In recent years, many non-U.S. citizens living overseas have gained U.S. citizenship by buying a business in the United States. A very common destination spot for such buyers is South Florida. In addition to the great weather and low taxes, our proximity to Central and South America is a huge draw for the overseas buyer wanting a better life (or fleeing a despotic regime such as Venezuela). What is the criteria for whether the U.S. business qualifies under American immigration law when a business buyer uses an E2 Visa, and how can sellers here in Palm Beach County take advantage of this situation so their business can sell for the best possible price? In short, the rules governing whether a U.S. business qualifies for an overseas buyer’s use of an E2 Visa vary with the buyer’s country of origin. But as a general rule, the immigration authorities will look at whether the U.S. business being purchased has a certain amount of verifiable sales and profits on their tax return, whether the U.S. business being purchased has some minimum amount of employees or independent contractors, and whether there is a long-term lease in place (or if real estate is associated with the purchase).
The first criteria that the business has a minimal level of sales or profits (on the tax return) in order for it to qualify to be purchased by a buyer seeking an E2 Visa should not be surprising. The purpose of the E2 Visa rule is to support economic growth in the United States by attracting immigrants who purchase functioning business that produce revenues and profits. Without a certain degree of sales and profits (on the tax returns), then the immigration authorities may think the business ‘sale’ is really just a scam that enables the immigrant to obtain citizenship. The necessary level of sales or profits vary with the immigrant’s country of origin and with the local rules set up by the American embassy. Typically a $100,000 or so in sales and a measurable amount (say $30,000 or so) of profits is sufficient. For the business owner here in Palm Beach County seeking to sell their business, it amplifies why having reasonably clear and accurate tax returns is essential when it comes time to sell their business.
The second criteria for an overseas buyer seeking an E2 Visa via purchasing a U.S. business is that the subject business has at least one or two paid W2 employees (or independent contractors if there is sufficient documentation). The reason for this rule is to simply ensure that the business being sold is an actual business and not just a ‘job.’ For example, a realtor may decide to self-incorporate but has no employees. This is not a ‘business’ for purposes of an E2 Visa because without the seller of the business (the realtor) there is no business! This would essentially allow the same sort of ‘scam’ where the overseas buyer is not purchasing a functioning business that provides jobs that will still function after the sale. Martin at Five Star Business Brokers of Palm Beach County has also seen some business owners pay their employees only in cash. Unfortunately, such a business is unlikely to qualify as an E2 Visa business because – in the eyes of the immigration authorities – such a business has no employees. It is critically important that before selling a business, the intelligent business owner puts such ‘cash’ employees on the books so that overseas buyers seeking an E2 Visa can legally purchase the business.
The final general criteria when determining whether a U.S. business qualifies for an E2 Visa buyer is whether the business has a long-term lease or has real estate attached to the business. This factor – generally speaking – eliminates most home-based businesses. Sellers of home-based businesses may indeed have quite valuable businesses, but generally their business would not qualify for the E2 Visa business buyer. If the business seller does not have a long term lease in place (long term is usually considered to be three years or more), then the E2 Visa business buyer can be allowed to extend the lease with the landlord concurrent with the business sale. The seller of the business – prior to the sale and in consultation with Five Star Business Brokers of Palm Beach County – may wish to ensure their landlord is amenable to extending the lease for a future buyer of a business. Usually the landlord will want to extend the lease in order to ensure a stable source of income. This is particularly the case in today’s post-Covid business environment. If the business seller owns the commercial real estate housing the business, then that will greatly help the business qualify for the E2 Visa business buyer. This shows the immigration authorities that the business is usually quite stable and has longevity. Remember, the point of the E2 Visa program is to have the overseas business buyer be a long-term business owner and contribute to a prosperous American economy.
The E2 Visa business buyer program has had tremendous growth in recent years. It is a critical aspect of the business sale process, and must be considered by both business broker and seller alike. Attracting E2 Visa business buyers (and working with local immigration attorneys) is a specialty at Five Star Business Brokers, and is a key factor in maximizing the sales price of businesses.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business.
Located in Palm Beach County, Florida, Five Star Business Brokers proudly transacts business sales throughout the areas of West Palm Beach, Lake Worth, Palm Beach Gardens, Boca Raton, Jupiter, Delray Beach, Boynton Beach, Wellington, Palm Beach, Royal Palm Beach, and Riviera Beach.