In recent months the European Union has been investigating EU Member States citizenship by investment schemes.
When the Maltese and Cypriot schemes were first introduced, they faced controversy relating to the very direct way in which they were pitched. However, as time has passed, the scepticism of the European Commission and Parliament has not eased.
On 30th May 2018, Malta Today reported that, “European Commissioner Violeta Bulc said the commission was working on a study of citizenship and residence programmes in all member states”. Reports like this can take several years, but it is a clear indication that the EU is concerned about passport programs and wants to find a way to limit or end their use.
These concerns were not helped when a Maltese journalist and blogger, Daphne Caruana Galizia was murdered in October 2017. Since then there has been significant focus on the stories she was working on, including related to Malta’s Individual Investor Programme, known as IIP and the relationship between the government, it’s main Ministers and Henley and Partners.
The combination of renewed reporting of stories by the Daphne Project, lead to reporting and stories like this that have made Henley and Partners and Malta’s government look very bad around the world. Whilst this may all pass, the European Parliament has shown itself to be very concerned and is taking the EU citizenship by investment situation very seriously indeed.
The reality, as displayed when the passport schemes were launched, is that under current rules the EU has minimal powers to oversee the action of European Member States in this area. Naturalisation is considered to be a Member State competency and so the EU has few rules or authority to apply. It is possible that twenty years from now the EU will have been able to change this situation, but in the coming few years, there is very little that Brussels can do to enforce it’s will on individual nations, even those as small as Malta and Cyprus.
This website explains a wide range of subjects related to nationality and second passports, but it might still be possible that the main reason why a person might want to go through all the effort and costs to obtain second citizenship is unclear.
If that is the case, then this page is the one for you! This page describes six very important reasons to have a second passport for you and your family.
1. A Second Passport Makes It Difficult For A Government To Control You
For most people, one passport is enough. There are many studies that show that most Americans (for example) will never leave the state they are born in and will never have a passport. If you are one of those people, that is totally cool. You don’t travel and don’t want to. You live your life within the boundaries of one country.
However, at the other end of the scale, there are many people that live very international lives. Perhaps they travel for work, or have families in more than one country.
There are also people that are very high profile within their own country, either for business or political reasons. For these people, the physical safety of they and their family might be compromised just because of a wrong word to a powerful person. People in these situations value a means of escape very highly.
This means that while the business owner, usually the father, needs to stay in the home country and work, his wife and their children might move abroad to study or relocate. Having a second citizenship makes it much harder for the home government to control them. They have changed the rules of their lives, often for the better.
2. A Second Passport Provides Extra Freedom Of Movement
Let’s imagine that you were born in a third world dictatorship somewhere, but have been successful. You now would like your children to be educated at the finest universities in the world. How can your little darling get into Hardvard, Cambridge or the Sorbonne?
Having a passport that provides more rights and freedoms – such as a European Union document – will make it much more likely that your children will be accepted into a higher ranking school or university.
Or another example, imagine being an American citizen and wanting to visit Cuba. for decades that has been impossible, but if you have another passport…
In times of war or conflict, borders normally are closed. This is one of the reasons why such large humanitarian tragedies occur. People are trapped inside a war zone. However, it is normal practice for foreign nationals to be allowed to leave the danger areas in the early days. In fact, many governments take efforts to help their citizens to evacuate. With a second travel document, a family has an option to escape. A second nationality can save your life!
There are many such opportunities as this that can be opened up with the right legal document. All a family needs to do now is to get that document…
3. A Second Passport Opens Up Unusual Job Opportunities
In a previous work life, your author lived and worked in Brussels, Belgium. As you may know, Brussels is home to the institutions of the European Union. There are tens of thousands of people that live and work in Brussels and have some government, EU or lobbying role.
In that time I met a number of people that worked for one of the main EU institutions (usually either the European Parliament or the European Commission) who were born and raised in one country, but had a parent from another EU member state. They were unable to work for the EU as one nationality, but were able to find a job as a member of the second nationality. For those people, their heritage provided them access to their career of choice. This is access that they would not have had if they only held the other nationality.
There are many types of role that are opened up to people because of their heritage, language skills or legal documents. Why not be a part of that group?
There are many countries in the world whose citizens have very few opportunities in financial services. Quite simply, the global banking system makes life very difficult for most of humanity because of FATF rules relating to anti-money laundering and Know Your Client. If you are from one of these countries, a standard international wire transfer can be borderline impossible, or very expensive.
If you or your family wish to move abroad, your ability to support yourselves financially will be vital. Banking makes much of that possible.
5. A Second Passport Opens Up Many Taxation Options
In the same way that a person’s finances are wrapped inside their nationality, for many people, their taxes are inside that same wrapping.
For some people with independent incomes, it might be that their tax situation is fixed. For example, retired people that have worked for government entities for years have very little choice in how and where they pay tax. They just do! In the same way, there are people – especially from the United States – that have fixed incomes from things like structured settlement agreements where the taxation is a part of the agreement. They would also have little to no choice about their tax status.
