What Is Citizenship By Investment?

Quite simply, a citizenship by investment scheme is one that enables wealthy individuals and families to fast track naturalization in a new country.

Cynics tend to suggest that these individuals are simply using their wealth to buy citizenship. However, very few countries want to be tarred with a label of passports for sale, so there are always criteria for applicants to satisfy to ensure that only highly appropriate candidates apply.

These criteria differ from country to country, but any legitimate immigration scheme will include a minimum period of residency in the country to create and demonstrate ties, plus some form of background check or vetting. Most second citizenship by investment countries also want applicants to purchase or rent long-term valuable residential property. Some countries also ask that government bonds are purchased, or that a contribution is made to a fund that benefits the country. A few economic citizenship schemes1 also require some form of business investment that employs locals.

Most of these rules have come about because of the experience learned from previous passport programs. For example, there have been “no questions asked” schemes in the past where a new passport would be issued in exchange for a large payment. These countries soon developed a bad reputation and their passports were soon being bought by criminals and gangsters. No matter how broke a country might be, nobody wants that reputation!

Small nations actually want to be seen as a haven for high net worth families and individuals, people of talent and education.

It is worth pointing out at this early stage that not all passports2 are the same. For example, some countries have very few reciprocal travel or visa arrangements, while others enable visa free travel to most of the world.

Equally, citizens of some countries are expected to perform national service, while most are not. Some countries place quite a high level of taxation on their subjects, some place no taxes on their citizens, whilst most nations lie somewhere in between.

In other words, there are options for a family to naturalize into a second country and some countries will be more appealing that others, depending upon the circumstances of the applicants.

For governments – usually smaller nations – it is important to investigate options for raising income. Many smaller nations already operate to a greater or lesser degree in the world of offshore finance or investment, so passports can seem like a logical next step. Ultimately, a passport is a relatively inexpensive document to produce, despite the much higher value it has.

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What Is Your Country Of Domicile?

Who Wants Citizenship By Investment And Why?

Citizenship by investment

There are many reasons why an individual or family might wish to have a second (or third) passport. For many, it is simply diversification. Once your net worth and income reach a certain level, you have a luxury apartment in London and one in Paris, then what?

Economic citizenship

An obvious next step is to add extra security to your personal freedom. It might be an escape option in case your country ever goes to war or there is a change in government that brings in rules that limit freedom.

For others, they already live in countries where personal freedom is limited. Now that they have accumulated some assets, it is time to loosen those shackles. Economic citizenship may enable the children to be educated in America or Europe, for example. Reasons like these can make the investment worthwhile.

Many people are less philosophical about these things and simply see second citizenship by investment or dual nationality as a way to reduce their tax burdens.

What Criteria Make Citizenship By Investment Countries popular?

There are many countries whose passport is not a particularly helpful travel document, meaning that only the truly desparate and career criminals would apply for one. In contrast, there are other countries with very powerful passports3 that most people would be interested in.

Some criteria for selecting a nation for naturalization might include:

– Is the country an EU member state? EU citizens are allowed visa free travel and the right to reside in all EU member states as a fundamental right. When this is combined with the rights of movement under the Schengen Agreement, it provides powerful benefits to lifestyle and freedom.

– Is the country “neutral”? Some nations have a fairly bad reputation around the world whilst some others are thought of incredibly well. For example, the reputation of Ireland seems to be very good everywhere. If you are going to be associated with a new country, it might as well be a country that is generally liked. It will make life much easier.

– Are citizens required to perform some sort of national or military service? You might want to serve in an army, but lots of people do not.

– How does the citizenship by investment country tax it’s residents? On top of any costs to apply will be the costs of actually being there. Taxation is generally one of the highest bills we have to pay, so it makes sense to investigate the situation carefully. Your income and it’s source will differ from that of many other people, so it is important to consider this question and your own circumstances carefully.

– What is the national language? Will you be able to function there with the language that you speak? For most people, finding a country where a sizable portion of the population speaks English is very important. This makes many of the Caribbean islands attractive.

– How long is the application process? Having to wait one year is very different to having to wait five years.

Considering that there are almost 200 sovereign nations in the world, these simple criteria limit the number of attractive countries quite considerably.

Which Countries Give Citizenship By Investment?

Second citizenship As might be expected, there are some nations that have never and will never offer such benefits. However, there are a small number that consider economic citizenship to be very valuable.

There are few identifying characteristics that can be used to quickly categorise these countries. In the mind of the general population, a country that sells a passport is usually a small island in a sunny far away place, but the reality that there are many some first world nations that provide economic citizenship.

Outside of the EU, there are a number of schemes to investigate:

Antigua and Barbuda
– a passport that is valid for 5 years
– visa free travel to 100+ countries
– time required is 2-4 months
– minimum investment: from $200,000

St Kitts and Nevis
– no dual citizenship restrictions
– visa free travel to Schengen countries and the UK
– no residency requirements or taxation
– minimum investment: from $250,000

United States
– the EB5 Green Card Program
– enables permanent residency status with citizenship granted after 5 years
– investment required for a minimum of 4 years
– minimum investment range: from $500,000 to $1million

Which EU Countries Give Citizenship By Investment?

