The global market for citizenship and residence, in which HNW individuals pay/invest large sums to obtain this status, is controversial but it has its notable defenders. This article is such an example.

Citizenship and residency schemes where investment is part of the deal - either in hard cash, or specific purchases of assets such as residential developments - have been around for some time. Jurisdictions around the world, such as the UK, Malta, Spain, Portugal, Moldova, the US, and Singapore, have variants. Sometimes these programmes become politically controversial and have been attacked as being open to abuse by money launderers. They are also, in some ways, a reflection of how citizenship/residency is now part of a global marketplace of its own, at least for those who can afford it. This remains a hotly contested subject.

In this article, Mark Davies, who is managing director of Mark Davies & Associates, a firm advising individuals on such matters, looks at the state of the market and, in particular, the real estate aspects. The editors of this news service are pleased to share these views and invite responses. Email the editor at tom.burroughes@wealthbriefing.com and deputy editor at jackie.bennion@clearviewpublishing.com   The editors do not necessarily share the views of guest contributors.

Obtaining citizenship by investment into a particular jurisdiction is nothing new. The industry of ‘buying’ second (and third, and fourth…) passports has been under scrutiny for years, but internationally mobile individuals continue to pursue this option. It has been revealed that Moldovan passports are now being used to incentivise property investors in Dubai, which raises the question: why is a second passport so attractive and is this putting international security at risk?

Worldwide there are many jurisdictions where the residents live in fear of the tax authorities, even in cases where they have been fully compliant.  This corruption is driving individuals to leave their homes and establish themselves elsewhere. Additionally, with the Common Reporting Standard (“CRS”), infamous ‘leaks’ and public registers, many see it as a matter of time before they are the target in an unjust system. The mere mention of a company tax resident in the British Virgin Islands or a trust conjures thoughts of tax evasion and wealth, even where professionals have been engaged at all levels to ensure that they are compliant. As such, if the link to the original country is replaced by citizenship in a new jurisdiction, this threat is decreased.

Visa-free movement is a liberty that many individuals enjoy. For some, especially those resident in the corrupt countries mentioned above, the documentation required for travel could be onerous. Indeed, we have spoken to clients that allow additional time just to make it through customs at their arrival destination.  

With Brexit, we are all aware how liberating an EU passport can be. EU citizens are able to exercise the right of free movement throughout the European Economic Area (“EEA”) and Switzerland. Broadly, this right allows EEA citizens to live and work throughout the EEA provided that they are either employed, self-employed, studying or retired/ self-sufficient i.e. not reliant on the public purse. This privilege is enviable to individuals facing barriers to travel and corrupt authorities. However, there is no need to worry, as this privilege can be anybody’s for a cost. Cyprus and Malta both offer ‘Citizenship by Investment’ programmes.

Cyprus and Malta require a ‘contribution’ and investment (in government bonds and property) totalling €2,650,000 ($2,987,164) and €1,150,000 respectively. It should be noted that the contribution for Malta is €650,000 versus €150,000 for Cyprus. In theory, the investment elements can be encashed (although separate financial advice should be taken) in due course. You can be a Cypriot citizen without being resident in Cyprus. Both countries speak at length about the extensive due-diligence process that they undertake, which is likely for the benefit of the European Commission who are targeting international tax evasion e.g. with the threat of ‘blacklisting’ international tax havens.  

Dubai’s international attraction to the wealthy is seemingly dwindling with reports that the luxury property market is declining. Naturally, the developers of the Heart of Europe (a luxury development on artificial islands off the coast of Dubai) realised that they needed to add a ‘little-extra’ to attract buyers. Instead of a bottle of Dom Pérignon or a luxury car, the developers are offering visa-free travel throughout the Schengen area plus 49 other countries around the world by way of a Moldovan passport.  

For a small fee of €100,000 (officially called a "contribution", within four months an individual can be a Moldovan citizen with visa-free access to mainland Europe. The individual does not need to be resident in Moldova and dependants of the main applicant can apply (for a small additional fee).

Moldova claims to have developed a four-tier due-diligence and vetting system, which they consider one of the most stringent in the world. All applicants must be free from a criminal record, fraud, malpractice etc. and place no risk to Moldova. Furthermore, any individuals who have been denied a visa to a country with which Moldova has visa-free or visa-on-arrival agreements (without subsequently obtaining a visa) shall be automatically denied citizenship.

It is understandable that countries with decreasing populations or limited funds are attempting to attract investment. Some countries, such as the UK, Portugal and Spain offer residency by investment. However, when residency isn’t attractive, the wealth of internationally mobile individuals needs to be accessed in other ways.

There is a risk that the schemes allowing citizenship by investment could aid money laundering, but banking regulations and the due-diligence processes are strict. Furthermore, none of the countries mentioned here would want to weaken the reputation of their border security by allowing criminals easy access. Finally, and maybe this is too dramatic, I presume that criminals would not need a Moldovan passport to assist with their activities. After all, I’m sure there are far more sophisticated and fraudulent ways of obtaining necessary paperwork for travel.