As we know, some countries levy very low rates of tax on their subjects, while others charge much, much more. There are some people that deliberately make choices relating to dual citizenship or citizenship by investment based purely on their tax situation. That seems quite far fetched to me, but many people do this.
Holding a passport from another jurisdiction can help to reduce a person’s tax bill substantially, if it is well planned and executed.
There are five of the main reasons why people pursue a second passport. Which applies to you and your family?
When birthdays come around, many of us wonder what we should buy for the person that has everything. For most of us, this is a partly rhetorical question. For the super rich, the 1%, those with an ultra high net worth, this is a very real problem. Not only is it a problem at birthdays and anniversary’s, it is also an investment problem.
Where Do High Net Worth Individuals Keep Their Money?
Once a person or family has built their wealth to a certain level – in the multiple millions, they will begin to start asking themselves questions about international investment. One reason for this is that the wealthy will probably have been able to travel significantly and will be more internationally minded. Another reason will simply be that in case everything goes wrong, they will have some sort of extra option abroad.
This means that a significant proportion of the world’s high net worth will eventually find their way to the main financial management hubs: New York, London, Singapore, Frankfurt and Hong Kong. They might also have found their way to the main offshore locations: Switzerland, the Caribbean and the Channel Islands. In which case, they are likely to have an international perspective.When you have access to a private jet these options no longer seem to be so difficult,
It might be worth noting that at the very top, the habits and strategies are different from the rest of us. Though a lottery winner or the recipient of a structured settlement annuity might have significant personal wealth, their investing strategies and life goals are likely to be very different to lifetime entrepreneurs or money managers.
How Do High Net Worth Individuals Invest?
At first, their passive investments will be just like the ones the rest of us have access to. They might buy a second property, use mutual funds and ETFs, bonds and money market funds etc. At a certain point they are likely to invest in more high risk options such as smaller businesses and emerging market funds.
If their income is high enough then sooner or later they will probably venture into riskier waters, such as CFDs, hedge funds and international real estate. As their financial future becomes more and more secured, then higher risks can be taken to juice their annual returns. It is being able to accept these higher risks that is likely to really push their net worth upwards. Risk management can be very different at the top of the pyramid to how the rest of us think.
What Do High Net Worth Individuals Want?
At a certain point, creating multi-generational wealth, thinking dynastically, and securing your family forever becomes a possibility.
Many aspects of our culture are based on the idea of social mobility, that it is possible to work your way up the economic ladder. Part of this is the aspect of mobility.
What happens if there are some sort of political changes in your home country? What happens to your family? Political changes can take months or years to creep up on us, but others such as the Ayatollah returning to Iran, totally changed a country and it’s society overnight.
If you can literally afford to buy anything, then ensuring that you and your family has the means and ability to leave and start again elsewhere is real security. For these ultra high net worth members of the global elite, citizenship by investment and second passports are a very appealing concept.
A great and very public example of this thinking made the news in early 2017 when it became known that Silicon Valley billionaire Peter Thiel had obtained New Zealand citizenship in 2011 in what seems to be expensive disaster insurance.
Another interesting example hit the news in mid-2018. The Russian billionaire owner of Chelsea FC, Roman Abramovic, appeared to be making moves towards Israeli citizenship. He had seen delays from the British government regarding his UK visa and appeared to be taking steps towards moving to Israel. As mentioned in the article linked above, he already owned some real estate in Israel, so has some sort of base to live there. It is these kinds of moves that separate the super wealthy from the rest of us and their passports play an important enabling role in their incredible mobility.
Why Is Dual Citizenship Good For High Net Worth Families?
Not only does a second passport open up options of escape in troubling times, but it also opens up many avenues for immediate family members. For example, how else will wealthy Chinese children be able to study at the Sorbonne, Oxford or Cambridge? If they are not European citizens it is actually very difficult to get in, but many more educational options are open to EU citizens.
If the political situation at home really is troubling, then many families move away, leaving just one member – usually the father – to stay at home and run the business.
It will also be easier for family members to assimilate in other locations. Being a European citizen, for example, makes private banking and asset management much easier to work with. This is actually a diversification strategy!
Being Advised By High Net Worth Advisory Firms
When you can afford anything, you can afford the services of the smartest legal advisers, asset managers, private bankers, tax planners and business managers. When you have access to your own arsenal of educated, smart people like this – whether individuals or advisory firms – it is only a matter of time before the topics of personal freedom and mobility are raised.
It has been argued for some years that the super rich inhabit a world that is above the rest of us. The combination of seemingly limitless wealth, with global assets and mobility means that it becomes very difficult for any government to truly control them. They have cut themselves loose from the ties that bind them to the rest of society. This site is not trying to judge that either way. I am just acknowledging that a second or third passport is an important part of their toolkit.
In conclusion, citizenship by investment can be an excellent option for an ultra high net worth family to explore because it makes all those other things that they might want to do easier. Hundreds of thousands or millions of dollars or euros seems like a lot of money to us, because it is, but it is often money well spent for the ultra high net worth.