Citizenship By Investment Explained

Citizenship by Investment is the legal and commonly practiced process of a nation/country granting high net-worth individuals the opportunity to gain second citizenship and a new passport in return for a financial investment into said country, normally in the form of a real estate or government bonds purchase.

Citizenship by Investment is a relatively recent form of business transaction, the first examples taking place in 1984. Typically, the negotiation begins with a sovereign nation, normally a country which is deemed “safe” as in not at war, and one that will be a vast improvement on the likely applicant’s original country.  These countries will be 1st world nations, and include EU member states, Caribbean Island nations, countries that are likely to soon become EU members, even major powers such as the US, the UK and Russia.

These countries will then announce that they are prepared to grant successful applicants their citizenship and passport, in return for a financial investment. Typically, the applicants will be high net-worth individuals who often hail from pariah states, from third world countries, even war zones.

Both parties are fully aware that such a transaction would dramatically change the applicants lives. By giving these people citizenship and a brand new passport to a safer, more democratic, liberal nation, they are able to enjoy the freedom of movement and opportunities for business that those living in the free world take for granted every day.

Prior to the citizenship by investment process beginning, the applicant will be thoroughly “vetted” by the country whose citizenship they require. If the applicant was revealed to have a criminal record, or there were doubts as to how the applicant would fund their investment and subsequently live in said country, the application would be turned down.

A typical investment required would be one of the following:

  • The purchase of real estate, i.e., an apartment, some land, even a business employing locals
  • The purchase of government bonds
  • A charitable donation to the country in question

All investment’s normally have a five-year minimum ownership period before the investor could sell the real estate or bonds on.

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The Three Main Reasons For Second Citizenship

There are three main reasons for an individual embarking on a citizenship by investment program:

Business: Freedom of movement leading to greater business opportunities

People who adhere to this reason are driven by reaching their absolute peak of their potential in their chosen field of business.

Asset Protection: Greater offshore banking and tax-sheltering opportunities

These are usually extremely wealthy individuals who have made (or have access to) a vast fortune, and are keen to hold on to as much of it as they can by placing it in offshore bank accounts or putting it in to tax shelters.

Security: A safer, higher standard of living, including healthcare and education

These are people who have made a significant amount of money in their home countries, but now because of an increasingly tyrannical regime or even a war, they are keen to take their families and fortunes and leave behind their birth nation for a safer, preferably secular country that will grant them freedom of movement, excellent healthcare and a high standard of education.

Benefits Of Citizenship By Investment To The Donor Nation

Although it has had its critics, citizenship by investment has proven to be a viable solution to the very real problem of freedom of travel and movement suffered by business people from many countries in Africa, Asia and the Middle East. These are often young business people, entrepreneurs, investors, full of ambition, bright ideas and new approaches. They are often extremely tech-savvy, and because they come from impoverished backgrounds, oppressive regimes and warzones, have a greater appreciation for freedom and democracy than people who have never known anything else than that.

What’s more, these foreign entrepreneurs often have a greater appreciation of the planet, so while their ideas for business may be radical and highly profitable, they are also echo-friendly.

So, the donor nation that grants such an individual their citizenship and passport isn’t just getting a cash injection, they are getting someone who will continue adding to their economy, someone who will do their new nation proud, an innovator who might just be the next Elon Musk. Musk is South African by birth but owns passports to Canada and the US also.

Benefits Of Citizenship By Investment To The Investor

There is no quintessential example of applicant for citizenship by investment. There are several different reasons why someone would desire a new citizenship and passport. We can first break it down into two sections:

  • Those People Who Require A Second Citizenship
  • Those People Who Want A New Citizenship

There is a big difference between requiring a second citizenship, and wanting a new citizenship. Let’s break it down:

People Who Require A Second Citizenship

These are usually super-ambitious individuals who, upon reaching a level of success in their own nation, are keen to broaden their horizons and increase their field of business opportunity. For example, if they hail from the Middle East or Africa, they may feel that they have to some degree “concurred” the Middle Eastern or African market. So now they set their sights on the huge markets represented by Europe, the US, even China and India.

The problem is that because of their home nations past history, be it from wars, extremism, or anti-Western rhetoric, they have a passport that hinders their travel significantly. What’s more, their nationality is also a hindrance. Ideally, if they could obtain for example French citizenship and an EU passport and claim – not incorrectly – that they were a French entrepreneur, they are sure that doors would open to them that were previously bolted shut.

