E2 Visa Tax for E2 Visa Entrepreneurs in the United States

If you’re an E2 visa applicant or already an E2 visa holder, you might be wondering about taxes in the United States. The E2 visa is a great chance for entrepreneurs, but it means you have to deal with taxes, too. Let’s explore your E2 visa tax responsibilities in this article.

Understanding the E2 treaty investor visa

An E2 visa, also known as a treaty investor visa, is a remarkable opportunity for individuals who meet specific investment requirements to live and work in the United States. This visa category is available to nationals of certain countries that have established trade treaties with the US, and it comes with a range of benefits for eligible applicants.

Here’s a closer look at the key aspects of the E2 visa:

Substantial investment

To qualify for an E2 visa, individuals must make a substantial capital investment in a US business. This investment is considered substantial in relation to the total cost of purchasing an existing enterprise or establishing a new one. The investment must demonstrate a genuine financial commitment to the successful operation of the enterprise.

At risk

An essential element of the E2 visa is that the invested capital must be “at risk” in the commercial sense. In other words, the investment capital must be at risk of either partial or complete loss in case the business venture doesn’t thrive. This distinguishes E2 visa investments from passive investments that do not involve such risk.

Nationality

E2 visas are available only to nationals of countries with trade treaties with the United States. These treaties vary from country to country, and eligibility depends on your nationality.

Work authorization

E2 visa holders can work in the US within the business they have invested in. This provides a unique opportunity to actively engage in their chosen entrepreneurial ventures.

Freedom of travel

E2 visa holders can freely travel to and from the United States. This flexibility is valuable for international business operations and personal travel.

Length of stay

E2 visas are typically granted for two years, but they can be extended indefinitely, provided that the visa holder maintains compliance with the ongoing E2 visa criteria.

Family accompaniment

E2 visa holders can bring their qualifying dependents, including their spouses and children under 21. Spouses are eligible to work in the US. Additionally, children can enroll in schools and academic institutions without needing a separate student visa.

Do E2 visa holders need to pay US taxes?

Yes, E2 visa holders must pay US taxes on their qualifying income. The United States tax system mandates that individuals who earn income within the country, regardless of their visa status, fulfill their tax obligations.

The tax liability for E2 visa holders depends on their tax status, which is determined by factors like the substantial presence test and applicable tax treaties between the US and their home country.

The substantial presence test

The substantial presence test is a key factor in determining an individual’s US tax residency. It involves calculating the number of days an individual has been physically present in the United States over a specified period. The test uses the following formula:

All the days the individual spent in the United States during the current tax year.
One-third of the days they were present in the tax year immediately preceding the current year.
One-sixth of the days they were present in the tax year two years before the current year.

If the individual has spent a minimum of 30 days in the United States during the current year and a total of at least 183 days over a three-year period (calculated using the formula mentioned above), they are generally classified as a US tax resident and are required to pay US income tax on their worldwide income.

Example A: Nonresident status

If an investor was present in the United States for 100 days in 2020, 60 days in 2021, and 120 days in 2022, the calculation would be as follows:

2020 = 100 days
2021 = 60 days/3 = 20 days
2022 = 120 days/6 = 20 days

The cumulative total is 140 days, which means the investor would not meet the substantial presence test criteria and, therefore, would not be liable for US income tax on their global income. Instead, they would only be obligated to pay tax on the income they earned while working within the United States.

Example B: US tax resident status

If an investor was present in the United States for 195 days in 2020, 210 days in 2021, and 180 days in 2022, the calculation would be as follows:

2020 = 195 days
2021 = 210 days/3 = 70 days
2022 = 180 days/6 = 30 days

With a total of 295 days, the investor would meet the substantial presence test requirements, making them eligible for US tax resident status. Consequently, they would be liable for US income tax on their worldwide income unless they qualify for another exception to mitigate their tax liability.

