What is a second passport worth to you?
07 December 2018
Omar Mina is a Jordanian-British solicitor of England and Wales and the Managing Director of Latitude in Cyprus. In this article he shares his insight into some of the more recognised Citizenship-by-Investment programmes and discusses some of the major considerations when looking at these options.
Growing up with multiple citizenships, I never appreciated the importance of having a European passport. I would never worry about visas and would always pass through security at border controls with relative ease. This became much more advantageous when I went to university and did not have to concern myself with a student visa and even more advantageous afterwards, as I did not have to worry about work permits or travelling on short notice for business.
Nevertheless, I was always aware of the effort exerted by those around me into attaining a second citizenship. Friends and relatives of mine were striving to get Canadian citizenship while others were ‘temporarily’ moving to the US in hopes of securing a green card. Far fewer people were targeting Europe however, despite its distinct geographical advantage; it was not considered to be a viable option.
Things have changed however, and as a result of a number of new Citizenship and Residency-by-Investment Programmes, conveniently complimented by a weakened Euro and British Pound, a window of opportunity has opened to obtain EU citizenship and subsequently having the ability to live, work and travel in Europe.
Who is investing?
Information company Wealth-X reports that while Middle Easterners only account for 5% of global UHNW’s (ultra-high net worth individuals, usually classified as those with liquidity over $60m), they still make up 60% of the total UHNW’s who apply for second citizenship. For Middle Easterners, this is not about getting a beach house and potentially a tax break, it is about necessity.
Since the eruption of the Arab Spring, Lebanese, Syrians and Egyptians have jumped at a second citizenship for obvious reasons. According to the same report, in 2014, Lebanese people made up 15% of second-citizenship applicants, followed by Syrians and Egyptians, each making up 7%.
The majority of these people head first to Dubai where they are offered a safe haven, but Dubai is not a permanent solution as the UAE residency will never result in citizenship. A UAE resident is still unable to travel or set up a business overseas, add to that, he/she can be made to leave at any time. For that reason, it is from Dubai that many of these people start to plan their next move.
While wealthy Middle Easterners are very much contributing to the second-passport business, demand is also soaring from the east with Chinese investors accounting for the majority of US EB5 visas, more than half of Canada’s Immigrant Investor visas dating from 2001-2010, around 65% of Australia’s Investment visas and a reported 80% of Portugal’s Investor visas. China, India and Russia have enormous pockets of wealth with many of their richest citizens already in possession of a second (if not third) citizenship. Despite the numbers, until the Middle East achieves political stability, the locals will continue to contribute handsomely to this industry.
Whilst most investors obtain a second citizenship for political security and the right to travel visa free, there is an increasing number of American and European clients seeking alternative citizenship as part of a tax planning exercise in anticipation of a need to relinquish their original citizenship.
Tina Turner and French actor Gérard Depardieu both enjoy the benefits of a new citizenship after having renounced their US and French passports to live in Switzerland and Russia respectively. The co-founder of Facebook, Eduardo Saverin, has also given up his citizenship. Another high profile case is London’s former mayor Boris Johnson threatening to do the same when slapped with an enormous tax bill by the IRS for the capital gains on the sale of one of his London properties.
According to the American Treasury, Americans revoking their citizenships or residencies rose to a new record of 3,415 in 2014. This number has been continually increasing since US Congress passed the Foreign Account Tax Compliance Act.
Assuredly, US residency has become much cheaper to obtain than to give up. Currently, in order to renounce your US citizenship, you must pay an exit tax on unrealized gains as of the day before you give up your passport. In other words, it is as if you sold all your assets (this would include all international real estate including overseas land) the day before you expatriated and paid whatever applicable tax would have been owed on all capital gains, ordinary income, land and so on.
Time is of the Essence
Many of these programmes have limited positions available. Malta‘s programme has an 1,800 main applicant limit; once this has been achieved the programme may close and it is rapidly approaching this quota.
Another real concern with timing, is that in the future certain countries may become blacklisted. Iranians for example are already ineligible for most of these investment programmes and now greater scrutiny is being directed towards Syrians. One hopes that this exclusion policy will not become a trend but certainly an important consideration for those debating when to move forward.
Caveat Emptor/Let the Buyer Beware
I am often approached with questions concerning programmes such as Panama, Bulgaria and Hungary. While every programme has its merits it is important to consider if the programmes are regulated and approved by each respective government. Many programmes have been involved in multiple corruption scandals and although they are often sanctioned by their respective governments, they do not have a clearly defined set of rules which results in many applications being refused.
