The Growing Popularity of Citizenship by  Investment Programs

The Growing Popularity of Citizenship by Investment Programs

During the past several years, citizenship by investment has gained traction throughout the world. Investors looking for quality opportunities to invest and receive a second citizenship that grants them greater flexibility, added tax benefits and a better lifestyle have had access to many of these types of schemes. Wealthy individuals, primarily from China, South Korea, Russia and the Middle East, have embraced this practice and purchased second passports on their way to becoming a global citizen.

According to Taxlinked.net member, Bence Zakonyi, the Senior Marketing and Public Relations Manager for Walsh Worldwide Immigration Services, a group of companies that deals exclusively with citizenship and residency programs worldwide, “the market of citizenship by investment programs is not a phenomenon anymore but a developing industry. With the recent addition of St. Lucia, there are nine official citizenship by investment programs” for today’s global citizen.

For the past few years, Bence has been working with Walsh Worldwide in the development of a comprehensive and public database that includes all citizenship by investment schemes, as well as residency by investment programs and fast-track naturalization solutions, available to interested investors. Given his experience, he believes St. Kitts and Nevis’s citizenship by investment program (launched in 1984) is the oldest and most popular one, contributing 30 percent of total annual revenues to the island, followed by Dominica’s, a highly affordable option ($100,000 + fees) available to single applicants. More specifically, St. Kitts’ program requires either a $250,000 donation to St Kitts and Nevis Sugar Industry Diversification Foundation, a charity organization working on behalf of retired sugar workers, or a $400,000 investment in real estate.

Citizenship by investment scheme

Within the framework of traditional political philosophy, Rafael De Conti, a Brazilian lawyer who runs De Conti Law Office in São Paulo, reflected on the growing popularity of these schemes:

“On the one hand, citizenship is granted by a State. I was born under a structure with a common language and culture that made me Brazilian. On the other hand, I was also born with liberty, and I am free until something more powerful takes this freedom away. So the question is: If the State—whose purpose is to protect its citizens—goes against me with corruption, authoritarianism, tax voracity, etc., why can’t I use my freedom to ask another State to serve as my protector? In my opinion, we are in a new era concerning human rights and freedom. Some States are no longer efficiently serving their initial purpose. Hence, there exists this new opportunity to select your State. This selection, in the first place, can be made by individuals who have the power or the money to buy citizenship, e.g., investing in a house or a business. Regardless of a person’s birthplace, this phenomenon is related to access to fair taxation and good treatment by the chosen State of its citizens. In this new era, I believe the movement of money around the world is directly linked to searching for a fair relationship between citizens and the State. Bad governments will lose money, while good ones will receive it. There is no secret: the State shall serve the citizens, not the opposite. If the State is not efficient enough to do that, then I will be looking for another one that does.”

Global Citizen

Why Become a Global Citizen?

There are plenty of benefits from these types of schemes, both for the individual involved and the jurisdiction awarding the citizenship.

Gabor Kiss, an expert with Crystal WorldWide, an international tax and asset planning firm based in Hungary,  summarizes this point nicely: “These schemes are beneficial for both sides: the governments are generating income or, in some cases, free or cheap funding for themselves; the investors, on the other hand, are able to purchase a "commodity," which was previously very troublesome, expensive and, in many cases, not fully legal to acquire, but now with clear rules regulating this new industry.”

Benefits for the Government

  • Cheap or Free Funding.
  • Potential Business Connections with other Jurisdictions.

Benefits for the Global Citizen

  • Visa-Free Travel.
  • Favourable Tax Environment.
  • Political and Economic Stability.
  • Personal Safety and Security.
  • Better Quality of Life (Infrastructure, Weather, Services, etc.)
  • Access to Better Educational and Professional Opportunities.
Due Diligence

The Importance of Transparency & Due Diligence in Citizenship by Investment Programs

Both Bence and Gabor agree that, when setting up citizenship by investment programs, transparency and due diligence are of utmost importance.

On the government’s side, according to Bence, “due diligence is the most important part of the application process. Even only one rotten apple is enough to ruin an entire citizenship by investment program.” Therefore, it is fundamental for jurisdictions partaking in citizenship by investment programs to go through in-depth and meticulous Know Your Customers (KYC) processes. Lightly vetting applicants in hope of a quick payday can contribute to a negative, often crippling, perception of that jurisdiction’s citizenship by investment scheme.

As for the global citizen, Gabor says, “The most important factor in connection to these programs is transparency. Investors would like to know what they are paying for, how their money will be spent and how long the procedure will take, among others. If there are unclear rules, longer waiting periods than expected or any other troubles during the application process, clients will start mistrusting the country, the citizenship agent and the whole citizenship by investment program.”

Rules regarding delicate issues such as government discretion when handling clients’ requests and minimum commitments of the citizens to their new country (i.e. do they have to spend X number of days in their new country?) should be clearly laid out from the get-go.

All in all, whether one believes in them or not, these types of programs are here to stay. As succinctly put in a 2013 article by Madeleine Sumption and Kate Hooper, former Director of the Migration Policy Institute’s (MPI) International Program and MPI Research Assistant, respectively, “It is likely that the number of immigrant investor programs will continue to grow, as more states seize the opportunity to raise additional revenue and encourage high-value migration. The form of these programs remains experimental, with some generating significant income while others have lowered investment thresholds to attract more applicants. As the programs become more popular, calls for increased regulation and transparency may grow, particularly with the growth of citizenship-by-investment programs that often attract criticism for "selling passports." One thing is clear: demand for investor visas is on the increase.”

Question markQuestion: What do you think of citizenship by investment programs? What are the advantages of becoming a global citizen?