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Investor visas: the keys to the world?

A golden key apparently opens all doors, so what about a golden visa?

Straitened economic times have brought a new lease of life to a well-established concept: investor visas. Cash-strapped governments looking for more ways to shore up their tax base and international investors seeking more global opportunities are just two of the drivers in the recent boom in immigrant investor or citizenship-by-investment programmes. On the demand side applicants are looking for a widely accepted passport – allowing for easy travel, or are seeking a safe haven to guard against potential instability in their home country. In some cases a better way of life and lifestyle are key attractions. Tax is also a consideration.

Micha Emmett, managing director at CS Global Partners, says currently there are four citizenship-by-investment programmes in the Caribbean and several in Europe. In Spain, Hungary, Bulgaria, UK and Portugal, investor schemes will buy residency that can then lead to citizenship. “There are a multitude of reasons why clients would invest in a second citizenship. These range from mobility to opportunities for business or family, for example education.” 

On the supply side, countries have clear economic reasons to promote the programmes. An economic impact study by the Association to Invest in the USA earlier this year found that the US EB-5 immigrant investor visa programme contributed $3.39 billion (€2.5 billion) to US GDP and supported over 42,000 jobs during the 2012 financial year. A similar Canadian study found immigrant investors contributed about $2 billion annually.

Investor visas won’t just buy access to countries like the US, Canada or the UK. Smaller jurisdictions are keen to attract investment too.
St Kitts and Nevis (pictured, right) has run its scheme since 1984 and offers a one-off property investment of $400,000 in return for citizenship after three months. More recently, schemes have come from European Union states such as Cyprus, Spain, Portugal and Malta.

Diogo Viana, managing partner at investment specialists Belion Partners, comments: “The Portuguese golden visa programme was launched in August 2012 and up until March 2014 almost 800 families were granted residence permits. Around 80% of these are Chinese.”

A report released in April by Arton Capital and Wealth-X, A Shrinking World: Global Citizenship for UHNW Individuals, showed that the average net worth of a second citizenship applicant is well above the global average for ultra-high net worth (UHNW) individuals. Second citizenship applicants have an average net worth of $205 million, compared to the global UHNW average of $135 million.

Regardless of cost, demand seems to have been geographically diverse in recent years. The Arton Capital/Wealth-X report stated that nearly 60% of applicants for second citizenship or second residence programmes come from the Middle East, with Pakistan, Lebanon and Egypt accounting for almost 40% of applications. The report also showed that Asia is the new area of interest, with ultra-wealthy Chinese and Indian nationals and non-residents likely to spur demand in the next five years. A survey by the Hurun Research Institute, which tracks China’s richest people, said that 64% of respondents with a net worth of at least $16 million said they would like a green card or already have one.

Viana comments: “Some of these programmes are conducive to the acquisition of citizenship. Second passports, and especially EU passports, are certainly a good plan B for ultra-high net worth families from countries that face uncertain future circumstances.”
The other big demand factor is the desire to travel freely. For this reason EU passports hold inherent worth.
Emmett explains: “For a businessman, obtaining a second citizenship, that allows accessibility to other markets, freedom of movement and lifestyle opportunities can open doors.”

Political security and ease of travel are not the only considerations for applicants. If an applicant’s country of origin does not allow dual nationality then the commitment to the new country must be total. This is the case in China where dual citizenship is not permitted. Due diligence and transparency when it comes to an application is, however, not an option, it’s a requirement.
Emmett adds: “Clients understand that due diligence is essential - a stringent due diligence process means that the government is committed to attracting only those individuals of good character.”

Other potential pitfalls to be wary of include whether national service is required, whether the cost of living is high (as is often the case in tax neutral jurisdictions), and whether the way of living and the climate suits.

Tax is always a significant part of any decision, no matter what the other wider considerations. The Arton Capital/Wealth-X report found that an UHNW individual moving from the US to Dubai (pictured, left) could save nearly $1 million on capital gains tax alone.

Taxation is one of the main attractions of the St Kitts scheme. Howard Bilton, chairman of offshore trust and tax consultancy the Sovereign Group, explains: “Americans are giving up their nationality if they are resident elsewhere and have no intention of returning to the US. For them it is all about limiting their US tax liability. The scheme offered by St Kitts is attractive as it offers an immediate passport without residency and has no tax implications in St Kitts.”

The Portuguese scheme too is tax positive for applicants. Viana comments: “The golden visa has minimum stay requirements and the holder may choose not to become a tax resident of Portugal and thereby avoid any tax implications. Should the golden visa holder decide to become a tax resident of Portugal, they may apply for the ‘non-habitual resident’ regime, which essentially exempts from tax practically all non-Portuguese source income.”

This is along the same lines as the UK resident non-domiciled rules, which state that tax is only liable on income arising in the UK or brought to the UK. The UK’s Tier 1 scheme requires a higher contribution: a £1 million (€1.25 million), £5 million or £10 million investment in government bonds (depending on how quickly applicants want to speed along the process). Residence is required on average for 50% of the year and the UK must be made the main home. This compares to the lesser threshold required in Cyprus and Malta, for example, which require a minimum investment of €5 million and €800,000 respectively, plus a permanent residence.

Portugal (pictured, right) meanwhile requires one of the following: €500,000 in real estate, €1 million in securities of any type, or a business that creates 10 new permanent jobs. Once the fully documented application is submitted, the actual visa issue may take about four months.
Mark McMullen, private client tax services partner at UK accountancy firm Smith & Williamson, comments: “There is an international arbitrage going on. However, I think that over time this may become the subject of counter measures by the OECD to level the playing field.”

Some question how beneficial the programmes are to their host countries. Ronen Palan, professor of international political economy at City University, London, comments: “This is about a group of very rich people using their wealth to invest in a country and gain access to immigration procedures quickly. The question is, does the recipient country actually benefit?”

Political opposition to selling nationality and the impact that it has on both the new country and of those around it can make the schemes unpopular. The UK has had to deal with rapidly rising real estate prices in London that has been driven, in part, by wealthy foreign buyers. In February, the Canadian province of British Columbia abolished its immigrant investor and entrepreneur programmes for failing to lure sufficient foreign investment.

Palan adds: “Investment terms are very ambiguous and it is therefore unclear as to whether the local economy actually benefits at all. And in cases where residency is not required then there is no benefit to a local economy through day-to-day living at all.”

In other cases though, the benefit is clear cut. The number of investment projects in the US that can accept immigrant-investor cash has doubled in two years on the strength of Chinese demand – to 440 as of 1 February this year, according to The Economist.

Bilton concludes: “Most countries sell residency and nationality. The difference is the price. In jurisdictions like the UK, which are perceived as having a lot to offer, then the price and the time is going to be higher than somewhere with less attraction and where the price will be lower.” 

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