IIP regulator confirms ‘physical presence’ not required for golden passport

An initial contribution of €650,000, a property lease or purchase agreement and the holding of a maximum investment – among other obligations – are enough to prove an applicant’s residency in Malta, the Regulator of the Individual Investor Programme has confirmed.

This also means that physical presence is not required to prove residency – although any aspiration to mirror physical stay to the 182 days applicable for taxation purposes “should be accepted as a non-starter”.

The second annual report on the IIP programme was tabled in parliament by Home Affairs Minister Carmelo Abela on Tuesday evening. 

Having been one of the more controversial and sensitive issues, IIP Regulator Godwin Grima sought to address the debate that surrounded residency as a precondition for citizenship.

After Identity Malta sought the advice of Professor Dimitry Kochenov – who holds a Chair of EU Constitutional Law at the Department of European and Economic Law at the University of Groningen in the Netherlands– the Office of the Regulator concluded that IIP applicants could prove their residency by other means, and the physical presence or otherwise of the applicant should no longer be an issue.

According to Kochenov, residence in a EU Member State is a legal status and it therefore does not carry the same meaning as presence. 

“Being a legal status, residence comes with rights and obligations and the conditions of its commencement and termination depend on the rules in force and not on the presence of a particular individual within that territory,” the Professor told Identity Malta.

While the conditions required for residency are stipulated by the competent authority or authorities, the conditions for obtaining the legal status of residency do not include the requirement of physical presence. 

European practice, the report said, does not connect the possession of the address with a strict requirement of presence on that address, let alone checks of such presence. As it is possible to hold a residence permit in more than one country, it is therefore a physical impossibility for an individual to be omnipresent in all countries in which a residence permit is held. 

The expert advice also contended that European law on residence has moved legal residence further away from the concept of physical presence. 

“It may also be argued that a ‘constant physical presence’ could impose an unjustifiable restriction to freedom of movement,” the report added.

In short, Kochenov concluded that residence is not physical presence and that the essence of residence, legally speaking, consists in the status established by law and the rights connected to such a status.

“The EU legal context with the Free Travel Area and the Schengen Zone
made the connection between residence in law and physical presence in fact even more elusive.”

Grima concluded that if, the underlying principle that residence does not equate to physical presence is correct, this should dispel the concerns being raised on the issue; provided that the current emphasis to establish genuine links with Malta as part of the IIP process is retained. 

“Prior to naturalisation, the contribution itself, the commitment to the thresholds for leasing or purchasing property and the holding of a maximum investment further cement the person’s link with Malta,” the Regulator said. 

Spinoffs such as the migration of portions of applicant business activities to Malta or the setting up of new business activities in Malta further consolidate and integrate the individual as one of Malta’s citizens.”

He added that once the status of citizenship is acquired, residency issues with respect to the programme cease to exist altogether, even though residency may be important for other aspects, such as taxation and voting rights. 

How to obtain Maltese e-residency?

The updated Guidelines provided by Identity Malta specify that in order to obtain Maltese e-residency, an applicant must fulfil a number of criteria not least that of having a comprehensive health insurance, demonstrate economic self-sufficiency, a property lease or purchase agreement, an introduction letter and a Tier 1 due diligence check. 

“The unwritten recommendations also include provisions to establish genuine links with Malta such as the opening of a bank account with a local bank, taking out a mobile phone number, joining a social club and making a donation to a charitable institution.” 

IIP in practice

Having reached 115 accredited persons, the legal, financial, advisory and audit firms’ interest in running the programme has increased.

Between 1 July 2014 and 30 June 2015, a total of 245 applications were received, registering an increase of 41.6% over the last period. There were 11 rejections, mostly from the former Soviet Republics (8).

A total of 75 Letters of Approval were issued. Most of the main applicants, 69, were issued to male applicants while a total of 166 Letters of Approval in Principle were generated for spouses, dependents under 18 years of age and adult dependents.

Majority of main applicants (52%) are in the 45-64 age group.  According to Grima, “it is most encouraging that 43% of approved main applicants are in the 25-44 age group with many years of business ahead of them and which, in turn, may mean a longer period in which Malta can benefit from the knock-on effects of granting citizenship to these high net worth individuals”.

‘Economic indicators’

Eight properties were purchased at a total cost of €6,292,244 implying an average property value of €786, 530. This is over twice the minimum value of
property that has to be acquired by successful IIP applicants (€350,000). 

Annual leases were registered with a total lease value of €4,292,583 implying an average annual lease of €119,238, well above the minimum annual lease requirement stipulated in the regulations and which amounts to
€16,000. 

Total investments amounted to €6,613,332 which works out to the statutory
€150,000 stipulated in the Regulations. 

The Regulator confirmed that the total funds received from IIP applications equate to 0.75% of GDP and, taking all inputs from the IIP related to property purchases and rent, investments and contributions, the input through the IIP equate to approximately 1% of GDP.