For Israeli nationals investing in a US business on an E-2 visa

E-2 Investors From Israel: Tax on the Business, the Investment and You

Investing in a US business from Israel on an E-2? The visa is about immigration, but the tax questions start the day you fund the company: which entity, how the money goes in, and when the US starts taxing you on everything.

E-2 treatyForm 1120Form 5472BE-13Tax residence
Request a QuoteResidence Rules

Quick answer

Is an E-2 investor from Israel a US tax resident?

Usually yes, once living in the US for most of the year. E-2 is not an exempt-individual category under IRS Pub 519, so your days count under the substantial presence test, and a resident is taxed on worldwide income. If Israel also treats you as resident, Article 3 (Fiscal Residence) of the treaty breaks the tie. Your company files its own returns: Form 1120, and Form 5472 while it is foreign-owned.

Prepared by Illuminous Accounting · Sources checked November 11, 2026

At a glance

E-2 treaty with Israel
In force since May 1, 2019 (State Department)
Company
US corporation (Form 1120) or LLC; Form 5472 while foreign-owned
Your tax residence
Substantial presence test; E-2 days are not excluded
Treaty tie-breaker
Article 3 (Fiscal Residence)
Social security agreement
None on the SSA list

E-2 from Israel: the basics

Israel is on the State Department list of E-2 treaty countries; the E-2 treaty with Israel entered into force on May 1, 2019 (State Department). USCIS sets out the main conditions (USCIS):

  • you must be a national of the treaty country;
  • you must have invested, or be actively investing, a substantial amount of capital in a real, operating US enterprise. USCIS does not state a fixed minimum: the amount is judged against the total cost of the business, and the lower the cost, the higher the proportion expected;
  • the enterprise may not be marginal, meaning it must have the capacity to earn more than a minimal living for you and your family;
  • you must be coming to develop and direct it, shown by at least 50% ownership or operational control.

Immigration questions belong with your immigration lawyer. We handle the tax side: the company, the money you put in, and your own US returns.

The company: corporation or LLC

Most E-2 businesses are a US corporation or an LLC.

  • Corporation: files Form 1120 every year, with or without taxable income (IRS). While a foreign person owns 25% or more, it also files Form 5472 for transactions with related parties, including loans to or from you; the penalty for missing it is US$25,000 (IRS).
  • LLC: classified under Treas. Reg. section 301.7701-3. One owner means a disregarded entity and two or more a partnership, unless it elects corporate treatment (IRS).
  • BE-13: generally due within 45 days when a foreign person sets up or buys a US business (BEA rule).

Putting your money in

Capital or loan? Both fund the E-2 business, but they are reported differently. Amounts the company borrows from a foreign owner, and interest on them, are reportable on Form 5472 while the company has a foreign owner (IRS). Capital stays in the company as equity. Document each transfer from Israel so the books and the returns tell the same story.

Dividends and interest while you live in Israel

Before you move, or in any year you are not a US resident, money the US corporation pays you is taxed by withholding. The statutory rate on US-source dividends and interest paid to a nonresident is 30% unless a treaty lowers it (IRS Pub 515).

Payment to a resident of IsraelGeneral treaty rate (IRS Table 1)Treaty citation
Dividends from a US corporation25%Article 12(2)
Interest on a loan you made to the company17.5%Article 13(2)

Rates from IRS Tax Treaty Table 1 (Rev. May 2023). The IRS notes the table is not a complete guide to eligibility; the treaty's conditions, including any limitation on benefits, must be met. Once you are a US resident these rates no longer apply to you.

Residence clarity for E-2 investors

QuestionAnswer for an E-2 investor from Israel
Are E-2 days excluded?No. E-2 is not an exempt-individual category in IRS Pub 519
When do I become a US tax resident?When you meet the substantial presence test (31 days this year, 183 weighted days over 3 years), usually in your first full year
The first yearUsually dual-status: nonresident before the residency starting date, resident after
Resident in both countries?Article 3 (Fiscal Residence) of the treaty decides; Form 8833 discloses the position
Social securityNo agreement on the SSA list

Sources: IRS Pub 519, Form 8833, SSA.

Your own filings after the move

  • FBAR and Form 8938 for accounts you keep in Israel; see FBAR and FATCA and Form 8938.
  • Form 5471 if you keep control of a company in Israel: a US person controlling more than 50% of a foreign corporation is a Category 4 filer, with a US$10,000 penalty per year for not filing (IRS). See Form 5471.
  • Funds held in Israel can be PFICs; see PFIC and Form 8621 for how the rules work.
  • Once you are a US resident you are no longer a foreign person for Form 5472, which the IRS defines as an individual who is not a citizen or resident (IRS). Whether the company still files depends on who else owns it.
  • Form 1040 on worldwide income every year you are resident, including income from Israel.

Treaty and law references

Treaty

  • The IRS lists the 1975 income tax treaty. General effective date (IRS Table 3): treaty Jan. 1, 1995 (IRS treaty documents for Israel; treaty text; IRS Table 3).
  • Residence and tie-breaker: Article 3 (Fiscal Residence).
  • Article 8 (Business Profits), business profits.
  • Article 12 (Dividends), dividends.
  • Article 26 (Relief from Double Taxation), relief from double taxation.

US law and E-2 rules

  • E-2 status: State Department treaty countries (E-2 with Israel in force since May 1, 2019); USCIS E-2 Treaty Investors, 8 CFR 214.2(e).
  • Tax residence: Code section 7701(b) (Pub 519). Treaty residence: Treas. Reg. section 301.7701(b)-7 and Form 8833 (IRS).
  • Company filings: Code section 6038A and Treas. Reg. section 1.6038A-1 for Form 5472 (IRS); Treas. Reg. section 301.7701-3 entity classification (IRS); 15 CFR 801.7 BE-13 (eCFR).
  • Foreign companies you control: Form 5471 (IRS).

The tax rules of Israel on leaving or keeping assets there also apply; a local adviser covers that side.

How we help

Gurleen Kaur, CPA licensed in British Columbia and Washington State, prepares the E-2 company's returns (Form 1120 or the LLC filings, Form 5472, BE-13) and your own first-year and ongoing US returns. Immigration filings stay with your lawyer. Written quote first.

E-2 investors from other countries

All countries: E-2 investor tax by country. From Canada: E-2 taxation for Canadian founders. Moving without an E-2: moving to the US, by country.

Common questions

Is there a minimum investment for an E-2 visa from Israel?

USCIS does not set a fixed minimum. The investment must be substantial in relation to the total cost of the business, and the lower the cost, the higher the proportion expected. The enterprise may not be marginal. Your immigration lawyer advises on this.

Does an E-2 investor from Israel pay US tax on worldwide income?

Usually yes, once resident. E-2 is not an exempt-individual category, so the substantial presence test applies, and a US resident is taxed on worldwide income from the residency starting date.

What if Israel also treats me as resident?

Article 3 (Fiscal Residence) of the treaty decides residence for treaty purposes; claiming it on a US return needs Form 8833.

Does the E-2 company file Form 5472?

A US corporation that is 25% or more foreign-owned files Form 5472 with Form 1120, and a single-member LLC files it while its owner is a foreign person. Once you are a US resident you are no longer a foreign person for this purpose.

Sources

Every rule and figure on this page links to the IRS, CRA or other official source it comes from. Amounts change; we re-check them before each engagement.

Gurleen Kaur, CPA licensed in British Columbia and Washington State. Last updated November 11, 2026. This page is general information, not tax or legal advice for your situation.

Related guides: E-2 for Canadian founders, For immigration lawyers, Moving from Israel.

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