Diversification of assets has long been a mantra for building and creating wealth. For a growing number of ultra-high-net-worth Canadians, diversification also means building a carefully allocated portfolio of residencies and citizenships in different countries around the world.
“Wealthy people want options and they’re realizing that today they can diversify not only where they invest, travel and buy their holidays homes but also what passports they hold,” says Dubai-based Dominic Volek, group head of private clients at Henley and Partners, a global residency and citizenship advisory firm headquartered in London. “Residency planning has become part of wealth planning.”
The range of options has grown significantly since Saint Kitts and Nevis in the Caribbean introduced the world’s first citizenship-by-investment program in 1984. Today, there are close to 50 programs that offer citizenship or residency for individuals and families who can afford to invest or donate anywhere from about $120,000 to upwards of $3.5 million.
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More than 100 countries also have some form of investment migration legislation in place, says Volek, adding this means more programs to come in the near future. But he notes that only about 30 countries today run successful citizenship- or residency-by-investment programs.
The growth of these so-called golden visas and golden citizenships is driven by two key factors: the destination countries’ need to raise money – as was seen in 2017, when a number of hurricane-ravaged Caribbean countries slashed the cost of their citizenship programs – and the desire among affluent people for unfettered access to the world.
“COVID-19 created more demand among Canadians,” says Jean-Francois Harvey, founder and worldwide managing partner at Harvey Law Group, a multinational law firm that provides immigration, business and private client services in 20 countries. “A lot of people realized they could take care of their businesses remotely, so they were suddenly saying ‘why do I have to stay here?’”
Passports as insurance
When borders closed around the world, many wealthy Canadians also started to think about how they could continue to travel for business or pleasure, adds Harvey, who is originally from Quebec but now lives with his family in Hong Kong.
“When COVID happened, people could only travel if they had residency or citizenship in the countries they wanted to go to,” he says. “That created demand for golden visas and golden citizenships from high-net-worth individuals.”
A common misconception about people who take part in these programs is that they are doing it to relocate, says Volek.
“In reality, only one in 10 do this to move,” he says. “In most cases, it’s about options – they want a backup plan, an insurance policy against economic and political uncertainty, and they want health security.”
As examples, he cites wealthy clients from the Philippines who were interested in Maltese citizenship because that would give them easier access to COVID-19 vaccination. For clients in Pakistan and Bangladesh, additional passports were a way to put in place an escape hatch from their country’s volatile political environment.
Clients need to be clear about their reasons – such as reduced taxes, greater mobility or a combination of both – for wanting to get into a citizenship- or residency-by-investment program, Harvey says. Some begin the discussion with a specific country in mind and end up investing in another country that is a better fit for their goals.
What to consider
It’s also important to consider the various factors that could affect or be affected by this move. For example, a high-net-worth couple looking to cut children out of their will would be well advised to stay away from jurisdictions, such as Belgium, that require parents to leave part of their estate to their kids.
Factors such as whether or not the citizenship or residency program applicants are married or if they are a same-sex couple can also be significant considerations, says Harvey.
“Most Caribbean countries that offer citizenship by investment are very, very conservative, so if you’re not married or you’re a same-sex couple then you will each have to apply for the program,” he says. “For some of our clients, religion is also a big consideration; we have some who prefer to apply for citizenship in countries that share their religion.”
Harvey says he advises clients to spend some time in a country they are eyeing for citizenship or residency before making a commitment. In countries that offer the choice to buy a house or invest in a fund, he suggests going the fund route first and then redirecting the investment towards a home purchase once clients feel they have made the right decision.
It is a good idea to do as much due diligence as possible before making a commitment, Volek says. This includes scouting out neighbourhoods, researching schools for children, and finding out if the acquired citizenships can be passed down to the next generation.
Planning for three generations
“Wealthy people plan long-term, 50 to 100 years into the future, taking into account the next two to three generations,” says Volek. “In light of COVID, we also discuss with clients how a particular country handled the pandemic and what might happen if a third, fourth or fifth wave hits.”
Just as financial planners help clients with asset allocation, firms that specialize in citizenship or residency-by-investment programs usually advise clients on how best to assemble and use their portfolio of passports.
Clients focused on tax minimization, for example, might have a multi-year plan detailing how much time to spend in certain countries and which passports to present at points of entry. Those more concerned about borderless travel are likely to end up with a collection of passports that provide access to different parts of the world.
Antigua and Barbuda citizenship, for instance – which requires a real-estate investment of about $250,000 or a donation of about $160,000 for a family of four – allows for visa-free travel to 151 countries, including Britain, Singapore and countries in the Schengen region of Europe.
“But, unless you’re planning to give up your citizenship, you have to make sure the countries you’re applying to allow for dual citizenship,” says Volek. “Most countries in Asia, for example, don’t allow for dual citizenship, while most of the western world allows for dual or multiple citizenships.”
Some golden citizenships or visas come with risks, says Nana Ama Sarfo, a New Jersey-based contributing editor for Tax Notes International. As an example, she points to Cyprus, which ended its golden citizenship program and revoked numerous passports amid reports of corruption and criminal activity.
“These programs could potentially be an area of scrutiny, especially from a money laundering or crime lens,” says Sarfo. “That’s an issue investors should be keeping track of.”
Another risk: unscrupulous players who lure potential investors with promises of golden passports or visas but do not have the credentials or means to deliver. Hiring reputable professionals with a proven history of success is essential, says Sarfo.
“For high-net-worth individuals who want a safe and stable place to park their money while enjoying the benefits of citizenship or residency in another country, the right programs could provide a lot of advantages,” she adds.