EXCLUSIVE FEATURE: The Fast-Developing Global Market For "Golden Visas"

Tom Burroughes Group Editor London 16 March 2015

EXCLUSIVE FEATURE: The Fast-Developing Global Market For

A new global market is arising - a market for "golden visas" or, in other words, for high net worth residency programmes in dozens of jurisdictions. What are the dynamics? This publication takes a look.

Thousands of Americans want to renounce their citizenship; an equally big number of Chinese persons want to go to the US or the UK. Britons give up the familiar comforts of home to work abroad, while French citizens switch life in the highly-taxed Le Republique for London. Middle Eastern, Russian and Latin American individuals head north, west or east. So it goes on – a swirl of migration of high net worth and ultra-high net worth persons.

While the reasons for this movement vary considerably, one theme emerging from this human stream is what might be called a global “golden visa” market. A number of jurisdictions such as the UK, Malta, Spain and Portugal, among others, have rolled out investment visa and residency rights in recent years, usually where some form of residency is given in exchange for a minimum investment. According to some estimates, up to 70 jurisdictions have such programmes. Some jurisdictions, such as Canada and most recently Hong Kong, have shuttered, or temporarily halted, such programmes, sometimes because they become politically sensitive. They remain controversial: wealthy investors in the UK, for example, can attract hostility for buying luxury properties and allegedly crowding out less affluent locals. Such “golden migration” is a political hot potato.

One aspect of the trend is an attempt by institutions such as private client law firms, banks and other organisations to try and agree on standards for “golden visas” or at least talk over common problems and possible solutions. Last year, the Investment Migration Council, a Geneva-based non-profit group, was set up.

Its structure is an indication of how big the “golden visa” market is, with IMC advisory board members such as Anna Brugnoli, who is a managing director in the UHNW wealth planning international team at UBS in Switzerland, and Boriss Cilevičs, a citizenship and human rights advocate and member of parliament in Riga, Latvia; another is Nadine Goldfoot, partner and head of investor immigration practice for Fragomen in London. IMC’s advisory board conveys the breadth of high net worth investment migration as an industry: one of the members is HE Wendell Lawrence, ambassador, St Kitts; another is François Mandeville, founder and partner for Mandeville & Associates in Hong Kong. There are members from across the globe.

“The purpose of the council is simple and straightforward. It has been created by industry leaders and various governments who have, in the last few years made repeated calls for the industry to introduce concrete structures to elevate public trust, and introduce transparent and reliable regulatory standards,” Bruno L’ecuyer, IMC’s chief executive, told this publication in a recent interview.

“Unlike what [historian] Francis Fukuyama predicted, history has not ended with the fall of the Berlin Wall: the world is a safer place now, true, but it is not a safer and better place for everyone,” L’ecuyer said. “One of the key factors boosting investment migration is (potential) instability at home, besides the prevalent differences between what different nationalities offer in terms of prestige, rights and protections as well as the duties they require their holders to perform. As long as one passport offers visa-free access to 20 countries and another to 200, the interest in investment migration will be strong. This being said, ongoing large-scale conflicts, like the rise of the Islamic State and the crisis in the East of Ukraine, clearly play an important role too.”

Turmoil in Europe
L’ecuyer’s point about such turbulence is understood, for example, by private client lawyers and immigration experts at Berkeley Law, a London-based firm. For example, recent fears of “Grexit” – Greek departure from the euro – have sparked more interest among affluent citizens there in getting out. A reported €25 billion has already been moved out of Greece since the start of 2015 – and that might be a conservative estimate, Nick Rucker, partner at Berkeley Law, told this publication.

There is considerable interest in holding money in Switzerland and the UK. In particular, they are interested in property investment in UK, especially London. “They are very interested in succession planning and ask about retaining management of their money,” Rucker said.

London calling
The UK’s own investment and entrepreneur visa regime is one that has been tweaked and adjusted in recent times to square the tricky balance of political acceptability and financial hard sense. Another example of such a balancing act is how the UK’s non-domicile regime has been tweaked, so that foreign-born “non-doms” who do not want to pay tax on their worldwide income must pay an annual levy. The state giveth – and the state taketh away.

Under the Tier 1 (investor) Visa system, the newest version means that applicants must open a UK bank or investment account before applying for a visa – arguably a tricky task, given that banks typically require proofs of addresses and other data before opening accounts due to KYC and other tests, such as for money laundering. The minimum age for applicants has risen to 18 from 16 and the minimum investment amount has risen to £2 million from £1 million. In a move that seems to be broadly welcomed, there is no requirement to “top up” the £2 million investment if part is sold at a loss but the gross proceeds have to be invested in a new qualifying investment. With equivalent entrepreneur visas, applicants must show they have held the investment funds for 90 days in a row and have to provide a business plan to support their application. There seem few signs yet that HNW individuals are being put off by any changes, judging by recent figures on how many Chinese and Russians have sought these visas, for example.

The number of investor visas granted to Chinese nationals seeking to enter the UK skyrocketed to 357 in the year to 30 September 2014 compared with 178 in the previous 12-month period, while the number of Russian people using this route has also surged. The figures on Chinese would-be wealthy immigrants, from law firm Pinsent Masons, show that Chinese nationals now account for 43 per cent of all investor visas issued by the UK in the last 12 months, the largest share of any country and up by 10 percentage points from five years before.

Regimes attached to the UK in a loose sense, such as the Isle of Man, for example, also see some of this demand to migrate from Asia and elsewhere.

Nick Preskey, high net worth individual strategy manager, Isle of Man, pointed out to this publication that the IoM has a similar regime to that of the UK. The Isle of Man does not have a specific target on immigration, and as far as his personal related targets are concerned, he declined to say what they are. Outside of Europe, the IoM is receiving enquiries from places such as Russia, China and India. "I am fielding a lot of calls and showcasing the island personally to people from these places," he said.

