Can You Have an S Corporation While on an E-2 Visa?

For an E-2 investor, there is no requirement to be a U.S. citizen or green card holder to elect S Corporation status. Contrary to common belief, individuals on an E-2 Visa can form an S Corporation as long as they are residents for tax purposes. This means that if you are in the U.S. on an E-2 Visa and meet the residency requirements for tax purposes, you are permitted to elect for S Corporation status with the IRS.

A prevalent misconception is that only U.S. citizens or green card holders can file for S Corporation status. However, the actual requirement is to be a resident for tax purposes. Most individuals on an E-2 Visa qualify as tax residents due to their prolonged physical presence in the U.S.

Electing S Corporation status provides significant tax benefits, primarily eliminating the issue of double taxation. In a standard C Corporation, the business’s profits are taxed at the corporate level, and then again at the individual level when profits are distributed as dividends. An S Corporation, however, allows profits and losses to pass through directly to the owners’ personal income without being subject to corporate tax rates.

1. Determine Tax Residency: Ensure that you meet the IRS criteria for being a tax resident. This typically involves the substantial presence test, where you are physically present in the U.S. for at least 31 days during the current year and 183 days over the last three years.
2. File Form 2553: Once you confirm your tax residency, file Form 2553, Election by a Small Business Corporation, with the IRS. This form must be filed within two months and 15 days after the beginning of the tax year the election is to take effect.
3. Maintain Compliance: Continuously meet the requirements of S Corporation status, including having only allowable shareholders (individuals, certain trusts, and estates but not partnerships, corporations, or non-resident alien shareholders), having no more than 100 shareholders, and maintaining only one class of stock.

For E-2 Visa holders, forming an S Corporation is not only possible but can be beneficial in optimizing your tax strategy. Ensure you meet the residency requirements and properly file with the IRS to take advantage of the S Corporation benefits.

We encourage readers to utilize our free resources and schedule a consultation if they have questions related to their immigration circumstances. Our expert legal team is here to help you navigate your immigration journey with confidence.