What is Driving Second Citizenship for Asia’s Elite?

21 January 2017

Dominic Volek, Managing Partner, Henley & Partners Singapore

The majority of the world’s wealthy elite have traditionally hailed from those parts of the world with advanced Western economies; most notably from Europe and North America. This trend is however shifting east as Asia now mints more new high net worth and ultra high net worth individuals than any other part of the world. At the end of 2015, according to the World Wealth Report, there were 5.1 million high net worth individuals (HNWIs) in Asia Pacific with a combined wealth of USD 17.4 trillion.

A growing trend amongst these wealthy individuals is the desire to obtain an alternative or second citizenship. As demand drives supply, the number of citizenship-by-investment programs available to HNWIs and their families has steadily increased over the last few years and is expected to continue to do so.

In exchange for a significant financial contribution or investment to the local economy, the programs offer the world’s wealthy elite the opportunity to obtain citizenship and in doing so provide them with something that is less tangible and more desirable than any material object — the ability to transcend into a global citizen with access to all the benefits which that affords.

There are a multitude of reasons why wealthy people apply to these citizenship-by-investment programs including personal security, tax planning and mobility.

In Asia, the primary motive behind obtaining a second passport has been driven by the limited travel-ability of the majority of Asia-domiciled passports. The biggest market being motivated by the ability to achieve greater mobility is China, whose nationals hold a passport that allows visa-free access to just 50 countries around the world. Other key markets whose nationals have limited visa-free access include Thailand (71), the Philippines (61), Indonesia (58), Vietnam (47) and Bangladesh (39). HNWIs in these countries therefore look to citizenship-by-investment programs in the Caribbean countries of Antigua and Barbuda, Grenada and St. Kitts and Nevis, amongst others, which provide wealthy foreign nationals who invest into these countries with visa-free access to up to 134 countries including those in the European Union (EU).

The programs in the Caribbean offer applicants the opportunity to become citizens either by making a contribution to a National Development Fund or by investing into an approved real estate project. The contribution amount can range from USD 100,000 to USD 250,000 while the minimum real estate investment required ranges from USD 200,000 to USD 400,000 depending on the country of application. There are also government due diligence and processing fees in addition to this. Processing times vary per country but typically range from three to six months with limited to no physical presence required in the country, either during the application process or once citizenship is obtained. Only Antigua and Barbuda requires new citizens to visit the country for at least five days in the first five years of obtaining citizenship.

Another significant driver for these citizenship programs is the need for HNWIs to ensure financial safety and security by protecting their personal assets and diversifying investments. As more and more HNWIs surface around the Asian region, the demand for such programs is significantly increasing.

The implementation of the Common Reporting Standard (CRS) will require jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis beginning in 2017/2018. This has led to an increased focus on the security of information aspect that citizenship-by-investment programs can offer.

Although one’s citizenship does not directly impact the automatic exchange of information; the CRS is based on tax residency. Therefore, the European citizenship programs of Cyprus and Malta offer the highest amount of flexibility to HNWIs given that they are within the EU and therefore provide their citizens with the same EU rights provided to all EU nationals including legal protection and settlement rights throughout all 28 EU countries and Switzerland. This effectively provides 29 EU-based tax residency options and therefore much greater comfort in terms of the security and confidentiality of information that will be shared.

The passports of Cyprus and Malta are also very strong from a travel-ability perspective, offering access to 159 and 168 countries respectively. For a minimum investment of EUR 2 million in real estate for example, one can become a citizen of Cyprus in just three months and have access to all the benefits that Cypriot citizenship has to offer. An application for Maltese citizenship will require a capital outlay of a minimum  EUR 880,000 for a single applicant which primarily consists of a donation to the Government of Malta. This however does also include a government bond purchase of EUR 150,000 and a real estate requirement to either purchase or lease a property. This minimum amount for Malta assumes the property lease option and will increase incrementally as a spouse and dependents are added to the application. Processing time to obtain a Maltese passport is approximately 14 months.

Beyond the desire for easier travel and financial safety, the deteriorating geopolitical climate and recent terror attacks around the world have seen a greater emphasis on physical safety and security motivating HNWIs to explore citizenship-by-investment programs in order to have a safe haven to move to should local conditions deteriorate further.

The surge in interest in citizenship-by-investment programs from Asian-based HNWIs reflects a combination of the growing wealth in these emerging markets as well as the evolving motivations for HNWIs to further enhance their ability to become Global Citizens. Regardless of a HNWIs motivation for applying for a second passport, other important points to consider include geographic location, language, banking and business environment as well as the reputation of the country and the passport itself. The most important criterion is that the citizenship be acquired in accordance with the constitution and laws of the issuing country.

One needs to be aware that in recent years citizenship programs have drawn all sorts of companies, agents, real estate developers and others who have been attracted by the success of these programs. Unfortunately, not all of these companies apply best business practice and therefore extreme care must be exercised when selecting a company or choosing to purchase real estate under one of the citizenship-by-investment programs.

In a move to improve public understanding of the issues faced by both clients and governments in the industry and to promote education and high professional standards, the Investment Migration Council (IMC) was founded as a worldwide association for Investor Migration and Citizenship-by-Investment. The IMC brings together all the leading stakeholders in the field and gives the industry, in Asia and elsewhere, a voice.

Any HNWIs interested in pursuing a citizenship-by-investment program should therefore look to engage reputable companies with a solid track record that are members of the IMC to ensure a successful outcome.

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