The investor must have the intent to direct the enterprise.
Considerations for Individual Investors
Potential individual investors should consider all E-2 criteria carefully before proceeding with an E-2 application. E-2 visa applicants flowing funds into a new business should prepare a five-year business plan outlining the objectives of the business, staffing projections, expected costs of operating the business and revenue. Strong business plans would also provide for how a new business will manage shortfalls in revenue or unforeseen events that could disrupt operations. Objective market data to support the feasibility of a business plan would also be persuasive in making a strong E-2 case.
Consular officials carefully screen individual investor applicants launching businesses in the United States to ensure that they have placed their own funds or assets at-risk. The funds or assets must have exchanged hands between the investor and the business. In particular, this means that funds comprising an E-2 investment must be irrevocably committed to an enterprise. If still in the process of investing, an applicant must be close to starting operations. An intent to invest is not sufficient.
Considerations for Corporate E-2 Investors and Emerging Companies
Companies traded exclusively on the Tel Aviv Stock Exchange may qualify to register for E-2 visa benefits to facilitate the transfer of executive, supervisory and essential employees to operations in the United States. This is the case even if an Israeli company made an investment in U.S. operations before E-2 treaty investor visas become available on May 1, 2019. Thus, a publicly traded company in Israel will have the E-2 visa in its toolkit to support the transfer of key personnel (executives, supervisors and essential employees) to a wholly owned subsidiary in the United States after securing an approved E-2 registration. This will result in an overall positive impact for Israeli companies that prefer a more streamlined, cost-effective transfer of key personnel without relying on the L-1 intracompany transferee program.
Privately owned Israeli companies, including emerging companies with venture capital or seed financing, must be acutely aware of the nationality requirements of the E-2 visa. Nationals of Israel must own at least 50% of the business applying for E-2 investor visa registration. This requirement has no exceptions. Therefore, to qualify for and to preserve E-2 status, at least 50% of the stock or ownership interests must remain in Israeli hands. This poses challenges to entrepreneurs and emerging businesses seeking seed or venture financing. It is extremely important for an E-2 visa holder to be aware of how equity investments could result in a loss of E-2 status. This is especially relevant with fast-moving financing of technology companies. Additionally, a corporate reorganization such as an acquisition could disrupt the E-2 nationality requirement.