Avoiding E2 visa tax residency

There are exceptions and alternatives for an E2 visa holder to prevent being categorized as a resident alien and, instead, maintain nonresident status for US tax purposes:

Closer connection exception

To qualify for this exception, you should ensure that you don’t spend more than 182 days in the US during the current tax year. Demonstrating a “closer connection” to your home country, typically through ties like family, assets, or business interests, can help you maintain nonresident tax status. Filing IRS Form 8840 is necessary to establish this closer connection.

Treaty tiebreaker

Many US tax treaties, such as the United States-Germany Tax Treaty, offer a “treaty tiebreaker” provision. This provision allows you to be treated as a nonresident alien for tax purposes even if you meet the substantial presence test. To utilize this provision, file IRS Form 1040-NR and attach Form 8833, disclosing your treaty-based return position. Keep in mind that you may still have tax obligations on specific types of income.

E2 visa tax for resident aliens

As a resident alien in the United States, you have certain tax obligations and will need to report both your foreign and US income using various forms, depending on the types of income you have. Below is a breakdown of these forms and the penalties associated with non-compliance:

FBAR (FinCEN 114)

Form purpose: Reporting foreign bank and financial accounts.
Threshold: If you have financial interest or signature authority over a foreign account exceeding $10,000 during the financial year.
Penalties: Willful violations can result in a penalty greater than $100,000 or 50% of the total account balance per violation. Non-willful violations without reasonable cause incur a $10,000 penalty per violation.

Form 8938

Form purpose: Reporting foreign financial assets.
Threshold: Required if you have foreign financial assets with an aggregate value exceeding $50,000.
Penalties: Starting at $10,000, with an additional $10,000 per month for each month the failure continues after notice of delinquency, up to a maximum of $50,000 per return.

Form 3520

Form purpose: Reporting substantial foreign gifts, foreign businesses, or distributions.
Threshold: Reporting gifts above $100,000 or certain foreign business transactions.
Penalties: Penalties depend on the specifics of the reporting requirements and the nature of the gifts or transactions.

Form 3520-A

Form purpose: Reporting foreign trusts as a US person.
Penalties: Non-compliance penalties can be substantial and vary depending on the circumstances.

Form 5471

Form purpose: Reporting ownership in foreign corporations.
Threshold: Generally required if you own at least 10% of a foreign corporation.
Penalties: Penalties start at $10,000 and increase with continued non-compliance.

Form 5472

Form purpose: Reporting interest, ownership, or control in any foreign corporation.
Penalties: Penalties may apply for non-compliance, with amounts depending on the specifics of the reporting requirements.

Form 8621

Form purpose: Reporting ownership in a Passive Foreign Investment Company (PFIC).
Threshold: Generally required if you have any interest in a PFIC.
Penalties: While there are no specific numerical penalties, failing to file Form 8621 can keep your tax return open to IRS audits, potentially affecting the statute of limitations.

You Don't Know Which Business To Go For Your E2 Visa?

E2 visa tax for nonresidents

When you have nonresident status, you are only required to file a tax return for the income you earn in the United States. There are two main types of income taxed for nonresidents: Effectively Connected Income (ECI) and Fixed or Determinable, Annual, or Periodic Income (FDAP).

Effectively Connected Income (ECI)

ECI pertains to income earned from your work or business activities in the United States. It is taxed using a progressive tax rate, which means the rate increases as your income rises.

Fixed or Determinable, Annual, or Periodic Income (FDAP)

FDAP, which stands for Fixed or Determinable, Annual, or Periodic Income, encompasses passive income sources like dividends, rents, or royalties. This category of income is subject to taxation at a flat rate.

For nonresident tax reporting, Form 1040NR, known as the US Nonresident Alien Income Tax Return, is the essential document. Both ECI and FDAP income should be reported on this form.

While FDAP income is typically taxed at a standard 30% rate, E2 investors eligible for treaty benefits may qualify for a reduced tax rate. Notably, no deductions are permitted against FDAP income.

