Why Are High Net Worth Families Interested In Economic Citizenship?

This week the BBC published an article about the rising number of Americans that are renouncing their citizenship. In recent years this has become almost an annual article in the mainstream media.

The reason behind these articles is primarily a set of banking rules known as FATCA that place additional reporting requirements on non-US banks that have US clients. The extra level of reporting and risks of non-compliance have made it easier for many banks to simply refuse American clients. As the article explains, some of those who already have dual nationality are choosing, reluctantly, to give up their American passports so that they can avoid these problems and the potential for additional taxation that it brings.

This is, however, more of a global trend than an American phenomenon.

As the numbers of high net worth individuals and families continues to rise, more and more people are choosing to take the step of deliberately investing in schemes that provide a fast and direct route to a second passport.

Governments of nations – large and small – are realizing that citizenship and residence schemes are a quick and easy way to bring in money. Typically the applicants are successful, educated and entrepreneurial – characteristics that most governments would like to see more of in their populations.

The range of countries that offer these schemes is surprisingly large. At one end of the scale, the United States has a program related to the Green Card that can provide citizenship after five years, with investment requirements in the US$1 million range. At the other end of the scale, the tiny Antigua and Barbuda has a scheme from around US$200,000 investment.

In between there are a number of EU countries, such as Portugal, Cyprus and Malta from whom new citizens would have access to the Schengen area and all the travel benefits that entails.

The applicants of these schemes are generally looking for a few features and although legal tax avoidance is often one of them, it is rarely the main factor. Typically they hope to arrange a form of diversification and freedom for themselves and their immediate families.

The successful business owners and entrepreneurs will have to remain in their home country to oversee their empire and investments, but a passport from the European Union can open up a wide range of study and university options for their children and a greater degree of safety for everyone. Luckily, these options are very available for those with the financial resources to pay for it, in stark contrast to the hundreds of thousands of refugees that have poured into the EU in 2015 and 2016.

It would be fair to suggest that many citizenship by investment schemes are controversial at home. Even some of the most well-established plans have their critics. The reality though is that economic citizenship does generate revenues that smaller nations need and it generates it quickly. Some of these nations are lacking in natural resources which makes it very difficult to add to their taxation and revenue sources.

What is clear is that in the short-term at least, this is a cash cow for several small nations and they are meeting a growing demand, meaning that there will probably be more and not less economic citizenship program’s in the coming years.

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