American angst

Another recent trend has been that thousands of wealthy Americans, some of them not having spent any of their adult life in the country, wanting to renounce their citizenship. Some lawyers who spoke to this publication reckoned that tens of thousands of such persons could be looking to remove their US nationality in a few years' time, once the headache of coping with a US worldwide tax regime becomes insufferable.

The compliance beast of the FATCA Act, which has already been blamed for some private banks shutting their doors on expat US persons, is a stark case in point. But again, where there is trouble, there is a lawyer or wealth advisor on hand. There are number of firms that specialise in handling transatlantic woes, such as London & Capital, Maseco, Royal Bank of Canada, Pilotage (a Swiss-based firm) and others.

Pilotage's chief executive, Yann Rousset, noted some patterns. "There is an interesting correlation between countries hitting economic rock bottom and subsequently attracting new citizens through investor visas. We have seen it in Iceland and Portugal. Greece would be a prime candidate given the statistics. However, whereas an investment may have a limited time frame, a citizenship is typically a longer term view. Taking Greece as a potential example would be interesting if they decided to leave Europe – I would suspect their citizenship for the ‘passport buyer’ would hold less value – regardless of the investment. So we think it’s important for someone to realise that investor visas have an interesting dilemma – long view on the citizenship, short view on the investment opportunity," he said.

"This particularly manifests itself with the EB 5 programme (immigrant investor programme) in the US. The US, being unique with its citizenship based taxation doctrine, creates a whole new dilemma and most often unintended consequences due to the tax system. The ‘passport buyer’ needs to carefully understand how the legacy assets and liabilities would be treated under the US system but also understand what the tax system means to the buyer’s family, estate and ultimate future. All too often, the lack of preparation or understanding leads to irrecoverable wealth destruction events," Rousset continued.

"Whether it is a US family looking to gain a European passport and subsequent footprint or a European looking to immigrate to the US – the US tax and regulatory system needs to be a pressing factor before the decision is made. Hindsight does not have benefit in these situations," Rousset added.

Rich pickings
A lot of this turmoil is generating a brisk business for private client law firms and other related professionals. It also means such firms are crucial “centres of influence” for private banks looking to build a client pipeline. Smart private bankers will and should be making friends with such “golden visa” experts.

The fact that so many HNW individuals have complex, multi-jurisdictional asset holdings and family members in different places means that firms must have the smarts to serve them effectively. A few weeks ago, this publication met with Blevins Franks, which is a 40-year-old firm that started out catering to British expatriates in countries such as Spain but which has since broadened its footprint; today it has a head office in Malta, which, as already mentioned, now operates a “golden visa” programme.

Such firms can prove their worth to clients by the speed with which they can advise about sudden tax or regulatory changes in specific countries. Blevins Franks is in some ways very much an example of the kind of firm thriving in this cross-border wealth management market.

“We have many of the attributes of a traditional financial advisor, but what distinguishes us from our competitors is our in-house tax and technical expertise.  The clients tax position in respect of his new place of residence, and the UK, is the driver behind any of the financial advice we provide,” Jason Porter, director, said in an interview at his firm’s offices in St James’s Square.

A real example of the in-house expertise at the firm, he said, was the speed with which it advised Portugal-based clients on trust taxation changes. “This was first mentioned in Portuguese Parliament on 5 December, was added to their Tax Act on 17 December, and became effective on 1 January 2015.  In that two-week window we were able to manage our way through whatever adjustments were required, so our clients were in the best position possible for the start of the New Year,” Porter said.

Setting the standard
What all this ferment means is that firms and individuals may need to lobby for smarter rules and set best practice standards where possible. L’ecuyer says that is a key aim of the IMC.

The IMC has a mission of “setting the global standards in relation to residence and citizenship-by-investment and informing public policy in this field; it also aims to promote the competence, continued professional development and high ethical standards among its members, and notably, it wants to “improve public understanding and transparency of investor immigration and citizenship programmes”.

The organisation is now focused on creating a “code of ethics and professional conduct” for its members to follow. In some ways, the organisation can be seen as similar to a global network such as the Society of Trust and Estate Practitioners, or STEP.

As far as L’ecuyer is concerned, the trend is only one-way – upwards.

“The steep rise in demand of migration advice/for investment migration programmes has been registered by all the players on the market. It is now clearer than ever that investment migration programmes generate a lot of interest. Simply using the term 'migration' applying it to the group of individuals we are dealing with would probably not be correct, however. They do not really 'migrate' from point A to point B. What we are dealing with is a rising interest in empowerment and rights, which extremely wealthy individuals benefit from through the establishment of connections with different jurisdictions around the world via investment residence and citizenship by investment,” he said.

L’ecuyer is in fact something of an evangelist for a better-ordered framework for handling such migration work, mindful as he is of the sensitivities.

“Our goal is to demonstrate with all clarity that investment migration - when organised at a top-notch level - is overwhelmingly beneficial for both sides: the individuals and the governments concerned,” he said.

“In a setting when the target group of individuals benefitting from a certain migration scheme changes entirely, compared with what many of those speaking of controversies would have in mind, the extrapolation of the usual migration-related concerns on the investment migration field is something I would call unjust and the Council aims to do its best to explain this all over the world,” he said.

He says that some jurisdictions might not be making the most of the programmes already in place, such as allowing for an early withdrawal of investments.

“This can have negative implications, as the citizens of the state might ask: 'what is our benefit'? Another often-cited problem is at the level of implementation: the laws should be transparent, clear and strict and not merely not inviting abuse but leaving no room for abuse. A well-designed investment migration or citizenship by investment programme allows to address the eventual problems that might arise in a very efficient way, however.

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