What are the E2 visa tax considerations for LLCs and C-Corporations?

Two common choices for foreign entrepreneurs are Limited Liability Companies (LLCs) and C-Corporations. Each structure has its own set of tax considerations, and it’s important to weigh the pros and cons before making a decision.

LLCs

Pass-through taxation

Creating an LLC offers a significant advantage in the form of pass-through taxation. This concept entails that the LLC entity itself is not responsible for paying federal income taxes. Instead, the profits and losses generated by the LLC are passed through to the individual members, who report these figures on their personal tax returns. For E2 visa holders operating under an LLC structure, this means reporting their portion of the business income on their personal tax returns, which could potentially lead to lower individual tax rates being applied.

Self-employment tax

E2 visa holders actively involved in the daily operations of the LLC may be subject to self-employment tax on their share of the company’s income. This includes Social Security and Medicare contributions and may amount to a substantial financial obligation.

State taxes

State tax laws can vary, and LLCs may be subject to state income taxes, annual report fees, or franchise taxes, depending on the state where they are located.

C-Corporations

Double taxation

Unlike LLCs, C-Corporations are subject to double taxation. The corporation itself pays federal income tax on its profits, and then shareholders pay individual income tax on any dividends received. This can result in a higher tax burden for E2 visa holders operating as C-Corporations.

Retained earnings

C-Corporations have more flexibility in retaining earnings within the company, which can be advantageous for reinvesting in the business. However, this retained income is subject to corporate income tax.

Fringe benefits

C-Corporations can provide certain fringe benefits to employees, including health insurance and retirement plans, which may be tax-deductible for the corporation.

State taxes

Similar to LLCs, C-Corporations may also be subject to various state taxes, depending on their location.

Ensuring compliance with E2 visa tax

Here are the key steps to ensure compliance with E2 visa tax:

Determine your tax status: The first step is knowing your tax status in the United States. Follow the steps above to determine whether you’re a resident or nonresident alien.
Understand your taxable income: Identify all income sources subject to US taxation. This includes income earned within the United States and income generated internationally, depending on your tax status.
Maintain accurate records: Keep meticulous records of your financial transactions, including income, expenses, and investments. Good record-keeping is essential for accurate tax reporting.
File tax returns: E2 visa holders must annually submit their tax returns to the Internal Revenue Service (IRS). The specific forms you need to file depend on your tax status and the nature of your income. Refer to the forms mentioned above.
Report foreign assets: If you have financial interests in foreign bank accounts or assets, you may be required to report them to the US government. Not reporting foreign assets can lead to significant penalties.
Consider state taxes: Aside from federal taxes, be aware that you may also be subject to state taxes depending on the state where you reside or conduct business. State tax laws can vary significantly.
Pay taxes promptly: Ensure you pay your taxes on time to avoid penalties and interest charges. The US tax system operates on a pay-as-you-go basis, so it’s important to meet your tax obligations throughout the year.
Seek professional help: Consult a qualified tax professional specializing in international taxation or with experience with E2 visa holders. They can provide guidance on your tax situation, help you identify deductions and credits, and ensure compliance with tax laws.
Stay informed: US tax laws can change, so stay updated about amendments that may affect your tax situation. The IRS website and tax professionals can be valuable resources for staying up-to-date.

How E2VisaFranchises can help

Compliance with E2 visa tax is crucial to maintaining legal status and avoiding potential issues with US authorities. By following these guidelines and seeking professional guidance when necessary, you can fulfill your tax obligations and enjoy the benefits of your E2 visa in the United States.

E2VisaFranchises offers the essential support you need for your E2 visa journey. Beyond tax compliance, we help you explore and invest in compatible franchise opportunities that match your goals and resources. Our expertise ensures you navigate the complexities of franchise ownership while staying in line with your visa requirements. Give us a call today.

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What are lawful sources of investment funds for an E2 visa?

