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Expat Briefing Editorial Team, 30 June, 2017
Rapid advances in communication technologies and international travel coupled with the ongoing process of globalization have made the world a much smaller place, so that now it is possible work, invest, or start a business in more countries than ever. On the other hand, the erosion of privacy has become a major concern, while the tax man has probably never been so powerful, and there are plenty of other potentially nasty traps lying in wait for the investor with international horizons. But this is where enrolling into a second citizenship or immigrant investor program can help.
Why Take Out A Second Citizenship?
While most people live out their lives quite happily in the country in which they were born, there are several reasons why some people might want to consider obtaining a second citizenship: your assets may be at risk of litigation; your home country enforces strict currency controls; your freedom to work, invest and buy property at home is restricted; political instability in your home country makes it very difficult, if not impossible, to obtain visas for travel; and, worse still, your current passport marks you out as a potential target for terrorists or kidnappers.
Another reason might be because the tax burden in your home country is unnecessarily high, and taking out a second citizenship may be the only way to shake off your country of origin's claim to your worldwide assets.
Jurisdictions which tax income on a territorial basis, i.e. income derived only from sources within their borders, are becoming few and far between and most countries, especially high-tax countries in the West, tax income on a worldwide basis. However, it is often not enough to merely live abroad for a certain amount of time to escape the tax net in the land of your birth. Some countries, the United Kingdom being a notable example, also attach the concept of domicile, as well as residence, to an individual's existence for inheritance tax purposes. This requires a much more serious break in the link between yourself and your home country, to the point that you have virtually no economic or social ties there at all.
US citizens are probably in the worst position of all in this respect because the Internal Revenue Service (IRS) taxes on the basis of a person's nationality. While foreign income and housing exclusions alleviate the tax burden for many American expats, in principle they are in the uniquely horrible situation of suffering double taxation virtually wherever they go. And pretty much the only thing they can do break the hold of the Internal Revenue Service is to renounce their citizenship, something an increasing number of Americans seem willing to do; according to Treasury Department statistics, a record 5,411 US taxpayers gave up their passports or their green cards in 2016 – over 26 percent more than the previous record of 4,279 set in 2015.
As governments cast their tax nets ever wider in an attempt to crack down on tax avoidance, more and more countries it seems are destined to go down the American route. France is one country that has recently given the serious consideration, and in July 2016, the Chartered Institute for Securities and Investment recommended that United Kingdom citizenship be used in addition to UK residency as the qualifying tests for liability to UK tax. But in response, an increasing number of mobile entrepreneurs will up sticks from these countries and set up shop in low-tax jurisdictions.
So, taking all of the above into account, not only could a second passport prove useful in terms of making your life easier and protecting your assets, but if you come from a high-risk country, it could even save your life!
Obtaining A Second Passport
There are several legitimate ways of obtaining a second passport. Front door programs, sometimes also known as 'white glove' programs, offer immigration and second citizenship through recognized and established channels and legislation which can be checked and verified. The advantages of obtaining a passport in this way are that you can be sure you will receive the genuine article (and with it all the benefits of citizenship in the country). However, the process can be long-winded, bureaucratic and expensive, and some of the "white glove" countries may not permit you to retain dual citizenship.
Then there is a riskier second possibility for those interested in a slightly more flexible way of obtaining a second passport, being the discretionary route. Several countries have recognized and established programs whereby those who invest a set amount in the local economy become eligible for economic citizenship, other factors notwithstanding. However, this is an area in which you must proceed with extreme caution, as although some of the programs to be found on the internet and via other mediums are 100 percent genuine, the legitimacy of others is not assured. It cannot be emphasized highly enough that if you are caught travelling, trying to open a bank account, or undertaking some other activity with a fake, stolen, or “under the table” passport, you are likely to find yourself in a great deal of trouble, whether you were aware of the fact or not.
So before you part with any money, or become otherwise involved in a second passport scheme, you need to make sure that the government of the country to which you are applying to become a citizen knows and approves of it, and is prepared to offer all the benefits of citizenship to participants in the scheme. Otherwise, it may just end up as a costly and possibly legally damaging waste of time.
In view of the above then, this is a decision not to be taken lightly, and, rather than make a potentially very expensive mistake, it pays to do your research and discuss your options with a consultant in this field.
Which Countries Offer Second Passports?
Several countries offer residence to foreigners in return for substantial investments, with the possibility that citizenship could follow. But for a long time, there were only two countries which had clearly defined statutory economic citizenship programs in operation that issued second passports to qualifying investors, and they were both located in the Caribbean: St Kitts and Nevis and The Commonwealth of Dominica. These two jurisdictions were recently joined by another Caribbean territory, St Lucia, which established a citizenship by investment program under legislation passed in 2015.
Austria also issues passports in return for substantial investment, but this is not a statutory program as such. Belize used to have a white glove scheme in place, but abolished it in 2003, while Ireland got rid of its second passport program in 1996. This is not to say that it is not possible to obtain a second passport in countries other than those mentioned, but except in exceptional circumstances, you will be forced to go down the longer-winded, front door route.