– the Belgium Business Program
– no residency requirement
– citizenship granted after 5 years
– no dual citizenship restrictions
– minimum investment: 350,000 euros

– Investment Program for Residence and Citizenship
– 1 year minimum residency
– options to invest in local businesses, real estate or government bonds
– minimum investment range: 125,000 to 500,000 euros

– no residency requirement
– time required 3-4 months
– 100% real estate investment possible
– minimum investment: 2.5 million euros

– known as the Individual Investor Programme
– visa free travel to 180+ countries
– no need to actually live in Malta
– time required is 12 months
– minimum investment: from 1 million euros (including an investment in government bonds which can be sold later)

– Golden Residence Visa
– citizenship granted after 6 years
– the minimum residency requirement is just 7 days per year
– minimum investment: 500,000 euros (some of which will be in the form of real estate)

United Kingdom
– UK Tier 1 Investor Programme
– minimum investment: from £2 million

As you can see, there are many options available to a high net worth individual or family. However, those words are the key ones – high net worth – because whilst countries describe themselves as wanting to attract creative and talented people, the reality is that they need to have been creative and talented enough to earn and save significant amounts of money.

If you qualify, then there will be many doors open to your family and a new passport may be possible.

What Is Your Country Of Domicile Definition?

The UK invented the idea of domicile when the British Empire existed. Members of the British aristocracy would be sent away to fight or manage a part of the empire in some far away land, such as India. Of course they didn’t all return home.

Their heirs argued that inheritance taxes should not be paid on their estate’s because they died outside of Britain. Clearly that was not a situation that the tax department liked because they invented the concept of a country of domicile to ensure that these wealthy gents families would still pay their taxes.

How To Define Domicile

To use a non-legal domicile definition, it is which country a person ultimately considers to be “home”. For most people this is clear, but for those with a more international mindset, it can become tricky.

To use more legal language, a country of domicile is applied to a person as his or her permanent residence. However, a person might leave a country – perhaps for work or to travel – and so is no longer actually a resident of a nation, but it is possible to still be domiciled there. This is because the presumption is that the person will ultimately return.

The idea of returning one day is important because taxation on one’s income is based upon residence, whereas inheritance tax is impacted by one’s domicile. Therefore, while it might be of no interest to you where you are domiciled, it will be of interest to your heirs.

Not every country recognises the concept of domicile. However, since the idea originally came from Great Britain and the reach of the Empire and Commonwealth was so large, most countries that do recognise it broadly follow the definition of the British. If you are British, then you might find it useful to read this.

Are Domicile And Residence The Same?

This is an area that confuses many people. A person is resident in a country for tax purposes in any given tax year, but may be domiciled in a separate country because of their life history.

Therefore, it is possible to be tax resident in country B in one year and then move and become resident in country C in the following year, but because they were born and raised elsewhere, actually be domiciled in country A.

To provide an example, your author is a British citizen and was born – and until my late 20s – lived in England. In my late 20s I moved to Belgium for some years. I was resident in Belgium, but still domiciled in the UK. Then I moved to Malta. Now I am still a UK citizen and still domiciled in the UK, but I am a tax resident in Malta.

How To Legally Change Your Domicile

Since a person’s country of domicile is considered to be their “permanent” home, it is not a quick process to move or change domicile. The time frames vary from country to country, but for most it would take a minimum of five years. In the UK, for example, it can take between 25 and 30 years to prove that you left and are not returning!

A person would normally need to make a permanent home in a new jurisdiction and maintain that home and life for many years.

Even then, just being away for decades might not be enough! To be certain, and especially if there is a significant estate at risk, it is important to take legal advice to inform the relevant authorities and legally change your domicile.

It is possible for a person to have a different citizenship to their domicile and it is also possible to have a different residence as well. In fact, though it would be quite unusual, it would be possible to be a citizen of one country (France, for example), a resident of another (let’s say Spain) and domiciled in a third (such as the UK) because of a previous long-term residence. In other words, this can be quite a complicated topic…

Can A Person Have Domicile In Two Countries?

In theory, the answer is no, a person can only have one domicile. However, it must be quite clear that if the UK takes 25 years or more to accept a change, then a person could pass away in another country, having lived there for many years and the UK might still have rights under the law.

There are a number of countries in the second citizenship market whose passports enable a choice to be made. Essentially the individual is able to declare whether or not they wish to be domiciled in this new country. That is all well and good, but if they happened to pass away in their original country, then the declaration of domicile would likely be meaningless.

At this point, it becomes very complex and specialist legal advice is required. The nature and location of assets is important, as is the location in which the person passed away and where they chose to be buried and more.

What Is UK Non Domiciled Status?

