OECD Targets Citizenship & Residency by Investment Programs

OECD Targets Citizenship & Residency by Investment Programs

Earlier this week, the OECD released its findings from an in-depth investigation into citizenship by investment (CBI) and residency by investment (RBI) programs throughout the globe.

According to the OECD, many of these CBI and RBI programs can be purportedly abused by individuals to “hide their assets offshore by escaping reporting under the OECD/G20 Common Reporting Standard (CRS).”

More specifically, the OECD report suggests that ID cards “and other documentation obtained through CBI/RBI schemes can potentially be misused abuse to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures.”

The OECD claims that the questionable CBI and RBI programs listed potentially “give access to a low personal income tax rate on offshore financial assets and do not require an individual to spend a significant amount of time in the location offering the scheme.”

Furthermore, the report writes that this conclusion “is based on the premise that most individuals seeking to circumvent the CRS via CBI/RBI schemes will wish to avoid income tax on their offshore financial assets in the CBI/RBI jurisdiction and would not be willing to fundamentally change their lifestyle by leaving their original jurisdiction of residence and relocating to the CBI/RBI jurisdiction.”

The OECD’s List of Risky CBI & RBI Programs

Below is a full list of those CBI and RBI programs found to be questionable by the OECD investigation.

OECD’s List of Risky CBI & RBI Programs

Malta and Cyprus, EU members known for the overall success of their CBI and RBI programs, have made the list and swiftly moved to refute these allegations.

Jonathan Cardona, Head of Malta’s Individual Investor Programme (IIP), said the country carries out extensive due diligence investigations into the applicants.

Cardona told Malta Today that the IIP “[asks] for every single piece of supporting documentation on how applicants’ wealth was created, and that includes banking statements and tax certificates, but also proof of donations or how wealth was inherited, amongst others.” 

Despite such efforts, Vera Jourouva, the EU's Justice commissioner, criticized these EU programs for putting citizenship up for sale.

Jourouva said: “I understand that citizenship schemes are favourable for the economy. But this is unfair for the people who cannot afford to buy citizenship. And citizenship is something so, so big and so valuable that citizenship for sale seems for me rather problematic.”

Keep in mind that Cyprus and Malta have bone benefited greatly from citizenship by investment programs.

According to Transparency International and Global Witness, via their respective CBI programs, “Cyprus has raised €4.8 billion ($5.5 billion) since 2013, while Malta has reaped about €718 million ($831 million) in foreign direct investment since 2014.”

Furthermore, available statistics suggest “that approximately 3,300 people have been granted citizenship through the Cypriot program since 2013.”

OECD Recommendations for Financial Institutions

OECD Recommendations for Financial Institutions

Following this investigation, the OECD offered financial institutions a series of steps to take when handling cases of individuals who have participated in the aforementioned CBI or RBI programs.

Primarily, the OECD recommends that financial institutions pose several questions to said individuals. Per the OECD, these questions include the following:

  • Did you obtain residence rights under an CBI/RBI scheme?
  • Do you hold residence rights in any other jurisdiction(s)?
  • Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
  • In which jurisdiction(s) have you filed personal income tax returns during the previous year?

What are your thoughts on the OECD’s findings? Will they raise issues for jurisdictions offering these programs?

Let us know with a comment!

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