Summaries of the citizenship programs in place in St Kitts & Nevis, Dominica and St Lucia their follows below.
St Kitts and Nevis are islands in the Caribbean Sea, about one-third of the way from Puerto Rico to Trinidad and Tobago.
The two volcanic islands, which are renowned for their beautiful mountain scenery, total 261 sq km in area and are separated by a three-km-wide channel called The Narrows. The climate is tropical, tempered by constant sea breezes and there is little seasonal temperature variation. The rainy season is from May to November and there can be hurricanes between July and October.
The capital is Basseterre, on St Kitts, and there are harbors at Basseterre and Charlestown (Nevis). Bradshaw International Airport, near Basseterre, can handle large jets, while Nevis's Newcastle Airport is only capable of handling light aircraft.
Airline services to the Federation have been improving, and there are now direct flights from New York, Philadelphia, Miami, as well as links to other Caribbean islands.
Since gaining independence in 1983, St Kitts and Nevis has been an independent participant of the British Commonwealth. Unlike most other English-speaking Caribbean jurisdictions, it is neither a dependency, nor a crown colony of Britain. The Federation has its own representation at the United Nations and is politically stable.
There is no personal income tax, net worth tax, gift tax, turnover tax, or estate duty on St Kitts and Nevis. Corporate Income Tax and Withholding Tax apply to domestic companies, but not to entities carrying on business solely with non-residents.
According to the Government, a St. Kitts and Nevis passport allows visa-free travel to more than 130 countries, including all European Union countries, Caribbean and Commonwealth nations. Citizens often acquire long-term travel visas to the United States.
There are currently two options available to qualify for the Citizenship by Investment Program:
The Sugar Industry Diversification Foundation (SIDF or the Foundation) was established on September 16, 2006 with National Bank Trust Company as Founder. Its primary purpose is to assist the government to transition from sugar as the main industry to a more diversified economy by researching and funding the development of alternative industries. The Foundation has been designated a specially approved project for the purpose of Citizenship-by-Investment. Therefore, contributions to the Foundation of at least USD250,000 qualify foreign nationals, subject to stringent due diligence checks, to apply for Citizenship-by-Investment in St. Kitts & Nevis. Applications are made to and processed by the Citizenship by Investment Unit of the Government.
In order to qualify, the investor commits a non-refundable SIDF charitable donation of:
Applications must be submitted with the following due diligence fees: USD7,500 for the main applicant; and USD4,000 for each dependent over the age of 16.
The application normally takes four to six months to complete.
The Citizenship-by-Investment Program was established in 1984, making it the longest established program of this kind in the world. According to the government, it has distinguished itself from many other similar programs by rigidly enforced investment requirements and meticulous due diligence procedures. The Citizenship by Investment Unit receives approximately 300 applications per year, and in January 2016, Prime Minister Timothy Harris revealed more than 10,000 passports had been issued under the citizenship-by-investment scheme by December 31, 2015.
The program is designed to channel investment into the country's tourism industry, a major pillar of its economy. To qualify for the program, the investor therefore must enter into a contract to purchase real estate in a tourist development with a minimum value of USD400,000 on either St. Kitts or Nevis. Qualifying real estate investments must be in completed, or under construction, houses, condos etc. Land only purchases do not qualify. Once the purchase contract has been signed, and the developer has received an initial deposit (usually 10-20 percent) the investor may apply for citizenship.
Property acquired through this program may not be sold within five years, and if it is, the investor's citizenship may be revoked. After the five-year period has been completed, the real estate may be sold and citizenship retained by the original owner. As of new regulations from 2012, the next buyer also qualifies for citizenship.
The new regulations also provide an alternative route for applicant to gain citizenship, by making a non-refundable charity donation of minimum USD250,000 to the Sugar Industry Diversification Foundation, in addition to processing fees.
Passports granted under the Citizenship by Investment Programme are valid for 10 years and are renewable. It normally takes 6-8 months to process an application.
Dominica forms one of the Lesser Antilles islands in the Caribbean Sea between Guadeloupe to the north and Martinique to the south.
The volcanic island is approximately 750 sq km and is largely covered in dense rain forest.
With a population of around 73,500, Dominica is one of the poorest islands in the Caribbean; with an estimated gross domestic product of just over USD800m at purchasing power parity and per capita income of USD11,400 in 2016. The two main centers of population are Portsmouth in the north, and Roseau in the south west of the island.
Dominica's tourism sector is less well-developed than in other Caribbean islands, and the island receives around 50,000 visitors per year; without an offshore business sector, the island's economy is still largely dependent on agriculture. However, the tourism industry is growing and the Government has been keen to sell the island as an eco-tourist destination which may appeal to the more adventurous holidaymaker.
There are no taxes on non-residents in Dominica. However, residents are subject to substantial taxes on income produced on the island.
A Dominica passport allows visa-free travel to more than 95 countries, including most of the Caribbean and the UK. Visitors to the rest of Europe and the US will require a visa.
Before being granted a Dominican passport, applicants have to undergo an extensive due diligence check by the government. This is normally carried out by a third-party agency. After an initial review the agency will define the fee to be charged based on the citizenship, age and number of countries in which the applicants have lived. After the fee is paid directly to the investigation agency, due diligence can take from four to eight weeks.
