By Madeleine Sumption, Migration Policy Institute
An advertisement touting the UK’s more flexible labor markets and less restrictive systems. The United Kingdom has different entrepreneur visas that allow immigrants to start up businesses and gain legal residence in the country.
Across the advanced industrialized world, even governments that are skeptical about the benefits of immigration tend to open their doors to the so-called "best and the brightest" — exceptionally skilled immigrants who bring new knowledge and innovations. For both economic and political reasons, the higher the skill level of prospective immigrants, the fewer restrictions governments tend to impose to entry.
Immigrant entrepreneurs are among the most desirable of these highly skilled newcomers —especially immigrants behind high-tech and high-growth startups that policymakers find particularly appealing. Most governments want to boost entrepreneurship, but reliable and feasible policies to do so have proved elusive. In recent years, however, policymakers have often turned to immigration as a small but direct channel to facilitate startups by increasing the supply of willing and able entrepreneurs.
An increasing popular way to do this is through entrepreneur visas. In May, Australia announced a revamped visa program to admit immigrants with entrepreneurial skills. Ireland recently made it easier for prospective entrepreneurs to qualify for visas. And the United Kingdom, which introduced a new entrepreneur visa in 2008, in April added an additional route tailored for recent graduates from UK universities with entrepreneurial ambitions. Earlier, in 2009, New Zealand adjusted its own immigration program to create a fast track to permanent residence for the most successful entrepreneurs. And in the United States, bills to establish visas for immigrant entrepreneurs have been introduced with bipartisan support but have to date not been put to a vote, while Canada's immigration minister recently announced a consultation on the creation of a similar program.
At a time of high unemployment that has made the immigration debate even more contentious than usual in many high-income countries, admitting immigrants who are expected to create jobs is a strategy that most policymakers can agree on. This article examines the challenges policymakers face when designing entrepreneur visa programs, and the strategies they have taken to overcome them. It addresses why this policy has become popular, how entrepreneur visas work, and how governments have attempted to identify and admit successful entrepreneurs.
The Logic Behind Entrepreneur Visas
Immigrant entrepreneurs existed long before the advent of entrepreneur visas. In all countries, immigrants who are already permanent residents or naturalized citizens are free to set up and run companies with no visa-related constraints. Indeed, immigrants who have lived in their host country for an extended period of time are most likely to have gained the local knowledge and networks needed to set up businesses. (In the United States, where most immigration is based on family ties, some of the most prominent immigrant entrepreneurs, such as Google's Sergei Brin and eBay's Pierre Omidyar, were not admitted for their prospective economic contributions but entered the country as children accompanying family members.)
Life can be more difficult for aspiring entrepreneurs without permanent residence rights. In countries with employer-driven immigration systems such as the United Kingdom, the United States, Spain, or Singapore, the standard work visa requires a sponsoring employer. Unless specific visa arrangements are available for the self employed, immigrants who enter on temporary work or study visas and want to start a business might need to wait several years for permanent residence (this period is particularly long in the United States – up to a decade in many cases). This creates the risk that good ideas will be stifled or that potential job creators in highly mobile industries will take their business plans elsewhere.
Many countries have addressed this problem by creating visas that allow self employment for skilled professionals. A wide range of European countries, including France, Germany, Italy, the Netherlands, Spain, Denmark, and Sweden, provide this option with conditions and eligibility criteria that vary by country.
More recently, however, several others have created or adapted visa programs specifically geared toward attracting an elite tier of entrepreneurs who can create jobs for local workers. These policies have two major purposes. In countries that provide limited options for self-employed immigrants (such as the United Kingdom), entrepreneur visas give prospective entrepreneurs who might not otherwise qualify for work permits a status that allows them to establish and operate their businesses. In others, such as Canada and Australia, visas are readily available for immigrants who do not have a sponsoring employer; but policymakers have nonetheless turned to entrepreneur visas to allow immigrants to qualify quickly without having to meet immigration criteria that may be more suitable for highly skilled employees than entrepreneurs.
