Why do countries sell their citizenships – and who is buying?

Why do countries sell their citizenships – and who is buying?
Author:
Neil Petch

Chairman of Virtugroup
Next Generation Equity

The first citizenship-by-investment programme was introduced in 1984 by St. Kitts and Nevis and since then many other nations have joined the party. The Caribbean may be the kingdom of the second passport, but economic citizenship is offered far outside those climes – including in much of the EU. So why do many nations sell citizenship, and who is buying it?

The first citizenship-by-investment programme was introduced in 1984 by St. Kitts and Nevis, and since then many other nations have joined the party. And while the Caribbean may be the kingdom of the second passport, economic citizenship is offered far outside those climes – including across much of the EU.

So why do so many nations sell citizenship, and who is buying it?

What motivates countries to sell their citizenship?

The floodgates opened with St. Kitts and Nevis so it’s fitting to start here, with this small island nation of 52,000 people. Historically St. Kitts and Nevis’ economy was powered by the sugarcane industry, but declining production created an urgent need for economic diversification. In 1997, St. Kitts and Nevis produced nearly 31,000 tonnes of sugar; in 1998 that figure dropped by 21% to 24,600, and by another 18% in 1999 to 17,700 tonnes.  The sole producer and exporter of sugar on the islands suffered heavy losses and that meant jobs were lost.

Enter the Sugar Industry Diversification Foundation (SIDF), as part of the nation’s citizenship-by-investment programme. St. Kitts and Nevis had offered a formal citizenship-by-investment clause since 1984, but the scheme wasn’t fully embraced until the launch of SIDF in 2006. Allowing investors to secure St. Kitts and Nevis citizenship for an investment from USD 250,000, the SIDF was the answer to St. Kitts and Nevis’ problems. The foundation offered a crucial income stream that helped the islands transition towards a more diversified economy. To date, the SIDF has invested more than USD 55m into St. Kitts and Nevis’ development. This diversification has clearly worked, with agriculture only forming 1.3% of the islands’ total GDP in 2016, compared to 27.2% industry and 71.5% services.

This diversification has clearly worked, with agriculture only forming 1.3% of the islands’ total GDP in 2016, compared to 27.2% industry and 71.5% services.

St. Kitts and Nevis further supplement the SIDF by allowing investors the choice to invest at least USD 400,000 into government-approved real estate. This reflects the islands’ focus on developing tourism, with 84 authorised real estate investments including a long list of hotels, resorts and spas. If the St. Kitts and Nevis economy was on the edge, you can almost entirely credit their citizenship-by-investment programme for pulling them back from it. National debt sat at a staggering 160% of GDP in 2010; by 2013 that figure had dropped to 83%.

The story is similar in Dominica when they introduced the Dominica Economic Citizenship Programme in 1993 as a means to combat their likewise-ailing agriculture industry. As with St. Kitts and Nevis, investors choose to invest either a non-refundable donation into a charitable government fund or into approved real estate – USD 100,000 or USD 200,000 respectively. St Lucia too established the National Economic Fund in 2015 to diversify the economy outside the struggling banana industry. Antigua and Barbuda meanwhile followed the same path in 2013 where three investment options helped channel foreign investment into the islands’ economic development: the National Development Fund; government-sponsored real estate; or investment into government-approved business.

What all these Caribbean nations share is a need to diversify their economy away from agriculture, with a heavy focus on promoting tourism. Their citizenship-by-investment programmes are a vital leg-up in economies that otherwise might seriously struggle.

Beyond financial aid: Are there other motivations to offer second citizenship?

However, financial aid for a struggling economy isn’t the only motivation for nations to sell citizenship. The Caribbean is citizenship-by-investment’s first home, but many western countries have jumped on the bandwagon. For instance, the UK Immigrant Investor Programme, which allows investors to secure UK citizenship with a minimum investment of GBP 2m. As of 2016, the UK had the 10th highest GDP (Purchasing Power Parity) in the world – compared to Dominica at 206th – so the narrative is quite different. To qualify through the UK Immigrant Investor Programme, applicants must invest at least GBP 2m into UK government bonds, and share capital or loan capital in active, trading UK companies. Unlike in the Caribbean, the UK programme specifically prohibits investment into companies primarily involved with property investment, management or development.