For an E2 visa, the funds you invest in a U.S. business must come from a lawful source. This means the money must be earned or obtained through legal means. The U.S. Citizenship and Immigration Services (USCIS) and the U.S. Department of State require clear documentation that proves both the origin of the funds and their legal path into the investor’s control.

Here are accepted lawful sources:

1. Earnings from Employment or Business

Income from a job, dividends, or profits from a business you legally own and operate.

You must show tax returns, pay stubs, or business financials to verify the income source.
Business records should match declared income.

2. Sale of Property

Proceeds from selling land, a house, or other personal property are lawful, just provide the documents proving ownership and the transaction.

Include the purchase contract, closing statement, and bank records showing the money going into your account.

3. Gifts

Money given to you as a gift is acceptable if the giver obtained the money legally and you received full control of the funds.

Provide a signed gift letter.
Prove the donor’s lawful source (tax documents or bank records).

4. Inheritance

Funds inherited through a legal process can be used.

Show the will or legal documentation of inheritance.
Include transfer records showing the money entering your account.

5. Loans

Loans are allowed, but only if they are:

Secured by your personal assets (not by the assets of the U.S. business).
From a legitimate source like a bank or individual.

You must prove:

The loan terms.
The identity and financial legitimacy of the lender.
That you are personally liable for repayment.

What is not allowed?

Unsecured loans backed by the E2 business itself.
Money obtained through illegal activity.
Undocumented cash transfers.

What are the first steps to take when applying for an E2 visa?

Before applying for an E2 visa, you need to lay the groundwork. U.S. immigration authorities require evidence of a lawful investment, a real business, and your direct involvement in it.

Here’s how to begin:

1. Check your nationality

E2 visas are only available to citizens of countries that have a treaty with the United States. You can find the full list on the U.S. Department of State website. If your country isn’t listed, you aren’t eligible for this visa.

2. Select or establish a U.S. business

You may start a business from the ground up, buy one that already exists, or invest in a franchise. It must be an active, operating enterprise. Holding an asset like land or stock does not meet the requirement.

3. Invest your capital

You’ll need to invest a significant amount of your own money. The investment must already be committed or actively in the process of being spent. There is no set minimum, but it must match the scale of the business and show that you are financially involved.

4. Prepare a business plan

A solid business plan is essential. It should outline the business model, hiring plans, operational structure, and projected financial performance over five years. Your plan should also describe your day-to-day role in managing the company.

5. Gather supporting documents

Prepare records that prove:

Your nationality
The origin and legal path of your investment funds
Details of the business structure and operations
Business licenses, contracts, or lease agreements, if applicable

6. Choose where to apply

If you’re outside the U.S., you will apply at a U.S. embassy or consulate. If you are inside the U.S. under valid non-immigrant status, you can file Form I-129 with the U.S. Citizenship and Immigration Services (USCIS) to request a change of status.

What are the stages of the E2 visa process that affect processing time?

Every E2 visa application moves through a series of steps, but not all of them take the same amount of time or are within your control. The timeline depends just as much on how prepared you are as it does on government processing. Below is a breakdown of the key stages that influence how long your E2 application may take from start to finish.

1. Setting up the business and making the investment

Before submitting an application, the business must be active or close to launching. This includes forming the company, transferring funds, signing leases, making purchases, and showing that the investment is committed. This stage often takes the longest, especially if you’re starting from scratch.

2. Preparing the application package

All required documentation must be collected and organized. This includes proof of lawful source of funds, ownership details, a comprehensive business plan, and evidence that the business is real and operating. The quality and completeness of this package directly impact review time later.

3. Filing the application

Applicants inside the U.S. file Form I-129 with the U.S. Citizenship and Immigration Services (USCIS). Those applying from outside the U.S. complete Form DS-160 and submit their E2 package to a U.S. consulate. Processing speed varies by location and method.

4. Interview scheduling and wait time

Applicants going through a consulate must attend a visa interview. The wait time for appointments depends on the consulate and can range from a few days to several weeks. Up-to-date estimates are published on the Department of State website.

