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by the Investors Offshore Editorial Team, September 2012
28 September, 2012
Rapid advances in communication technologies and international travel coupled with the ongoing process of globalisation 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 plenty of potentially nasty traps lay in wait for the investor with international horizons. But this is where enrolling into a second citizenship or immigrant investor programme 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 plenty of 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 the country of your birth’s claim to your worldwide assets.
Jurisdictions which tax income on a territorial basis, i.e. income derived 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. This means that Americans are in the uniquely horrible situation of suffering double taxation virtually wherever they go and pretty much the only thing they can do about it is to renounce their citizenship – something an increasing number of Americans seem willing to do (although if certain members of Congress have their way, the IRS would still have a claim to tax such expatriates).
More and more countries it seems are destined to go down the American route; France, for example, is giving it serious consideration. 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 programmes, sometimes also known as 'white glove' programmes, offer immigration and second citizenship through recognised 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 recognised and established programmes 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 programmes to be found on the internet and via other mediums are 100% 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, such as NTL Immigration.
Which Countries Offer Second Passports?
Actually, surprisingly few. The Commonwealth of Dominica and St Kitts and Nevis, are the only countries which have a clearly defined statutory economic citizenship programme currently in operation that issues second passports to qualifying investors. Austria also issues passports in return for substantial investment, but this is not a statutory programme 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 programme 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.
A brief description of St Kitts & Nevis and Dominica and their immigration and citizenship programmes 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 harbours 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.
Immigration and Residence
A St. Kitts & Nevis passport allows visa-free travel to more than 80 countries, including all European Union countries, the United Kingdom, Ireland, Caribbean and Commonwealth nations. Citizens often acquire long-term travel visas to the United States of America.
There are currently two options available to qualify for the Citizenship by Investment Program:
The Sugar Industry Diversification Programme (SIDF)
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 was 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:
· USD250,000 for a single person
· USD300,000 for a family of four
· USD350,000 for a family of five
· USD450,000 for six or more persons.
Applications must be submitted with the following due diligence fees: USD7,500 for the main applicant; and USD4,000 for each dependant over the age of 16.
The application normally takes three to six months to complete.
Acquisition of Real Estate
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 programme is designed to channel investment into the country’s tourism industry, a major pillar of its economy. To qualify for the programme, 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%) the investor may apply for citizenship.
Property acquired through this programme 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.
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 72,500, Dominica is one of the poorest islands in the Caribbean, with a gross domestic product of just under USD1bn in 2011 and a per capita income of USD14,000. The two main centres 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.
Immigration and Residence
A Dominica passport allows visa-free travel to more than 50 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 and costs between USD7,000 and USD15,000. 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.
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 government fees (application fee, processing fee, naturalization fee, stamp fee) for citizenship application are approximately USD3,000 for the investor only, and includes the family members.
For families looking for second citizenship, the investor-applicant contributes USD100,000 to the government, qualifying the immediate family (investor, spouse and two children under 18 years of age). There are supplementary fees for additional children: USD15,000 per child under 18, and USD25,000 per child between the ages of 18 and 21.
If the investor is the sole applicant, he or she would be required to make an investment of USD75,000.
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.
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