Across the Atlantic, the US offers the lauded EB-5 Immigrant Investor Program along similar lines. Investors must meet dual requirements to invest at least USD 1m into a new commercial enterprise or USD 500,000 into a specified commercial area, and create at least 10 full-time jobs for US workers.

So the focus might be slightly different in the UK and US, but the drive is the same as the Caribbean programmes: inject capital into specified areas to drive economic prosperity.

The focus might be slightly different in the UK and US, but the drive is the same as the Caribbean programmes: inject capital into specified areas to drive economic prosperity.

While none of the Caribbean programmes require residency, both the UK and US demand investors ‘make a home’ in their new nation.  They don’t just want your investment; they want your presence. In the UK, investors initially secure residency, and can then apply to settle after five years (GBP 2m investment), three years (GBP 5m investment), or two years (GBP 10m investment). During this time, investors must spend 75% of their time in the UK.

In the US, investors obtain a Green Card after their initial investment, and can apply for citizenship through naturalisation after five years – at least 50% of which must be spent residing in the US. There is a sense to these programmes that investors must truly become citizens of their new nation, rather than purely passport holders. Perhaps there’s an argument here for the socio-cultural impact investors can have, beyond their economic investment. On the whole though, these economic citizenship programmes might take very different forms, but the primary motivation seems to be largely the same the world over.

Who can invest?

Financial investment is obviously a central theme, and each programme has strict minimum investment criteria. There’s quite considerable range here – from cost-effective but non-refundable, all the way to higher outlay but with higher returns. The most cost-effective option is St. Lucia, where investment starts at USD 100,000 donated into the National Economic Fund. You would be looking at a minimum investment of USD 200,000 for Antigua and Barbuda’s programme; and USD 200,000 for the Grenadian programme. At the other end of the spectrum, there’s the Cyprus citizenship-by-investment programme, with investment starting from EUR 2m into real estate, business or a fixed-term bank deposit. Take that even further, and you’re looking at GBP 10m for the fastest UK path to citizenship.

Financials aside, there are some other requirements. At the least, you will need to be of ‘outstanding character’ – meaning that you hold no criminal record, and your wealth is legally gained. Investors into the Cypriot programme cannot have had property frozen in the EU, while investors into Portugal cannot be listed in the Portuguese Immigration and Schengen Services registry. Good health is also a common requirement, such as for the St. Lucia, Dominica, Grenada and Antigua and Barbuda programmes. The Maltese programme further requires that you meet certain requirements regarding

There are also travel requirements to consider. If you want to secure second citizenship with minimum hassle, you may prefer programmes that don’t require you to travel to the country in question. These include St. Kitts and Nevis, St. Lucia, Dominica and Grenada. On the other hand, the Maltese programme requires you to physically visit Malta as part of the actual application process, as do the Bulgaria and Portugal options. None of the Caribbean schemes require residency, but Malta does if you want to pursue full citizenship, as does Portugal. To maintain Portuguese residency you must spend at least one week annually in the country for six years before applying for full citizenship by naturalisation. As discussed above, other programmes like the US and UK have much more stringent residency requirements – most suiting investors who are looking to build a genuine home in those nations.

If you want to secure second citizenship with minimum hassle, you may prefer programmes that don’t require you to travel to the country in question.

This is echoed in other requirements. While the Caribbean programmes collectively have no interview or language demands, both the UK and US require that you read, write and speak English to obtain citizenship. You will need to pass stringent naturalisation tests proving good knowledge of the culture, history and politics, and be deemed of good moral character. Portugal’s naturalisation process is less stringent, only requiring that aspiring citizens have basic Portuguese. If that’s off-putting, citizenship in Bulgaria could be a great alternative as the EU country abolished any language requirements for aspiring citizens in February 2013. Cyprus and Malta likewise have no language requirements.

Economic citizenship: A possibility for you

Since starting back in 1984 with St. Kitts and Nevis, the growth of economic citizenship shows no signs of slowing down. Barely a year passes without another country realising the potential of such a programme to propel the nation in its chosen economic direction. Investors are truly spoilt for choice, with over 20 investment programmes catering to different needs.

Requirements may range from straightforward to stringent, but at the heart of things, second citizenship is a possibility for almost every investor with capital to spare.

Next Generation Equity is a government-approved provider of second citizenship and residency programmes tailored to the individual needs of discerning clients across the globe. To learn more about our programmes, please sign up for a free consultation via the form below.

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