Dominic Volek is Group Head of Private Clients and a Member of the Executive Committee of Henley & Partners.
In this transitional period, as many economies move into a post-pandemic phase plagued by security, political, and economic risks, wealthy families are revisiting their priorities to ensure that their legacies, wealth, and lifestyles are protected and future proofed. For high-net-worth investors, the optionality of living or conducting business in a country of their choice is a prime concern. Many are exploring residence and citizenship by investment solutions that offer them location fluidity and the option to relocate at any given moment between two or more “home” nations, often many thousands of miles from each other.
“In this world, nothing is certain except death and taxes.” Benjamin Franklin’s words still ring true over 230 years on. As the world faces increased upheaval stemming from the volatility of financial markets and the global impact of the Ukraine war, with tension escalating between China and the USA, governments around the world are under pressure to respond swiftly and often boldly, creating an unpredictable environment for international investors.
There is notable pressure on governments to enforce higher taxes in an effort to finance recovery initiatives, especially in the wake of the pandemic. Several policy makers are recommending that wealth taxes be imposed, and capital gains taxes be raised. A key example of this trend is the proposed minimum tax rate of 15% on large multinational companies that has been agreed to by over 140 countries. It aims to reduce tax competition between participating jurisdictions to bring about more income equality and will impact most global firms (and their shareholders) when it comes into force next year.
Against a backdrop of high unpredictability and looming legislative and tax reforms, global investors are navigating a stormy post-pandemic recovery characterized by rising inflation rates, increasing interest rates, high fuel prices, shifting labor market trends, and the repercussions of the ongoing conflict in Ukraine. This has resulted in a steady surge in demand for alternative residence and citizenship, with Henley & Partners reporting another record-breaking three months between April and June 2022, with the highest quarterly total number of investment migration program enquiries to date. This represents growth of 5% on Q1, itself a stellar period, and 43% more enquiries than in Q2 2021.
More than ever before, private clients are turning to residence and citizenship by investment programs to protect their families’ security and shield their wealth and their legacies. At Henley & Partners, Q2 2022 is also unparalleled in terms of program applications, with the highest number on record, and growth of 45% compared to Q1 and 30% compared to Q2 2021.
Portugal’s Golden Residence Permit Program continues to hold the top spot in terms of applications processed and enquiries received by Henley & Partners in the first six months of 2022. For those on a quest for a cosmopolitan lifestyle in an affordable EU member state, Portugal is the perfect solution, with its flexible Golden Residence Permit program and favorable non-habitual-resident tax scheme.
Golden Residence Permit holders who choose to relocate to Portugal can obtain a 10-year tax exemption on most foreign-sourced income as well as benefiting from zero wealth taxes and exemptions on gifts to their families. One of the biggest drawcards, however, is that after just five years as a legal resident you’re eligible to apply for Portuguese citizenship.
The Montenegro Citizenship by Investment Program is placed second overall for applications processed by Henley & Partners between January and June 2022, making it the most sought after citizenship by investment program globally, and together with Portugal, indicating the strong pull of the European programs as a Plan B for most global investors.
Montenegro’s popular program requires a minimum investment of EUR 250,000 in approved real estate projects and a donation of EUR 200,000 to the country. As Montenegro is an official EU candidate country that looks set to join the Bloc as early as 2025, the program has received substantial interest from forward-looking investors. Entrepreneurially-minded Montenegrin passport holders who opt to relocate to the country can also capitalize on the comparatively low progressive corporate tax rates, ranging from 9% to 15%, if they set up their businesses there. But time is limited as the program is set to close at the end of 2022.
The next three programs in the top five for applications in the first six months of 2022 are all affordable citizenship by investment options hosted by Caribbean island nations — namely, Grenada, St. Kitts and Nevis, and St. Lucia.
