By H. Ronald Klasko and Patrick Findaro
You are a citizen of China. You do not own and manage a large company in your country and do not plan on owning and managing a large company in the U.S. You are prepared to invest a significant sum of money in the U.S. but are not prepared to wait a substantial amount of time to enter the U.S. Educating your children in the U.S. is a priority, as is entering the U.S. promptly. Avoiding taxation on worldwide income is a goal.
EB-5 may be an answer for some, but not for Chinese nationals who do not want to wait more than 10 years to enter the U.S. Even in countries without quota backlogs, the EB-5 process generally takes about two to three years. And, of course, the result is taxation on worldwide income.
So, is all hope lost? Happily, there is a creative solution that could address their needs.
First, some background. There are numerous countries around the world that have citizenship-by-investment (CBI) programs. However, only three of the countries with an active CBI program have a bilateral investment treaty with the U.S. that allows its nationals to obtain E-2 visas. Grenada is the one country that has a five-year E-2 visa reciprocity, with visa-free access to over 125 countries, including the EU.
Grenadian citizenship can be obtained in three to four months with a donation of $200,000 for a family ($150,000 for an individual) to the Grenada National Transformation Fund. Alternatively, the investor can buy property at an approved CBI project in Grenada for a minimum of $350,000 (or $220,000 for specially designated properties) and make a $50,000 donation to the Grenada National Transformation Fund. The property must be held for five years, after which time it can be sold. The end result is a passport that allows visa-free travel to over 125 countries around the world, including the U.K., the Schengen countries in Europe, the UAE and Russia.
With Grenadian citizenship, you are eligible to apply for an E-2 visa, assuming you make a substantial investment in a business in the U.S. of which you own at least 50 percent. Although either the donation option or the property purchase option qualifies for E-2 visa issuance as a citizen of Grenada, some consulates prefer the investor having a property address in Grenada to establish a “nexus” with that country.
E-2 Visa Requirements
Since the E-2 visa is an investment visa, it is not surprising that the amount of investment is critical for E-2 approvability. What is surprising is that there is no exact amount of investment required. Rather, the investment must be “substantial.” A substantial investment is defined not just by the total amount of the investment but by whether the investment is sufficient to create a viable, profitable and growing business. The required amount is very different depending on the type of business. For example, a $200,000 investment in a restaurant franchise may be “substantial,” whereas the same investment in a manufacturing company would not. Also, the amount of the investment should be a substantial proportion of the total amount of the investment required. The higher the investment amount, the lower the percentage of the total investment required.
There is also no exact job-creation requirement. However, the investment should do more than just earn a living for the investor. An investment that results in employment for other workers is helpful in this regard. To support the substantiality of the investment and the job creation, a business plan is usually critical. Unlike with other non-immigrant visas, there is no requirement that an E-2 visa applicant prove a residence overseas to which he intends to return. However, the E-2 applicant must satisfy the consular officer that he or she will not remain in the U.S. permanently and that, if the applicant applies for permanent residency, such application will be pursued at a U.S. consulate outside of the U.S.
Many Asian investors are not interested in day-to-day management of a business in the U.S. Unlike the L-1 and EB-1C multinational manager petition, in which the investor must qualify for immigration as a manager, with the E-2 visa you can qualify for the visa as an investor. To meet the “develop and direct” requirement, you have a choice of either managing the business or hiring a manager and then overseeing the manager, which can be done remotely. Depending on the amount of time you spend in the U.S., you can avoid taxation on worldwide income. Your children can go to public or private school in the U.S. and may be able to obtain in-state tuition.
Terms and Benefits of E-2 Visa
The E-2 visa for Grenada citizens is issued for five years and can be renewed indefinitely, assuming the business remains viable. For the Chinese EB-5 investor, the E-2 visa can fill the entire waiting period. When the child turns 21, he or she can either change status to F-1 or, because of being a Grenadian citizen, make his or her own E-2 investment. If one of the spouses wants to work outside of the investment enterprise, the other spouse could be the investor, and the derivative spouse can get an employment document, allowing him or her to work anywhere in the U.S.
The E-2 visa option has the added benefit of avoiding the need to make any filing with USCIS. The application can be made directly at a U.S. consulate.
The E-2 investment amount can be used as a down payment on a direct EB-5 project. If, for example, you invest $300,000 for your E-2 business, which employs five people, by adding $200,000 and five employees, you would be able to file a direct EB-5 petition if the business is in a TEA.
