Instant citizenship traded for cash

Before passing judgement on the IIP, let us first examine how this compares to schemes in existence in other countries and how they contrasts with ours

Readers may well ask what is so weird about this new bill (called the Individual Investor Programme)? The answer is that government has woken up with the idea of selling passports to accredited non-domiciled persons at a princely contribution of €650,000 and thus put in action a novel FDI initiative the revenue from which will be deposited in a posterity fund.

A new agency going by the name of Identity Malta' (IM) is born and christened the 'regulator' of this initiative, with powers to grant a certificate of naturalisation as a citizen of Malta to any person who makes an extraordinary contribution to the Republic of Malta under the Individual Investor Programme.

As can be expected, there was a great deal of razzmatazz created by the leader of the Opposition Simon Busuttil, who spoke vehemently against this bill, more so when he discovered that a foreign specialised firm - Henley & Partners - has been exclusively commissioned by the government to sell passports to deserving applicants. He said that the proposal compromised Malta's international image in financial circles and pleaded with government to safeguard Malta's reputation while attracting long-term investment. In the words of Mario de Marco, opposition's deputy leader, "We cannot put at risk the country's reputation, which took decades to build. We cannot put at risk a sector, which could attract boundless funds and create jobs," he said.

But the government replies that citizenship is only be granted to a restricted number of unnamed individuals who commit themselves to a long-term investment in the country. It just so happens that the media reported how a number of financial services practitioners who attend the first IM introductory meeting last week were told that H&P will place emphasis on the importance to attract the right sort of people and of not advertising 'citizenship for sale' type promotions at any time (the bill has provisions against unauthorised promotion by any firm except H&P with a fine up to €20,000 if in breach).

In fact, only H&P is empowered to market and promote this programme along with 'Authorised Mandatories' that may be appointed. This is a commendable and prudent attitude, which in theory augurs that only a high caliber of new identity seekers will be entertained. Hot on the heels of this initiative, one hears the war cry from the opposition telling its party faithful that the government's plans to sell Maltese citizenship is wrong as it carries an element of immorality (our souls for sale!). The leader of the opposition said they were ready to cooperate with the government on the Individual Investment Scheme, but condemns the unheard of ploy to garner an annual revenue of €30 million annually, implying passports are sacred and definitely not for sale.

Before passing judgement on the IIP, let us first examine how this compares to schemes in existence in other countries and how they contrasts with ours. To start with, one meets with attractive offers of citizenship from islands in the Caribbean blessed with sun-kissed beaches where one can enjoy unspoilt tropical beaches all year round.

Investor citizenship can be obtained either at the authorities' discretion, or through specific programs which lay out in detail the amount of the investment and other criteria for naturalisation. In addition, citizenship by investment can be acquired with or without residence. The former is a common practice adopted by a number of Caribbean countries, including: St Kitts and Nevis, Dominica, Antigua and Barbuda. Starting with St Kitts and Nevis, one finds two ways of obtaining citizenship. The cheaper option requires a $250,000 contribution to the country's Sugar Industry Diversification Foundation (SIDF).

The Foundation, which opened its doors in 2006, it aims to shift the country from a sugar-dependent to a service-oriented economy. The contribution to the SIDF is in the form of a one-time payment, and there are different tariffs charged depending on the number of dependents. Very briefly, one can mention that in Dominica, applicants must be of "outstanding character", with a basic level of English and the process of approval takes a minimum of eight weeks.

Moving on to Antigua and Barbuda: a $250,000 contribution to the country's National Development Fund or a $400,000 real estate investment in approved developments is required. A third option is a $1.5 million "business investment" that allows an applicant to put money in government-approved businesses. Prospective applicants pay an additional $50,000 fee and a so-called $7,500 "due diligence fee" on top of the investment amount. Once approved, new citizens will enjoy visa-free access to many countries, which Antigua and Barbuda claim will include the United Kingdom, France and Canada. As is common with Caribbean passports, each country levies due diligence, commission and processing fees of varying amounts.

In particular, an Antigua citizenship application must secure a minimum property acquisition of USS$ 400,000 within a designated zone with a contribution to the national Development Fund of US $250,000 for each applicant. Otherwise, the applicant may opt for a business investment starting at US $1.5 million as the easy route to citizenship. Having taken a glance at how instant citizenship works in the blissful tax havens at the Caribbean, we will now visit Europe and see what is on offer.

At the moment, it appears that Austria is one of the high tax European jurisdictions where you can obtain citizenship through economic citizenship program. This is facilitated as passport hunters can invest in the country's welfare and get Austrian citizenship, but without a permanent residence requirement.

The costs are higher than those claimed in the tax havens of the Caribbean, as Austria expects a minimum of €2 to €3 million investment. The test is harder, as such a contribution cannot include passive investments in governmental bonds or personal real estate. The real test is that it is expected to create real wealth to the country. Dual citizenship is not allowed and contrary to the situation in the Caribbean, the scheme is not actively encouraged or promoted by the government. Moving on the British scenario. Securing a British citizenship is tough, and a person must score a total of 95 points in a stiff test and meet all the other requirements of the Immigration Rules. They need to spare £200,000 to set up a new business in the UK and create two new jobs for UK residents.

The applicant will be expected to work full time running his business, paying taxes, paying salaries to the above-mentioned two new employees for the five-year period. Another familiar country is Belgium, which so far does not offer a 'citizenship by investment' programme like Malta, but 'residence by investment' is readily available for investors and business entrepreneurs. Thus, one needs to form a new company with an employee and the process may take three to eight months. You will need to renew the residence permit annually for three years, after which you will qualify for 'permanent residence' permit.

Finally, let's visit Cyprus - an island with similar Mediterranean characteristics to us. Here in the magical isle of Aphrodite, the applicant would have to have established a Cyprus-based company with a total minimum turnover of €10 million per annum, calculated on average over the past three years preceding the year of the application with at least a third of the applicant's employees being Cypriots.

To conclude, it seems that after all, Malta is not the first to trade passports for the highest bidder. Really and truly, we have been experimenting with trying to attract high net worth individuals since we started in the 60s giving retires a 2.5% flat tax concession on their UK pensions provided they settle here. The scheme was changed over the years and under the PN administration, a HNWI scheme was launched, which unfortunately was badly marketed and too highly priced such that developers of luxury property complained that it failed to attract any significant wealth.

This was redrafted by the incumbent government which issued new laws attracting EU retirees who pay only 15% on their pensions at a minimum liability of €7,500 or for those still working under the Global Residence Programme if they own a property that costs at least €275,000 and can enjoy a flat 15% personal rate of tax.

After all the hue and cry that the bill has garnered in its early days, one hopes that some political consensus is reached and the government tweaks the legislation to make it more transparent and ideally it will introduce the business investment-cum-employment option which is so much preferred in Europe.

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George M. Mangion is a partner in PKF an audit and business advisory firm