International Investors and California: Roundtripping

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International Investors and California: Roundtripping

For international investors who want to thrive in the California lifestyle, they face three different issues: immigration status, business investment and tax planning. For these clients, I recommend they consider “Roundtripping”, (i.e., they invest in a CA business, they obtain their green card for the investment and then they export the products back to their home country and save up to 25-50% of the US income tax on export sales).
The most well-known immigration visa is the Immigrant Investor (EB-5) Program established in 1990 which encourages foreign investors to invest their way to living in the US.

A lesser known program is the E-2 Treaty Investor Visa which allows citizens of US treaty countries to live and work in the US for a business they invested in or in which nationals from their country have invested for a generally a renewable 5 year period of time. The investment required under the E-2 Treaty Investor Visa is substantially less than the investment required under the EB-5 Visa Program. In addition over 80 countries have E-2 Visas with the US (as of 4/16) which include major trading partners: Canada, Mexico, France, Germany, United Kingdom, Spain, Italy, Japan, South Korea (and over 70 more countries).

An international investor may obtain a US green card under the EB-5 Visa program if they make a $1m direct investment and create 10 jobs (or in the alternative they may wish to consider a regional center investment — primarily in Targeted Employment Areas (TEA) where only $500,000 is required. In contrast, they may generally obtain a 5 year renewable visa under the E-2 Treaty Investor Visa (a non-immigrant visa for citizens of countries with which the US maintains treaties of commerce and navigation). The investment may be $150,000+ (plus creation of 3 jobs) for the E-2 visa.

Both the EB-5 Visa and the E-2 Visa include family members; the EB-5 Visa allows investors and their families to become permanent residents (Green Card holders) usually in about 2 years unless from China where the wait is currently 6+ years.


For the E-2 Visa holders (workers or family members) who enter the US, they receive a period of stay of up to two years. They may also extend their stay while remaining in the US. E-2 Visas are available for an accompanying spouse and unmarried children under the age of 21 (the spouse, but not children, may apply for a work permit once physically present in the US).

My colleague, Mark Ivener, Esq. with whom I have written one book and internationally published 4 articles on immigration and tax issues may provide further information on the immigration aspects. You may reach Mark at

For purposes of the “roundtripping investment strategy” consider this plan: the investor from an E-2 Treaty Country (e.g. South Korea) invests $150,000 and creates 3 jobs to qualify for the E-2 Visa.

A good choice is a Wine Bar/Wine Tasting Room, which is a rapidly growing business in the US based on new technologies that preserve open bottles of wine. The beneficiaries are the American public who can now go to restaurants like Dirty Water in San Francisco, CA and choose from over 100 wines by the glass (which maximizes the value of the often unopened wine inventory).

Although a little known fact restaurants/bars/hotels wine sales are often up to 80% by the glass. The new technologies, the booming CA wine business (with $25B annual sales) and the paucity of export sales (the US exports are 13% of the gross national product, while CA wines, which are 90% of US exports, only export less than 6% of wine sales i.e. 94+% of wine sales are to the US).

Since the US has only 5% of the world’s population and consumers, the other 95% of world’s consumers present a huge new market for export of CA wines (currently limited by the strong US dollar and the flooding of the market with cheaper wines from other countries which neither taste good or are relished by the wine drinker).


For example, the South Korean investor sets up a Wine Bar/ Tasting Room in their community (e.g. in LA/Koreatown) introducing CA wines to a whole new consumer market who may have no knowledge about these California wines (a departure from many wine bars/tasting rooms which are located only at the winery often in a far-off distant location). Wines are sold by both the glass and the bottle.

Wines by the glass may have an up to 85% profit margin per glass sold. The wines may be sold back to their home country to their contacts. Under a special type of corporation known as an IC-DISC, federal income tax may be significantly reduced. For example in our book Tax Planning for Exports of US/Wine sales (co-author Ryan Losi, CPA, a national expert on IC-DISC) presented an income tax planning strategy to save 25-50% of federal income taxes due for the export of CA/US wines.

Ryan Losi and I also wrote an additional book on this topic and an article for the American Bar Association/Practical Tax Lawyer on Tax Planning for US Exports (IC-DISC), and Ryan may be very helpful to answer further questions on IC-DISC’s, which are special corporations that have intricate tax issues which must be addressed so as not to risk an IRS tax audit and be subject to tax, penalty and interest. You may reach Ryan by email at

The Plan

Investor from an E-2 Treaty Country, invests $150k/creates 3 jobs and sets up a Wine Bar/Wine Tasting Room in their California community (not at the winery). They sell wines, reap the great profit margins and then export wines to their home country.

With proper tax planning, the federal income tax savings over time completely recoups the cost of the original E-2 investment. Future years tax benefits are wholly enjoyed by the investor.

For the non- E-2 Countries: Israel, Brazil, China, South Africa, India, Russia, well-heeled investors may consider purchase of wineries outright. Although land in the legendary Napa Valley is now selling at $7 per sf, land in Paso Robles CA (with over 300 wineries) is selling for only $1-2 per sf due to water shortage issues, (which may be ameliorated by deep well drilling for water).

The EB 5 investor who can afford the $1m investment may greatly benefit from the California land purchased at historically low discounted prices.

For tax planning strategies each investor must review their individual situation. However, an EB-5 Visa once issued subjects the investor to US income tax on worldwide assets (including disclosure of all foreign bank accounts over $10k under the FBAR rules/Fincen Form 114, and foreign financial assets over $50k under Form 8938/FATCA filing) as well as US estate and gift tax on transfers (at a 40% tax rate).

Jeff Allen

The E-2 Visa does not impose US income tax on worldwide income (unless they are in the US for over 183 days in one year or 122 days per year for a 3 year period). However they are subject to tax at graduated income tax rates on effectively connected US trade or business income i.e. a 30% flat tax on FDAP income (“Fixed or Determinable Annual or Periodic Income) which includes: interest, dividends, rents, royalties, annuity payments and alimony.

US source capital gains are not taxable, unless the investor is in the US for more than 183 days in the tax year or the gains are effectively connected to a US trade or business, in which case the tax rate is 30%.

The investor is subject to US gift tax (at 40% tax rate, with no exemption) on gifts of tangible personal property and real property physically located in the US.

The investor is subject to US estate tax (at 40% tax rate with a $60k exemption) on US property which at the time of death is situated in the US which includes: real property, shares of stock in US corporations and municipal bonds.

To minimize the diminishing effect of US income, estate and gift taxes on the international investor’s net worth and their gifts/estate distributions, an E-2 investor should have a tax projection done prior to entry into the US.

The tax projection should review the US and California blended income tax rates (as high as 55% per year), 40% US estate/gift taxes.

Otherwise, the investor may have a significant 40% US estate tax imposed (or gift tax) without the liquid funds available to pay the taxes due, in which case those assets are at risk under a federal IRS tax lien, subject to seizure and sale by IRS levy.


Gary WolfCOLDrevelry Photographye, The Wolfe Law Group

Gary S. Wolfe received his Juris Doctorate from Loyola Law School in 1982, where he was President of the Tax Law Society. From 1982 through the present, Gary has been in private practice in Beverly Hills and Los Angeles. Gary is an international tax attorney representing clients for IRS audits, international tax planning, and asset protection. Beverly Hills, California.


The Wolfe Law Group represent U.S. Taxpayers for IRS Tax Audits, U.S. Investors who have International Investments, and Foreign Persons who invest in the United States. We have over 30 years of experience, specializing in IRS Tax Audits and International Tax Matters including: International Tax Planning/Tax Compliance, and International Asset Protection.


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