E-2 Investments in Franchises
Many E-2 visa investors are unfamiliar with the United States business environment and do not feel comfortable starting a business from scratch. Others want to invest in the most secure business type possible to ensure the E-2 visa is maintained for five-plus years. For these reasons and more, many Grenada E-2 visa investors elect to invest in a franchise instead of starting their own independent business in the U.S. Investors often receive training, marketing and operational support from the franchisor in addition to many other benefits.
The investment level is an important factor when deciding which franchise investment opportunities are available to the franchise investor. Therefore, the investor needs to figure out what would be a comfortable investment range. It is recommended to invest a minimum of $200,000 when deciding on potential E-2 visa businesses, although in some cases it is possible to invest a lesser amount for E-2. A higher total investment level significantly increases the number of franchise investment opportunities that are available to the investor. A level of investment of $300,000 opens up many more opportunities than an investment level of $200,000 or less. If the investor is looking for something in the restaurant industry, typically the investment increases to $400,000 or more.
Level of Involvement
Are you interested in running the day-to-day operations of the business or prefer to hire a manager and maintain a more strategic executive role in the franchise? Early in the process, the franchise business investor needs to determine what level of involvement he will want to have in the business, as this will dictate which businesses are potential options. Many Grenadian E-2 visa investors prefer to hire or partner with an operational manager and, alongside the manager, learn nuances of U.S. business culture and that particular industry.
It is important for investors to determine what they are looking for in the franchise business. Important questions include: What level of investment return does the investment opportunity offer? Does the income need to fully support you and your family, or will it be supplemental income? For how long do you foresee staying on the E-2 visa? Would you like to transition to the EB-5 visa and increase your investment overtime? How many hours a week do you want to dedicate to the business? Are you open to different industries? How important is the location of the business?
These questions are a few of the important ones that the franchise business investor needs to ask in order to help determine which franchise opportunities best fit his or her profile.
Characteristics of the franchise business investment
After the investor goes through the aforementioned points to figure out his own individual profile and goals, he is ready to begin looking at potential franchise business investments. Universal characteristics of recommended franchise business investments are recurring revenues, high profit margin, a strong management team, available locations and accepting foreign nationals on investor visas.
Recurring revenue is defined as ongoing income that the business receives from clients. This could be a nail salon that 90 percent of its clients visit monthly or a barbershop where vast majority of clients visit every six weeks. Recurring revenue ensures stability in the business and the sales team can focus on building its base of customers.
Many of the most profitable businesses have high profit margins. An example would be an ice cream shop that costs 10 cents to produce a cup of ice cream and sells the same product for $5. Ideally, the business has both recurring revenue and a high profit margin, as a high profit margin alone often comes with high fluctuations in daily, weekly and monthly sales. This makes the business less predictable and can create issues, especially when fixed costs are high.
A major reason why investors enter into franchising is the initial and ongoing support received by the franchisor or operating partner. Franchisors help franchisees with a variety of aspects, including: assisting in site selection and development; training; assisting with hiring of personnel; leading marketing campaigns; maintaining relationships with suppliers; and offering ongoing operational support. Many Grenadian E-2 visa investors require a day-to-day manager provided by the franchisor.
The area where the franchise unit is located is another integral part of the process when deciding on the right franchise investment. Rent and other operating expenditures might be too costly and risky for the specific business in a given area, or the territory might be sold out. That is why it helps to be flexible when choosing the area to open and operate the business. Parts of California, New York and Illinois are extremely cost prohibitive to starting a business.
Roughly 30 percent of franchises do not accept foreign nationals or non-green card holders as franchisees. Additionally, many of the franchises that do not accept that foreign nationals are among the most established and well-known brands. Many of the large franchise brands like Burger King, Pizza Hut and Taco Bell might allow foreign national ownership but require a five- to 10-unit development agreement that often requires $5 million in capital. And forget Starbucks, as it is not even a franchise in the U.S.! Emerging franchise concepts tend to be more open to working with foreign nationals looking to select a franchise business investment that they can develop and grow.
Understanding your unique investment profile
Flexibility and the ability to invest a higher investment amount lead to more potential options being available. It is important that investors remember the main goals of the investment as well as all the most important characteristics that they would like to see in a franchise business investment. At a time of unprecedented restrictive adjudications by USCIS and a corresponding reduction of alternatives available to clients, the Grenada citizenship/E-2 visa application option is a particularly creative and helpful alternative. To make the process more user friendly, clients often need a package of services that includes introduction to a Grenadian agent; legal services relating to the E-2 visa process; providing business opportunities (usually franchises) that meet E-2 requirements; and introduction to an E-2 business plan writer.
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