These people only require second citizenship as a tool toward achieving their goals. Like a car mechanic knowing that once he invests in a heavy-duty car lift he can really start charging for the bigger jobs he can take on, the foreign entrepreneur knows that an EU passport is their Golden Ticket to the world’s biggest business markets.

They have no real desire to give up their original citizenship, and are more than happy to hold dual-citizenship, but if they had to give up one, they would keep the EU citizenship purely because of its business advantageous.

People Who Want A New Citizenship

These are people who have no problem renouncing their original citizenship in exchange for a new one to a better nation. The people have lost all faith in their homeland, and cannot see any future for themselves or their family in remaining there. These people often hail from countries that do not allow dual citizenship, that will cast out people who gain second citizenship, and in some cases, declare such an action a criminal offence.

These people who are fully aware that by taking second citizenship, their original citizenship will be erased by their home country. They are effectively relinquishing their original citizenship and fully embracing their new one. They also often know that if they were to return to their homeland, they would be thrown in jail or worse.

These people are often family orientated, and therefore tend to choose citizenship to countries that are extremely safe, such as EU member states, and that have excellent reputations for healthcare and education. Their sole interest is building a better, safer future for their families.

The Origins of Citizenship By Investment

Early Days

The origins of citizenship by investment can be traced back more than two decades to the Caribbean. In 1983, and after centuries of British rule, the UK government granted the Caribbean island of St. Kitts and Nevis its independence. St. Kitts and Nevis wisely chose to remain a member of the British Commonwealth.

Suddenly, the fledgling nation had to fend for itself financially. Somebody within the government came up with the brilliant idea of an investment program that would allow foreign investors the chance to become citizens and passport holders of St. Kitts and Nevis, in return for a financial investment, which at that time was a charitable donation to an ambitious young Caribbean country. Based off these principles, in 1984 St. Kitts and Nevis announced the world’s first ever Citizenship by Investment program.

Initially this program proved very popular. Not everyone was a fan however, and other Caribbean islands plus the US were instantly critical of St. Kitts and Nevis for instigating it. Their criticism was granted some vindication when poor policing and control of the program led to some high profile incidents, with the odd unsavory character acquiring St Kitts and Nevis citizenship for somewhat shady purposes.

The St. Kitts and Nevis CBI program subsequently ran out of steam, and it wasn’t until the 21st century that the CBI market would truly evolve.

2000s And Beyond

By the year 2000, the world was a very different place than it had been in 1984. The collapse of the former Soviet Union a decade earlier and the resulting independence of former Eastern Bloc nations, many of them  rich in minerals, gas and oil, resulted in the emergence a large number of extremely wealthy individuals. Soon, everyone was aware of what an “oligarch” was, a Russian billionaire who – unlike their Western predecessors – had no problem showing the world just how rich they were.

Similar things were happening throughout Africa and the Middle East, creating a whole generation of young, super rich individuals. African countries which had never previously had a single millionaire suddenly had many, even a few billionaires.

A Whole New Generation Of Frustrated Millionaires

The internet fulfilled its enormous potential and became established as a viable business platform, creating millionaires that rapidly morphed into multi-billionaires. As more and more countries became familiar with the internet, a whole new generation of Third-World tech millionaires was born.

While these mega-rich individuals had all of the trappings of their huge success, the mansions, the supercars, the yachts, even jets, they still lacked two things – pride in their nation and freedom of movement. While they may have been happy to call themselves Angolan or Iranian for example, they hated the way they were looked at in customs when travelling. They also hated that they needed both visas and interviews whenever they travelled.

Citizenship By Investment Goes Mainstream

The last thing these rich and ambitious people needed was to be made to feel like a second-class citizens but whenever they wished to travel, they knew that was how they were going to feel. As soon as they became aware of citizenship by investment, and the very real possibility of owning a legitimate passport to an EU country with visa-free access to 180+ nations around the world, such a document became the ultimate must-have accessory.

Which brings us where we are today. CBI has never been more popular. Nor has it ever been more commonplace, better regulated or cheaper. Among those who can afford it, CBI has truly gone mainstream. It’s finally safe to say that citizenship by investment is definitely here to stay.

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