To obtain a Dominican passport under the scheme, an applicant must deposit money into the Government Fund or make an investment in real estate on the island.
If the former option is taken, a single applicant must make a contribution to the Government of USD100,000. This contribution rises to USD175,000 for a main applicant and their spouse, and to USD200,000 for the applicant, spouse and two children under the age of 18.
If the real estate option is taken, the applicant must purchase authorized real estate to the minimum value of USD200,000. The real estate must be held for three years and may be eligible for re-sale under the Citizenship by Investment Programme after five years from the original purchase date.
Once the background check has begun, the application process can be commenced. However, the procedures are very detailed and much paperwork will be required; the government requires that all documents be no more than three months old and notarized. Non-refundable application fees include:
There is an additional set of fees for those choosing the real estate option, as follows:
In the case that the applicant is not accepted, the contribution is returned minus the application fee. The granting of the citizenship is at the sole discretion of the government of Dominica but applicants are only denied when due diligence reveals false information or that the applicant has a criminal record.
A byword for tropical beauty, St Lucia is a scenic and atmospheric Caribbean island located between the Caribbean Sea and the North Atlantic Ocean, to the north of Trinidad and Tobago.
The terrain of the 600 sq km island is volcanic and mountainous with some broad, fertile valleys. The highest point is Mount Gimie at 950m, in the western part of the island, although the two striking cone-shaped peaks south of the western coastal town of Soufriere, known as the twin Pitons, are one of the scenic natural highlights of the Caribbean.
Sandy beaches abound, which has helped the island become a popular upmarket tourist destination. As one would expect, St. Lucia's climate is tropical, but temperatures, which range between 23 and 29 Celsius, are moderated by northeast trade winds. There is a dry season from January to April, and a rainy season from May to August.
The island, with its fine natural harbour at Castries, the capital city, was contested between England and France throughout the 17th and early 18th centuries (changing possession 14 times); it was finally ceded to the UK in 1814. Even after the abolition of slavery on its plantations in 1834, Saint Lucia remained an agricultural island, dedicated to producing tropical commodity crops. Self-government was granted in 1967 and independence in 1979.
The majority of the island's population of approximately 164,000 are of black African descent. The official language is English, but a French patois is also spoken.
As in St Kitts and Nevis, the currency is the Eastern Caribbean Dollar (XCD), which is pegged to the USD dollar at a rate of XCD2.7 = USD1.
To stand a chance of being accepted onto St. Lucia's citizenship by investment scheme, an applicant must provide a sworn affidavit declaring financial resources of at least USD3m, as well as documents to support the claim.
To gain citizenship under this program, the applicant then must make a minimum investment in one of the following four schemes:
Single applicants intending to investment in the National Economic Fund must make a minimum investment of USD100,000. This rises to USD165,000 for applicants applying with a spouse, and to USD190,000 for applicants applying with a spouse and two dependents. An additional USD25,000 must be invested for each additional qualifying dependent.
A minimum of USD300,000 must be invested in an approved real estate project. Qualifying projects include high-end branded hotels and resorts and high-end boutique properties. Investment in an approved real estate project cannot be sold or transferred for a period of at least five years after the granting of citizenship.
For an approved enterprise project, a single applicant must invest a minimum of USD3.5m and create at least three permanent jobs. Joint investments can be made by more than one applicant, for which the minimum investment is USD6m, plus an additional USD1m investment from each applicant. Joint investments must create at least six permanent jobs. The following are considered as approved enterprise projects: specialty restaurants; cruise ports and marinas; agro-processing plants; pharmaceutical products; ports, bridges, roads and highways; research institutions and facilities; and offshore universities.
If the applicant chooses to go down the government bond route, the minimum investment is USD500,000 per single applicant. This rises to USD535,000 for applicants applying with a spouse, and to USD550,000 for spousal applications with two dependents. An additional USD25,000 is required for each additional qualifying dependent. A qualifying bond investment must be registered and remain in the name of the applicant for five years from the date of first issue. The bond also must not be interest-bearing.
Under the citizenship by investment regulations, the applicant must submit a police certificate from their country of birth and from any other country in which they have resided for a period of one year or more during the 10 years immediately prior to submission of the application. This rule also applies to qualifying dependents aged 16 or older. Qualifying dependents must also undergo due diligence checks.
Various fees are payable by authorized agents, promoters and marketers, as well as by the applicants themselves. For scheme applicants, USD7,500 is payable for due diligence and background checks, plus USD5,000 for each qualifying dependent over the age of 16. Applicants intending to invest in an approved real estate or enterprise project must pay a non-refundable administration fee of USD50,000, plus USD35,000 for each dependent over the age of 18, and USD25,000 for each dependent under 18. There is also a non-refundable processing fee of USD2,000, plus USD1,000 for each qualifying dependent, in the case of each application.
The regulations allow the Government to grant up to 500 applications for citizenship by investment annually, although this number can be reviewed by the relevant government minister.
A St Lucia passport allows visa-free entry into around 100 countries.