Malta’s low tax on foreign assets makes golden passport ‘high-risk’, says OECD

Malta’s sale of citizenship is one of several high-risk investment schemes, because the island offers a low personal tax rate on income from foreign financial assets, the OECD has warned. 

Malta was one of several countries whose own taxation system, combined with a lenient regime on the length of stay for buyers of golden passports, placed it in a group of countries with “potentially high-risk” citizenship-by-investment schemes. 

Malta sells citizenship to the global rich for €650,000 through the Individual Investor Programme, which comes with a mandatory property and investment component that raises its total cost to just over €1 million. 

“Potentially high-risk CBI/RBI schemes are those that give access to a low personal tax rate on income from foreign financial assets and do not require an individual to spend a significant amount of time in the jurisdiction offering the scheme,” said the Organisation for Economic and Social Development, a rich countries’ club which has produced respected standards on taxation, bribery, and consumer protection. 

“Such schemes are currently operated by Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.” 

The OECD published a short analysis of over 100 CBI schemes which it said posed a high-risk to the integrity of its common reporting standard for taxation (CRS). 

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In the main, the OECD’s criticism was geared at the ability for such golden passport schemes to allow the rich to hide their assets abroad or even incur lower taxation on their foreign assets. 

“In particular, identity cards, residence permits and other documentation obtained through CBI schemes can potentially be abused to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures,” the OECD said. 

Malta offers an effective tax rate of 5% on dividends from profits generated outside of Malta but booked here. 

The OECD pointed out that schemes that are potentially high-risk are those that give a taxpayer access to a low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction. 

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 IIP has confirmed. 

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“This is based on the premise that most individuals seeking to circumvent the CRS via CBI/RBI schemes will wish to avoid income tax on their offshore financial assets in the CBI/RBI jurisdiction and would not be willing to fundamentally change their lifestyle by leaving their original jurisdiction of residence and relocating to the CBI/RBI jurisdiction.” 

“Such a scenario could arise where an individual does not actually or not only reside in the CBI jurisdiction, but claims to be resident for tax purposes only in such jurisdiction and provides his Financial Institution with supporting documentation issued under the CBI scheme, for example a certificate of residence, ID card or passport.” 

But IIP boss Jonathan Cardona has said his agency is carrying out a due diligence investigation on the sources of wealth declared by the multi-millionaires aspiring for a Maltese passport. “We ask for every single piece of supporting documentation on how applicants’ wealth was created, and that includes banking statements and tax certificates, but also proof of donations or how wealth was inherited, amongst others.” 

Malta’s Individual Investor Programme has generated over €680 million for the government’s posterity fund, as well as an additional €170 million in property investments. 

The OECD has recommended further questions that a financial institution may raise with the account holder when they have acquired a golden passport.

In comments to The Guardian on Tuesday, the EU Justice Commissioner Věra Jourová warned that Europe’s security was being put at risk by “golden passport” schemes, which she described as “problematic” and “unfair”. 

“I understand that citizenship schemes are favourable for the economy. But this is unfair for the people who cannot afford to buy citizenship. And citizenship is something so, so big and so valuable that citizenship for sale seems for me rather problematic.” 

She added: “We have legitimate concerns, because if in one country a dangerous person gets citizenship, he gets citizenship for the whole of Europe. Maybe we all have to renegotiate the whole system and the whole competence of Europe. Because there is a contradiction. 

“Once we have some weak points in the EU, some weak points where it is easy to enter the space, the whole of Europe has a problem.” 

Jourová is set to issue recommendations for the EU bloc on how to deal with such citizenship by investment schemes.