Establishing and maintaining treaty nationality of an E-1 or E-2 enterprise is a crucial matter especially if the business applied for E-1 employee or E-2 employee visas. To qualify for an E-1 or E-2 employee visa, the employee does not need to show any ownership interest in the enterprise, but both the employee and the enterprise must have the same nationality.
Then how is a business entity’s nationality defined? A corporation has treaty country nationality if at least 50% of its ownership interests are held by nationals of treaty countries. For the E-1 or E-2 employee visas to maintain validity, the business must maintain this minimum 50% ownership by treaty nationals to maintain its “treaty nationality” at all times.
This analysis becomes more complicated, however, if the company involved is a large corporation, for example, where some of its stock is traded publicly, or if the corporation’s ownership is held by other entities, such as a parent corporation, investment fund, or a trust.
In such a case, the nationality analysis must continue all the way up the corporate ownership hierarchy. For example, suppose that an E-1 enterprise is 51% owned by Company X and 49% owned by Company Y. Then suppose that Company X is 60% owned by Canadian nationals. According to the 50 percent rule, the parent Company X has Canadian nationality. Because the E-1 enterprise is 51% owned by Company X, the E-1 company will have Canadian nationality. In this analysis, care must be taken to exclude from the calculation any shares held by dual citizens of the treaty country and the U.S., or citizens of the treaty country that hold U.S. green cards (permanent residents). See 9 FAM 402.9-4(B).
What happens if the company loses the requisite 50% ownership as a result of changes in the corporate structure or dilution event?
For E-1 and E-2 enterprises that have brought in employees on E-1 or E-2 employee visas, it is important to identify any possibility of the ownership share of treaty country nationals falling below 50% by major investment events, such as VC funding, for example, that may result in stock being issued and potentially diluting the ownership share.
In such a case, if the ownership share of treaty nationals fall below 50%, the E-1 or E-2 enterprise will lose its treaty nationality for the purposes of its ability to bring in or maintain employees on E-1 or E-2 visas. This means the E-1 or E-2 employees will no longer have valid status.
To avoid this consequence, in advance of such major changes in ownership taking place, the business may choose to transfer back these employees or consider changing the employees’ status to another category, such as the L-1 visa, which could be an option where there is a foreign affiliate entity involved that is also doing business.
In sum, determining and maintaining treaty country nationality is a crucial element of properly understanding and utilizing the E category visas. This can be a complicated exercise, so the assistance of experienced counsel can be of significant help.
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