Investment Migration: Benefits for Cash-Strapped Governments and Advantages for Individuals
Investment migration services, including residency by investment (RBI) and citizenship by investment (CBI), have surged in recent years, creating a thriving $25 billion annual market.
This boom is driven by mutual benefits for both the countries offering these programs and the individuals seeking new residencies or citizenships.
- Governments facing financial constraints have found a lucrative revenue source in offering legal residency or citizenship to qualified foreign applicants.
- Individuals also benefit from these programs. A Sri Lankan citizen, for instance, can only visit about 40 countries without a visa or with minimal visa requirements. But acquiring citizenship from St. Kitts & Nevis expands their visa-free travel options to nearly 160 countries.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic accelerated the demand for investment migration services.
The economic impact of public health measures led governments to borrow heavily, prompting more countries to welcome self-sufficient migrants.
This trend was bolstered by the introduction of digital nomad visas (DNVs), which allowed COVID-free, self-sufficient migrants to stay temporarily in tourist-dependent economies devastated by the pandemic.
- Digital nomad visas have become popular, with at least 30 countries now offering some form of DNV. These visas enable individuals to live and work remotely in a country without long-term commitments.
Citizenship by Investment Programs
Citizenship by investment programs, like those in St. Kitts & Nevis and Dominica, offer viable paths to obtaining a second passport. But these programs require a substantial financial commitment.
Recommended Reading
- St. Kitts and Nevis Citizenship by Investment Program
- Dominica Citizenship by Investment Program
- Cheapest Citizenship by Investment Programs
- How to Get a Second Passport: 7 Legal Ways
If CBI programs are not in your budget, there are other ways to get a second citizenship, for example, Citizenship by Ancestry.
- If you have ancestors who were citizens of another country, you might qualify for second citizenship at a fraction of the cost of investment programs. Many countries, especially in Europe, have relaxed eligibility requirements for citizenship through ancestry.
The “Perpetual Traveler” Lifestyle
The pandemic highlighted the importance of having multiple citizenships and residencies.
US citizens, who could previously travel to over 180 countries visa-free, saw that number drop to 86 by August 2020.
At the same time, more people sought the “PT” or “perpetual traveler” lifestyle. It aims to minimize taxes by not staying long enough in any country to be taxed.
Challenges and Solutions for Perpetual Travelers
The PT strategy is appealing. But it’s hard to achieve legally for US citizens, who are taxed on their worldwide income.
The Foreign Earned Income Exclusion (FEIE) allows Americans to exclude a certain amount of earned income from US tax each year. This is if they have a “tax home” in another country. But this does not apply to passive income and requires establishing a tax home in a country that taxes based on residence.
Common Reporting Standard (CRS)
The OECD’s Common Reporting Standard complicates the PT lifestyle. It requires banks to identify the tax home of their depositors and share account information with tax authorities. This makes it challenging to remain a perpetual traveler without being tax-resident somewhere.
Tax Residency Challenges
Countries like Canada apply a “closer connection” test to determine if a person has stronger ties to another country. Consider a Canadian citizen who spends three months per year in Argentina, Italy, Antigua, and Canada, respectively. Even though they spend less than 183 days per year in Canada – the time ordinarily required to be subject to Canadian tax on their worldwide income – they don’t have a closer connection to any other country. Thus, they’re still considered tax-resident in Canada.
Optimal Tax Homes
The ideal tax home for a PT is in a country that taxes local income only, or not at all, without requiring long-term residence. The Bahamas, for example, offers a “tax residency certificate” and does not tax worldwide income, making it an attractive option.
Eventually, most people prefer a fixed place of abode. They can either return to a country where they hold citizenship or residency or choose a new one through a CBI or RBI program.
Note: Americans face unique challenges due to citizenship-based taxation.
Need Help?
Since 1984, we’ve helped more than 15,000 customers and clients successfully build wealth protection plans and internationalize their lives. Second citizenships and passports play a big part in that, along with expatriation.
If you’re thinking about a second passport and you’d like an unbiased perspective on the various options, please schedule a free no-obligation consultation with a Nestmann Associate. We’ll help you determine whether a second passport is right for you, and whether we can help you legally get one. Click here to request a call.
