Treaty Investor E-2 Visa Advice Bits – The Irrevocable, Active Business & Risk Factors

Investing.jpgMost foreign investors believe that obtaining a treaty investor E-2 visa is accomplished by placing funds in a US bank account that has been earmarked for investment into a US enterprise. In fact, “Treaty Investor” E-2 visa regulations require that such funds be placed at risk in the commercial sense irrevocably into an active investment. Note the emphasis on the aforementioned words which will be explained in greater details below.

What is an Active Investment for Treaty Investor E-2 Visa Purposes?

In order to satisfy the E-2 visa regulatory criteria, the investor must present evidence to the US Consulate or the US Citizenship & Immigration Service, that she had placed its own funds into an investment which requires the investor’s involvement. A passive investment such as an income generating real estate ventures which do not require any active participation of the investor (example: rental property) will not meet the E-2 visa rules.

Real estate investments are normally attractive for foreign investors due to their appreciation in value with the passage of time (though not recently). Many foreign investors prefer to place their funds into a property which will not only appreciate in value, but will also create a guaranteed stream of income over a term of years. There are numerous investment opportunities that fulfill these objectives such as triple net long term leases offered by franchise chains and other real estate management companies. But without the foreign investor’s active participation in the operation of the business enterprise, the investment may not be deemed “active” under treaty investor “E-2 visa” regulations.

An example of certain real estate investments that would satisfy the treaty investor E-2 visa “active investment” regulations include development companies that purchase, develop, improve, construct and/or manage real properties. One can see the difference between “active” versus passive real estate investments. Like real estate, any other investment meets the treaty investor E-2 visa regulations if the foreign national actively managed the enterprise.

How Are Funds Placed At Risk in the Commercial Sense?

In addition to having an active business endeavor Treaty Investor E-2 visa regulations also require that the funds be placed at risk irrevocably. To meet this criterion the foreign investor must show that she expended funds into a business commitment with hopes that her investment will reap revenues. If business fortunes dwindle, the foreign investor stands to lose her initial capital. Hence, the irrevocable commitment connotes placing or committing actual funds in the market place. This can be accomplished by the purchase of inventory, fixtures, furniture, or equipment or the lease of real estate, etc. In other words, this E-2 visa criterion will be met upon the showing that funds have actually been committed towards the investment enterprise. The irrevocable commitment of funds must occur and be documented at the time of the application for treaty investor.

Many of my clients detest this concept. They do not believe it is fair to commit their funds prior to receiving approval for their treaty investor visa application. They argue that should their applicaitons be denied, they will have invested into a business without being able to be present to operate it. By in large, this is one of the reasons that detract some foreign investors from expending their resources in the US.

It must be remembered that US immigration laws have a solution for this seemingly practical dilemma. An irrevocable commitment of funds can be shown by the use of a legal vehicle available in US business transactions called “escrow agreements.” Escrow agreements is a novel business tool often used to facilitate the transfer of funds upon the occurrence of a condition subsequent. I know I am using big words but let me simplify because this mechanism truly underscores the American entrepreneurship ingenuity.

An escrow agreement is contract between three parties: 1) the promissory – this is the foreign investor making the purchase of certain inventory, equipment, etc. and making promise to pay; 2) the promissee – this is usually the person selling property and receiving funds; and 3) the escrow agent – usually a bank, who will hold the funds in trust and will dispose of them upon the occurrence or non-occurrence of a future event (called condition subsequent). The agreement sets forth that funds will be placed by the foreign investor in the control of the escrow agent. The agreement sets forth what will be purchased, and that the funds will be released to the promisee (seller) only and only if the E-2 visa applicaiton is approved.

This mechanism satisfies the “at risk” requirements of the treaty investor E-2 visa regulations because the escrow agent is bound to release the funds placed by the foreign investor to the sellers upon the approval of the E-2 visa application. Should the E-2 visa application be denied, the funds will return back to the foreign investor. The escrow agreement mechanism is an irrivocable committement of placing funds at risk; hence it satisfies the regulatory requrieements.

By using the escrow agreement mechanism, the foreign investor will not have actually “spent” her money into an investment prior to the approval of the E-2 visa application. Hence, this legal strategy offers a practical solution for foreign investors who want to assure that their funds return to them should the unforeseen denial of their treaty investor E-2 visa application occur.

It must be stressed that working with experienced legal counsel is crucial for a successful treaty investor E-2 application. Attorney Gus M. Shihab has represented numerous business investors and real estate developers for nearly 17 years. He has an unparalleled reputation in getting approval for treaty investor visas for a variety of foreign investors. He is a licensed professional civil engineer who understands the ins and outs of real estate developments as well as engineering and legal issues involved in establishing a business enterprise. Call the Law Firm of Shihab & Associates at 1-877-479-4872.