How Do Entrepreneur Visas Work?
Successful entrepreneurs are a rare breed. Most people do not start businesses, and most of those who do fail. Even venture capitalists, who specialize in identifying good business ideas, accept high failure rates as normal and unavoidable. So how can governments decide which aspiring business owners to admit?
The most common strategy that governments employ is to admit immigrants with potential and observe their success over time. Australia, New Zealand, the United Kingdom, Ireland, and Singapore all operate variants of this approach, offering temporary or "conditional" visas that can be renewed or converted to permanent ones if immigrants demonstrate business success within a few years. (See Table 1.)
These programs have similar structures but have taken quite different approaches to some of the major design challenges policymakers face, including how high to set the bar for initial entry and for permanent residence, and how quickly immigrants must create a successful business once in the country. Entrepreneur visa holders are expected to have an active role in managing the company. The visa is not designed for passive investors, for whom other (much more expensive) options are available, such as the EB-5 visa in the United States and its equivalents in other countries.
Defining Potential: Initial Entry Criteria
The first step to qualifying for an entrepreneur visa is to have startup capital. In most countries, funding can come from any legal source, including the entrepreneur's personal savings. Aspiring business owners can qualify for the Irish program with €75,000 (US $93,000), and for the UK program with £200,000 (US $309,000). Applicants to the Australian program will be expected to demonstrate at least AUD $800,000 (US $787,000) in combined business and personal assets, while New Zealand has no official minimum investment threshold and applications are judged case by case.
Beyond requiring startup capital, some countries also scrutinize immigrants' business proposals. Prospective immigrant entrepreneurs in New Zealand, for example, must submit a "sound business plan," demonstrate the benefit the business will provide to the country, and show relevant business knowledge and experience. Under Ireland's entrepreneur program, immigrants must propose companies in high-tech or high-growth areas of the economy (rather than retail, hospitality, or other low-margin service industries), and an evaluation committee recommends which business plans to accept.
A criticism of this approach is that it puts government officials in the complicated business of identifying entrepreneurial talent — something they may not be qualified to do. One way to avoid this problem is to rely on the judgments of third parties who scrutinize business plans for a living, such as venture capitalists. Under the new Australian program, entrepreneurs who receive AUD $1 million in venture backing in the country will receive immediate permanent residence and need provide no further evidence of business success. The United Kingdom allows immigrants to qualify with £50,000 (instead of the usual £200,000 threshold) if their funds come from qualified financial backers, and the US Startup Visa proposal pending in Congress would provide conditional residence rights for immigrants already in the country who raise $20,000. In all these cases, they must be recognized business investors — a requirement designed to ensure that sponsors have a rigorous selection process and are not simply wealthy individuals sponsoring a friend or family member to help them obtain a visa. In effect, investor backing is like employer selection for work visas: it allows the government to outsource selection decisions to organizations that are well placed to assess an individual's skills. At the same time, this approach screens out passive investors with little active role in managing the company who may be using their own money to "purchase" admission.
Of course, investor backing is hard to come by. In the United States, for example, the vast majority of established businesses did not receive official investor backing as startups. Venture capitalists often lend to people who already have one or more business attempts under their belt, or whose businesses have already been operational for a few years. Some immigrants will never reach this point if their host country provides no other visa options for the self-employed. In other words, venture backing is a good way to identify an elite tier of particularly promising prospective entrepreneurs, although the numbers are small and many equally promising individuals will not qualify. As a result, policymakers may prefer to welcome larger numbers and find other criteria on which to admit them (even if this comes at the cost of lower business success rates).
One program that relies strongly on criteria in addition to startup capital is Australia's business innovation visa. Under this program, applicants must pass a points test that rewards characteristics such as English language ability, business experience, experience in export-oriented or fast-growing businesses, and possession of registered patents or trademarks. Some countries also make it easier for certain groups of immigrants to qualify. The UK Graduate Entrepreneur scheme, for example, requires a lower investment threshold for recently graduated international students from UK universities and allows for an extra two years to raise this sum if they are endorsed by an approved university or college. And the proposed US Startup visa would require a lower investment threshold for immigrants already in the country if they are temporary work visa holders or have an advanced US college degree in science, technology, engineering, or math.
