E-2 Visa Taxes: Canadian Investors in a U.S. Business
Residency, the entity while a nonresident, the S election once resident, and the Canadian departure
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The E-2 visa lets a Canadian invest in and run a U.S. business. Once living in the United States, the investor usually becomes a U.S. tax resident under the substantial presence test. The entity matters: a nonresident alien can't own an S corporation, so many E-2 businesses start as C corporations and elect S status after the owner becomes resident.
On this page
The tax picture
| Question | Answer (2026) |
|---|---|
| Does the E-2 make me a U.S. tax resident? | The substantial presence test does — most E-2 investors living in the U.S. meet it |
| Entity while nonresident | C corporation (direct or through a Canadian holding company) — not an LLC, which Canada treats as a corporation (the Canadian-owned LLC guide) |
| Entity once resident | S corporation election possible once every shareholder is an individual U.S. citizen or resident — generally effective only from the start of a tax year in which no shareholder was a nonresident alien on any day before the election |
| Foreign-owned corporation filings | Form 5472 for any year the corporation is 25 percent or more foreign-owned (a Canadian holding company counts even after you move) and has reportable transactions with a related party |
| Canadian holding company? | Dividends from the U.S. company can come out of exempt surplus, free of Canadian corporate tax — but the holding company becomes a CFC once U.S. persons, including you after your move, own more than 50 percent (the CFC guide) |
The business purchase
When an E-2 investor buys an existing business, it's usually an asset purchase, with buyer and seller each allocating the price on Form 8594; the Canadian buying a Florida business guide covers the structure, and the Florida layer (registrations, sales tax, reemployment tax) applies to any entity.
The Canadian side
Leaving Canada to work in the United States usually ends Canadian residency if your home, spouse, and dependants move with you (the factual residency guide) — triggering the departure tax on most non-registered property (the departure tax guide). Keeping significant ties in Canada can leave you a dual resident, with the treaty's tie-breaker deciding (the Form 8833 guide). Close or plan around the TFSA before you become a U.S. resident (the TFSA for non-residents guide).
Visa eligibility and status questions are for an immigration lawyer; this article covers the tax side.
Frequently asked questions
Am I a U.S. tax resident on an E-2?
Usually, once you live in the U.S. and meet the substantial presence test.
Can my E-2 business be an S corporation?
Only once every shareholder is an individual U.S. citizen or resident — and generally only from the start of a tax year in which no shareholder was a nonresident alien before the election.
Should I use an LLC?
Usually not while you're a Canadian resident — Canada treats it as a corporation.
What about my Canadian holding company?
It becomes a controlled foreign corporation once U.S. persons, including you after your move, own more than 50 percent — plan the change.
Official sources
The U.S. Department of State explains: “The investment in the U.S. must be substantial and sufficient to ensure the successful operation of the enterprise.” — U.S. Department of State, Treaty Trader & Treaty Investor and Australians in Specialty Occupations, https://travel.state.gov/content/travel/en/us-visas/employment/treaty-trader-investor-visa-e.html
The IRS explains: “You were physically present in the U.S. on 120 days in each of the years 2023, 2024 and 2025. To determine if you meet the substantial presence test for 2025, count the full 120 days of presence in 2025, 40 days in 2024 (1/3 of 120), and 20 days in 2023 (1/6 of 120).” — Internal Revenue Service, Substantial presence test, https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle E-2 business entity planning across residency changes, S election timing, Form 5472, and Canadian departure returns. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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