5. Case review and decision

Consular officers typically make a decision shortly after the interview, unless the case is sent for administrative processing, which can delay approval. The USCIS may issue a Request for Evidence (RFE), which pauses the process until a complete response is submitted.

6. Visa issuance or status confirmation

If approved at a consulate, the visa is printed and returned with the applicant’s passport. If approved by the USCIS, the applicant receives a notice confirming the change to E2 status. Timing at this stage is usually short, unless there are delays in document return or mail handling.

What does it mean to direct and develop an E2 business?

An E2 visa applicant must show that they are entering the United States to direct and develop the business receiving the investment. This refers to active involvement in both the management and growth of the enterprise.

To direct the business means taking responsibility for how it operates. This includes making decisions about hiring, finances, contracts, and daily functions. The applicant must hold a position that allows them to influence business strategy and outcomes.

To develop the business means leading its progress. The applicant is expected to guide expansion, monitor performance, and take actions that support long-term success.

Passive investors do not qualify. Individuals who provide funding but are not involved in the management of the company do not meet this requirement.

For instance, an investor who opens a small restaurant and manages hiring, supplier selection, pricing, and marketing would likely meet the standard. If they are listed as the managing member in official records and their business plan outlines how they will lead the business over time, this supports their eligibility.

Key points that define the direct and develop requirement:

Ownership and control
- A 50 percent ownership stake typically meets the control requirement.
- If ownership is less than 50 percent, the investor must show they control decision-making or hold a senior managerial role.
Active management
- The investor must be directly involved in major business functions.
- This includes setting strategic direction, supervising operations, and making decisions that affect performance and growth.
Non-passive role
- The role must go beyond daily tasks. Investors should focus on business oversight and strategic planning.
- For example, a café owner should not be limited to preparing food but should handle expansion plans, marketing strategy, or supply chain management.
Shared ownership
- In cases of joint ownership (such as 50/50), both parties must be equally involved in managing the business. Each must show active participation and control.
Foreign business ownership
- If the applicant is a foreign business entity rather than an individual, that entity must still demonstrate that it is directly involved in managing and developing the U.S. operations.
E2 employees
- Employees under E2 status are not required to meet this standard. Their qualifications are assessed separately based on their job role and essential skills.

Documents that help demonstrate this requirement include company formation records, leadership titles, an organizational chart, and a business plan describing the investor’s duties and responsibilities.

What qualifies as an ‘Active, For-Profit Business’ under the E2 visa?

To qualify for an E2 visa, an investor must place a substantial amount of capital into an ‘active, for-profit’ enterprise in the United States. The U.S. Citizenship and Immigration Services (USCIS) defines this as a bona fide enterprise, meaning a real, operating business that produces goods or services for profit and complies with all relevant U.S. laws and regulations.

While the regulatory language sets clear expectations, applicants often benefit from understanding how these standards translate in real-world situations. The E2 visa isn’t granted simply because a business is legally formed or capitalized. What matters is whether the business is genuinely active and positioned to contribute economically.

Consider an entrepreneur who opens a bakery. The business has a leased commercial location, kitchen equipment in use, a functioning point-of-sale system, and a small team of employees serving customers daily. This venture is clearly active, operational, and generating revenue through the sale of goods. It also contributes to the local economy through employment and tax generation. This kind of business meets not only the technical criteria but also the spirit of the E2 visa program.

By contrast, an investor who purchases a residential property with the intent of generating rental income would not qualify. Real estate held for passive income is not considered a business under E2 requirements. There is no operational structure, no service or product offering, and no ongoing business activity. The same applies to investments in stocks or cryptocurrency portfolios. Regardless of their value, they do not involve the kind of active management or commercial engagement the E2 visa is designed to support.