For entrepreneurs with the USA in their sights, Grenada’s Citizenship by Investment Program appeals as Grenada’s E-2 Investor Visa treaty status means Grenadian citizens can apply for a business immigration pathway to America. To qualify for Grenadian citizenship, individual applicants can donate USD 150,000 to the National Transformation Fund. Grenada offers various fiscal incentives to financially independent individuals who choose to establish their tax domiciles there, including exemptions from capital gains tax, as well as zero transfer, inheritance, wealth, and estate taxes.
In the dual island nation of St. Kitts and Nevis, private clients have been fortifying their portfolios of alternative citizenships by donating USD 150,000 to the Sustainable Growth Fund or investing USD 200,000 in real estate. With a swift processing time of 60 days (and a unique 45-day fast-track option), eligible applicants can obtain a second citizenship that not only grants them the business, travel, and lifestyle advantages they desire but also acts as a safety net.
Should the fiscal and economic policies in their home countries ever pose a threat to their financial security and business legacies, the St. Kitts and Nevis Citizenship by Investment Program can safeguard their capital by endowing them with an additional nationality in a jurisdiction where global income, wealth, gifts, and inheritance are not taxable, and capital gains tax applies only if an asset is sold within 12 months from the acquisition date (at a rate of 20%).
In unspoiled St. Lucia, citizenship can be acquired via the St. Lucia Citizenship by Investment Program by making a minimum contribution of USD 100,000 to the National Economic Fund, and there are no residence or visitation requirements. In return, in addition to visa-free or visa-on-arrival travel to 147 destinations including Europe’s Schengen Area, Singapore, the UK, and many others, the island offers a favorable tax regime for individuals, companies, and real estate, with no capital gains, inheritance, or withholding tax. Unlike the USA, St. Lucia does not impose worldwide personal income tax for international non-residents but does levy income tax on those who reside on the island.
Just missing out on the top five but showing phenomenal growth in 2022 in terms of applications processed by Henley & Partners is Italy’s Residence by Investment Program, which grants visa-free travel in Europe’s Schengen Area as well as the option to acquire Italian citizenship after 10 years of residence under special conditions. To qualify, investors must have either EUR 2 million in government bonds, EUR 500,000 in company shares (EUR 250,000 for start-ups), or EUR 1 million invested in philanthropic or cultural projects.
While there is no requirement for permit holders to spend any minimum number of days in the country, those who choose to make Italy their tax domicile can pay an annual lump sum of EUR 100,000 on any foreign-sourced income under the flat tax regime, and Italy is becoming a popular choice for individuals with considerable financial means who want a favorable alternative residence in Europe.
The UAE’s residence by investment offering is currently attracting significant attention from investors across the globe, with a minimum investment of AED 2 million (approximately USD 550,000). Our Henley Private Wealth Migration Dashboard revealed that the UAE is projected to see the highest net inflow of high-net-worth individuals globally in 2022, at 4,000, and this report shows that three emirates — Sharjah, Dubai, and Abu Dhabi — are among the fastest-growing cities globally in 2022 in terms of their millionaire populations, with growth of 20%, 18%, and 16%, respectively between January and June.
The UAE continues to attract affluent individuals from all over the world due to its favorable tax regime for investors — with no personal income, capital, net worth, or withholding tax (except for those levied in the domestic banking and oil sectors), and several double-tax treaties in place.
What has become abundantly clear over the past six months is that both the supply and demand side of the investment migration industry are growing exponentially. High-net-worth individuals are hedging the risks of increased political instability and financial volatility, and the implementation of stringent new tax and other policies that can compromise their wealth, by strategically diversifying their domiciles and expanding their personal access rights across multiple jurisdictions.
Likewise, countries are using alternative residence and citizenship programs as an innovative financing tool to allocate investors’ funds to national or regional social, infrastructure, and development projects that will help their citizens. The benefits of both implementing and investing in these programs are immediate and tangible, and they are becoming increasingly attractive to states and investors alike in a more volatile and fiscally challenging global operating environment.