Defining Success: Criteria for Permanent Residence
Conditional entrepreneur visas can typically be renewed or converted to permanent residence after two to four years if the immigrant creates a successful business. (An exception is the Australian Venture Capital Entrepreneur program, which provides immediate permanent residence.)
The most important criterion defining business success is job creation. Applicants' businesses must typically create between two to five jobs for citizens or permanent residents of the host country, not including the entrepreneur's family members. Some countries also require applicants to raise additional investment or revenues. By contrast, New Zealand and Ireland do not have set thresholds for revenue raising and job creation. Irish immigrant entrepreneurs must simply maintain an operational business, while New Zealand applicants must demonstrate that their business benefits the country economically (for example, through job creation, tax payments, or exports).
Governments designing entrepreneur visa programs must decide not only how high to set the bar for business success, but also how quickly entrepreneurs must meet this threshold. More selective criteria and, particularly, shorter time periods to achieve them are typically intended to identify genuinely successful businesses. However, they can also have unintended consequences.
Tight deadlines may discourage risk-taking or prevent entrepreneurs from adjusting their business plans in sensible ways if these decisions would jeopardize their visa status. Reforms to Ireland's entrepreneur program this year were explicitly designed to address this problem and immigrants now do not need to demonstrate job creation, on the basis that some businesses take longer to get off the ground than others. Similarly, the Australian program that comes into force in July 2012 allows immigrants to extend their provisional status from four to six years with support from their state/territory of residence, a policy designed to give them greater flexibility to change their business plan if they do not meet the permanent-residence requirements as quickly as anticipated.
Table 1: Conditional Entrepreneur Visa Eligibility Criteria
||Primary Requirements for Initial Entry
||Primary Criteria for Permanent Stay
|UK: Tier 1 (Entrepreneur) Visa
||Raise at least £50,000 (US $77,000) from a qualified investor or at least £200,000 (US $309,000) from any other source.
||Create 2 jobs within 2 years; permanent residence available after 3 to 5 years.
|UK: Graduate Entrepreneur
||Receive endorsement from a participating higher education institution with an "established process" for nurturing entrepreneurs.
||Raise £50,000 (US $77,000) from any legal source within 2 years; create 2 jobs within 4 years. Permanent residence available after 3 to 5 years.
|Australia: Business Innovation Stream (Provisional rules to be implemented July 1, 2012)
||Have at least AUD $800,000 (US $787,000) in net business and personal assets; have owned
other businesses with net assets of AUD $200,000 (US $197,000) and turnover
of AUD $500,000 (US $492,000); pass points test demonstrating
business experience and involvement in innovation-related activities.
Have net personal and business assets of
AUD $600,000 (US $592,000) in Australia; have business turnover of AUD
$300,000 (US $296,000); create 2 new jobs, within 3 years
(or 5 years with support from state/territory of residence).
|New Zealand: Long-Term Business Visa (Temporary) and Entrepreneur (Permanent)
||Submit a "sound business plan" for a venture that will benefit New
Zealand", and demonstrate relevant knowledge and business experience. No
official investment threshold. After 9 months, must demonstrate progress
towards establishing the business to renew visa.
||Be self-employed for at least 2 years in a business that is
"benefiting New Zealand" (e.g. through tax payments, employment, or exports).
Applicants who invest at least NZ$500,000 (US $384,000) and create at least 3
jobs can apply for fast-track residency sooner.
||Raise €75,000 (US $93,000) in startup capital for business deemed to have "high potential" in export-oriented industries or fields associated with innovation.
||Maintain an operational business to renew visa after 2 years; eligible for permanent residence after 5 years. No job creation, revenue, or profit requirements.
|US: proposed Startup Visa (S.565) –applications from abroad
||Raise at least $100,000 from a qualified US investor.
||Create 5 jobs and raise additional $500,000 in capital investment or revenue
within 2 years.