In such cases people will still not receive residency or citizenship, despite having made the ‘suggested’ investment and paid the subsequent fees. For example, in 2013, 8,656 applications to the Bulgarian immigration authorities were rejected.
What is more daunting than the financial loss is the effect on the applicant’s permanent record. No doubt, a rejected immigration application from Bulgaria will indeed come back to haunt an applicant on every future visa or immigration application. For that reason, potential investors need to be properly informed about these investment programmes and must seek professional advice as there is a substantial amount of money, time and risk involved.
For the avoidance of doubt, there are two main types of investment programmes; Citizenship-by-Investment and Residency-by-Investment. The most popular options for these two types of programmes will be covered in Part 2
Citizenship by Investment Programmes (CIP)
Cyprus – this CIP offers the most efficient and straight forward way to obtain full European citizenship resulting in the right to work, live and travel around Europe. The application process is quick with approvals in as little as six months. This convenience comes at a cost, with a minimum investment of at least €2m plus applicable property taxes. This investment can be in property, government bonds or other investments however, if combined, the minimum threshold goes to €2.5m. As such, the majority of clients select the property option at €2M. An additional benefit of this programme is that three generations of the same family may be grouped in the same application.
Malta – a Maltese citizenship gives you all the rights of an EU citizenship along with visa free travel to the US and Canada. The process to obtain the citizenship is about 14 months, of which presence is minimal. The price here includes an investment of €150,000 into government bonds, €350,000 into a property and a €650,000 contribution to the Maltese government.
St Kitts & Nevis – established in 1984, this CIP was the very first of its kind and therefore a very commonly held passport. A USD $200,000 investment in a Government approved real estate project or a donation from USD $150,000 will qualify you for citizenship and thus a passport which allows visa free access to 151 countries.
Grenada – this newer CIP functions similarly to the St Kitts & Nevis offering. For a similar investment, applicants receive the same travel rights but dependent children up to the age of 30 may be included in an application without the need to be enrolled in post-secondary education. The country also enjoys being a party to the USA’s E-2 Investor Visa Treaty. Grenada citizens may apply for an E-2 visa which entails investing in a US-based enterprise and actively running it, giving you and your family the right to reside in the USA.
Residency-by-Investment Programmes (RIP)
United Kingdom – the Tier 1 Investor category is for high net worth individuals who want to invest £2m into a UK regulated investment (not real estate). Either the investor – or spouse and children – need to spend a minimum of 180 days a year in the UK for 5 years before indefinite leave to remain is granted. This type of visa works very well if the investor plans to educate his children in the UK. Once the 6 years have elapsed, the family is then entitled to permanent residency status. At this stage the investment can be resold and the family is free to relocate.
Canada (Quebec) – In July 2011, due to the exceptionally high volume of applications, the Canadian Federal Government shut down the Immigrant Investor Program that many Jordanians are familiar with. However there remains a small window of opportunity for the Quebec Immigrant Investor Programme which remains very popular. The purchase of Quebec Government bonds from CA$1,200,000 which are held for 5 years will qualify the applicant, but most clients take the financing option from CA$350,000.
United States EB5 – An investment of $500,000 dollars will give you a residence permit in the US. Amongst the ultra-wealthy this is not as popular, as people are turning away from – and not towards – US residency. Such investment will need to be held for 5 years only and will result in a green card at the end of 5 years.
Portugal – A favourite programme for many due to the minimal residence requirements. There are a number of qualifying options but the most popular is tied to the purchase of real estate from €500,000. In order to maintain the residence status one only needs to spend 7 days per year in the country. After holding residence status for 5 years, and with a basic knowledge of the Portuguese language, one may apply for citizenship.
Greece - Currently the most competitively priced of all European RIPs with a minimum investment in real estate of €250,000. Furthermore, due to their struggling economy, the value for money in Greek property at this moment in time, makes an investment in Greece very attractive. A Permanent Residency card with a five year duration is given upon approval.
Both price and value are distinct and relative factors and for that reason, whether these programmes are perceived as an affordable opportunity, is subject to personal opinion.
Additionally, despite the incentive, these programmes (for the most part) are still investments and in many instances may prove to be good ones.
Finally, with regards to the European investments, it is also worth pointing out that both the Euro and the European property market are at all-time lows. While nobody can truly predict the future, it may not be the worst time to diversify and consider a second home in Europe.