London has become a global mecca for the super rich in recent decades. The combination of being a global hub, having all the freedoms and attractions of London and legal and financial hubs, makes it a very attractive city.

The result has been that many high net worth individuals have invested in real estate, bought businesses and moved themselves to the United Kingdom.

However, their tax status has been something of a hybrid because while they took up residence, they are third country nationals and have significant business and financial interests internationally. Additionally, they do not hold UK passports.

These people are often referred to as “non-doms” in the UK press.

They are eligible for UK income and capital gains tax. However, this is on a remittance basis. This means that they pay tax on their UK income and any other income that they bring into the country. If the income remains outside the UK, then it will not be taxed as income or a capital gain. This offers the ability to almost decide on their tax bill, because they can bring into the UK only as much as they need to live and no more.

What Are Double Taxation Agreements?

Both individuals and companies can use double taxation agreements and treaties to reduce their taxes. However, they are only applicable when there is an international element to the situation.

Before writing anything else, it is very important to highlight that the double tax arena is very complex and specific personalised advice should be obtained before taking any implementation steps. Your situation and the countries involved may be unique and so any advice must be tailored to your exact situation.

Why Do Double Taxation Agreements Exist?

The accepted answer and the real answer to this will be different from each other.

Firstly, to the accepted answer. Every country has it’s own set of unique rules to tax personal and corporate income. Those rules have developed over many decades and are designed to ensure that each nation state can raise enough revenue to function.

However, some companies and individuals have business and financial interests in more than one country. Double tax treaties exist to ensure that they pay the appropriate level of tax in the correct location and are not made to pay taxes on the same revenue sources in more than one country.

The real reason that double tax treaties exist is because large corporations and wealthy individuals lobbied for them. Let’s be clear, most governments are not interested in whether or not we pay the correct amount of tax to the right country, they are concerned that we pay to them.

Without the lobbying pressure of wealthy groups, we would probably all owe all our money to every government forever!

How Double Tax Treaties Work

For the lay person, it is easier to think about the result of these treaties. Therefore, from here onwards, please think of them as double no taxation treaties, because that is how most major corporations and the 1% actually use them.

If you have read anything in the news between 2012 and 2015 about major technology corporations – such as Apple, Google and Facebook – it will have been difficult to have missed information about their taxes.

These are companies that generate tens of billions in revenues around the world but have structured their finances to legally minimise their tax bills.

Please note the use of the word legally, it is very important.

There are a wide range of terms that are used by the press for these deals, “sweetheart deals”, “a double Irish”, “a Dutch sandwich” and more. The result is a complex structure that moves revenue from one location to another to ensure that it ultimately is received free of most or all taxation.

Just as there are jurisdictions and formations used by companies, there exists a similar range that is used by private individuals. These include trusts for wealth planning, banking havens, asset allocation havens, low or no tax personal residency jurisdictions and on and on. The global super rich play with regulatory arbitrage just as international businesses and hedge funds do.

The reality is that a second citizenship would be a very small part of this concept, but it is a part of this concept, which is why I am writing about it for you.

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What Is Citizenship By Investment?

What Is Your Country Of Domicile Definition?

Double Taxation Agreement Countries

The modern globalised world means that most countries have agreements with most other countries. Not all agreements will cover all laws, this all comes down to negotiation between the nations, but they will have some agreements.

The few countries that will be hard to find agreements to will be those that can be guessed – nation states that are outside of the global community or have failed in some way. Therefore, countries such as North Korea, Iran, Yemen, Somalia will likely have none. Then there will be other nations that will have a few because of their relationships with the US, such as Iraq and Afghanistan, but they are also undeveloped in this area.

At the other end of the spectrum, most fully developed nations will have a wide range of agreements with dozens of other countries. A good example is the European Union. At the time of writing, the EU has 28 member states, which means that there are lots of agreements in place. Many of these agreements are with each other, but when countries negotiate with the EU as a block, they will put deals in place with most or all of the countries. Therefore, it will be quite common for even very small European Union members to have reached agreement with more than 100 countries.

For an example, this page lists the countries that the United Kingdom has tax treaties with. From Albania to Zimbabwe, it is not easy to think of a country that is not on the list.

Double Taxation Agreement For Pensions

For people at the end of their working career that have achieved some level of financial independence, how their pension is taxed is very important. Yes, many countries do have agreements that stop their pensions from being taxed twice.

There are many individuals that retire to another country to reduce the level of taxes applied to their pension income. If the new country has a lower average cost of living, this can be a double win for the retiree (their pension is taxed left and the remaining income buys more goods and services than it would do at home).

What To Think About

When planning your move to a new residence or citizenship jurisdiction, it is important to investigate how the type of income that you generate is taxed and at what rates. It might prove that the location you are investigating is a good fit, but it might not be.

Therefore, there is a great deal of value to be had in assessing this situation closely and designing your new legal circumstances to fit in with your existing income and wealth situation.