Another important consideration is whether the business is marginal. A business may be active and legal, but if it is unlikely to generate more than minimal income, enough only to support the investor and their dependents, it may still be rejected. For example, a sole proprietorship that brings in limited revenue with no intention or capacity to expand or hire would raise concerns. In contrast, a business that is modest in size but has clear plans for growth, job creation, and reinvestment is much more likely to meet the threshold.

The E2 visa is fundamentally about investment in the U.S. economy, not just entry for self-employment. Officers reviewing your application are not only looking for legal compliance. They are also evaluating whether your business is real, active, and economically meaningful. That means demonstrating commercial activity, showing operational infrastructure, and providing a credible roadmap for sustainability and growth.

In summary, a strong E2 application shows a business that is already operating or clearly ready to launch, supported by evidence of real investment, sound planning, and the potential for lasting economic contribution.

What is the process of getting an E2 visa? A step-by-step E2 visa application checklist

Use this checklist to track your progress as you prepare and apply for the E2 visa. Each item reflects a key part of the process, aligned with official U.S. Citizenship and Immigration Services (USCIS) and Department of State guidance.

1. Confirm Eligibility

☐ I am a citizen of a country that maintains an E2 treaty with the United States

☐ I am investing in a real, operating U.S. business

☐ I will develop and direct the business myself (not a passive investor)

2. Establish and Fund the Business

☐ I have legally formed a U.S. business entity (Limited Liability Company or LLC, Corporation, etc.)

☐ I have opened and funded a U.S. business bank account

☐ I have already committed or spent a substantial amount of capital

☐ My business has secured a lease, purchased equipment, or hired staff

☐ The business is already operating or ready to launch immediately upon approval

3. Gather Supporting Documents

☐ I have a valid passport showing my nationality

☐ I have a detailed business plan with five-year projections

☐ I can provide proof of my investment (receipts, wire transfers, contracts)

☐ I have my company’s incorporation documents and ownership records

☐ I can clearly explain my role in directing and developing the business

☐ I have documentation related to current or future employees

4. Submit the Application

If applying from outside the U.S.:

☐ I completed Form DS-160 (Online Non-immigrant Visa Application)

☐ I completed Form DS-156E (Treaty Investor Application)

☐ I paid the application fee and followed embassy-specific instructions

☐ I scheduled my visa interview at the U.S. Embassy or Consulate

If applying from within the U.S.:

☐ I filed Form I-129 to request a change of status to E2

☐ I included Form I-539 for any dependents, if needed

☐ I submitted all required documents and paid the correct filing fee

5. Attend the Interview

☐ I prepared to explain my business operations, financials, and role

☐ I brought all required documents, including originals

☐ I demonstrated that my investment is real, and the business has potential

☐ I confirmed I plan to leave the U.S. when my E2 status ends

6. Receive a Decision

☐ I received the visa in my passport (if applying abroad), or

☐ I received an I-797 Approval Notice (if applying from within the U.S.)

☐ I reviewed the validity period and any conditions of approval

☐ I finalized plans to enter the U.S. and begin operations

7. Maintain Status

☐ I am actively running the business and following all U.S. regulations

☐ I am keeping records of income, expenses, taxes, and employment

☐ I filed for an extension before my E2 status expired

☐ I continue to intend to depart the U.S. when my visa status ends

What documentation is necessary for the E2 visa application process?

Most E2 visa applications don’t fail because of the business itself. They fail because the paperwork doesn’t make the case clearly. The documents you submit must show, with precision, that your investment is active, substantial, and lawfully sourced, and that your business is prepared to operate and create value in the U.S. market.

This list is designed to help you prepare a complete, credible application. Whether you’re applying through a consulate or from within the United States, the items below reflect what adjudicators are actually looking for based on current guidance from the U.S. Citizenship and Immigration Services (USCIS) and the Department of State.

General Eligibility Documents

Valid passport (must be valid for at least six months beyond your intended stay)
Recent passport-style photo that meets U.S. visa photo standards
Proof of nationality from a treaty country
Statement confirming intent to depart the U.S. when E2 status ends

Application Forms