Startup Visa (S.565) – applications within the country
Raise at least $20,000 from a qualified US
investor; hold an H-1B visa or another visa and an advanced STEM (science, technology, engineering,
math) degree from a US institution.
Create 3 new jobs and raise at least
$100,000 in new investment or revenue within three years.
Startup 2.0 (S. 3217)
||Hold an H-1B visa or an advanced STEM degree from a US institution.
||Within the first year, create 2 jobs and raise $100,000 investment
funds from any source; within the first four years, create 5 jobs.
Be ready to start, or already own at least
30 percent of, a registered company less than 6 months old with capital of at
least SG $50,000 (US $39,000); submit a "sound business proposal."
Indefinite renewals available if company
creates at least 4 jobs and has business spending of at least SG $150,000 (US
$117,000). Eligible to apply for permanent residence one or more years after
||Satisfy local authorities that business plan is economically
beneficial and viable. These criteria are "generally met" when immigrant
raises €500,000 (US $623,000) and will create 5 jobs.
||Create 5 jobs within 3 years.
Sweden: self-employment visa (part entrepreneur visa and part self-employment visa)
Present business plan, demonstrate
business experience and knowledge of sector, and Swedish or English language
skills; demonstrate sufficient profits to support self and family for at
least 2 years.
Immigrants who are running companies
according to the approved business plan and support themselves with the
income from it can apply for permanent residence after 2 years.
Immigrants who fail to meet the permanent residence criteria are either required to leave the country or must qualify for another visa, such as an ordinary work visa for employees.
As previously mentioned, countries with no dedicated entrepreneur visa often make other visas available for certain entrepreneurs. Some have more flexible rules on self-employment that allow immigrant entrepreneurs to apply for ordinary work visas. Self-employment permits may resemble entrepreneur visas in some respects: while they often do not have fixed (or particularly transparent) eligibility criteria and do not necessarily require the holder to directly create jobs, they are issued at the discretion of the immigration ministry or local authority based on an assessment the expected economic benefit. In European Union countries, these visas can often lead to permanent residency, because immigrants who maintain a valid work permit for at least five years are typically eligible for permanent residence under EU rules. The United States also issues tens of thousands of E-2 "treaty investor" visas every year to immigrants, some of whom are entrepreneurs investing in their own companies; these visas are indefinitely renewable but provide no path to permanent residence.
Attracting and Keeping Immigrant Entrepreneurs
Entrepreneur visas are not the only way for immigrants to establish companies in their host countries, and as in the past, many immigrant entrepreneurs will either not need them or not qualify for them. The United Kingdom and New Zealand, which provide detailed data on entrepreneur visa issuances, have admitted relatively small numbers totaling a few hundred people per year. However, these visas can make the immigration system more flexible for at least some aspiring entrepreneurs in countries that do not provide other visas for self employment, allowing those without permanent residence rights to remain in the country and set up businesses sooner rather than later.
Entrepreneur visas can also be used to attract immigrants from abroad. However, entrepreneurs are not commodities that can be passed from country to country, and individuals with no local knowledge, networks, and experience in the receiving country may have a hard time setting up a business. As a result, many future applicants for the visa will initially enter as students or temporary workers. In other words, they may choose their host country well before they are in a position to qualify for entrepreneur visas. This means that the ability to attract and admit entrepreneurial talent is likely to depend not just on entrepreneur visas, but on the flexibility and attractiveness of the rest of the visa system.
Sources and further reading
Eligibility rules and guidelines for
US Startup Visa proposal
US Startup 2.0
Robert Fairlie, "Immigrant Entrepreneurs and Small Business Owners and their Access to Financial Capital." Available online.
Papademetriou, Demetrios G. and Madeleine Sumption. 2011. Eight Policies to Boost the Economic Contribution of Employment-Based Immigration. Washington, DC: Migration Policy Institute. Available online.