In a world of eroded preferences for traditional Caribbean exports, the small island states of the Eastern Caribbean have had to find non-traditional ways to bolster their small open economies. There is growing global demand for alternative and second citizenship by mobile High Net Worth Individuals (HNWIs), a phenomenon on which an increasing number of states have sought to capitalise. At the Global Citizen Forum 2015 in Monaco last week, Prime Minister of St. Lucia, the Hon. Dr. Kenny Anthony announced his country’s intention to become the latest Caribbean state to offer economic citizenship. St. Lucia will join four other Caribbean countries: St. Kitts & Nevis, Antigua & Barbuda, Dominica and Grenada which operate direct citizenship by investment programmes. This article explores the current programmes in the Eastern Caribbean and whether the offering of economic citizenship is worth the risks involved.
The concept of citizenship, that is, the status of holding the nationality of a State, is imbued with a whole package of legal, political and other rights and duties. All states of the English speaking Caribbean have citizenship on a jus soli basis, that is, the right to citizenship by virtue of being born in the territory, as well as citizenship through descent and naturalisation. Those states which offer economic citizenship stretch the notion of citizenship to give qualifying investors the right to full legal citizenship and the right to hold a passport for themselves and their families through making a qualifying investment into the local economy.
Many of these mobile HNWIs are from China, the Middle East and Russia, seeking economic and political security, a more favourable tax climate, and the benefits of hassle free travel a good second passport could bring. According to The Wealth Report 2015, “it is estimated that 76,200 Chinese millionaires emigrated or acquired alternative citizenship over the 10 years to 2013”. Additionally, the US’ system of nationality based taxation and the onerous reporting requirements under FATCA have caused many Americans living abroad to renounce their American citizenship in record numbers (1,335 in the first quarter of 2015 according to this article).
Economic citizenship and residency programmes are not unique to the Caribbean. Several countries such as Malta and Cyprus operate direct Citizenship by Investment programmes. Some countries offer Immigrant Investor Programmes which use the prospect of citizenship or permanent residence to attract highly skilled HNWIs. The US’ EB-5 visa is a prime example. Similar programmes are also offered by the United Kingdom, Australia and New Zealand. Outside of this, there is a whole wealth and tax planning industry which has built up around advising HNW clients and their families on how and where they can get the best passport for their buck.
As countries known for their high standards of living, democratic principles, political stability, respect for the rule of law and healthy reputations internationally, it is little wonder several Eastern Caribbean countries have sought to leverage these pull factors and seek to get their share out of the second passport pie. The expected benefits to the host economy include foreign direct investment through purchasing real estate, funding for infrastructure development and the other economic benefits to be derived from HNWIs and their families spending in the economy.
The investor must meet the application requirements and go through stringent application procedures and invest in one of the options available which differs by country. In return, investors which take advantage of economic citizenship offered by one of those Eastern Caribbean states gets visa free travel to over 100 countries, a second passport, no requirement for residency, as well as second citizenship for themselves and their spouse and dependents. They also can take advantage of the tax benefits offered by a low tax jurisdiction, including no capital gains, wealth or inheritance taxes.
Below is a brief description of each programme:
St Kitts & Nevis – It is the oldest continuously operating citizenship by investment programme and has been in existence since 1984. Two options for investment: (1) making a non-refundable donation to the Sugar Industry Diversification Programme of a minimum of US$250,000 plus processing fees or (2) by investing in an approved real estate project worth at least US$400,000 plus registration and other costs. While the investment in real estate is recoverable, the investor must hold the property for a minimum of 5 years. The next buyer also qualifies for citizenship. For further info: http://stkitts-citizenship.com/
Antigua & Barbuda – Three methods of investment: (1) Investment of at least US$400,000 in an approved real estate project to be held for a period of no less than five years, (2) contribution of at least US$200,000 in the National Development Fund, (3) An investment of a minimum of US$1,500,000 directly into an eligible business as a sole investor or a joint investment involving at least 2 persons in an eligible business totalling at least US$5,000,000 and each of those persons individually invests at least US$400,000. For further info: http://cip.gov.ag/citizenship/
Dominica – Dominica’s programme requires the smallest minimum investment. Citizenship can be obtained through investment either in the Government Fund or the Real Estate Option. According to the website of the CBIU, the generated funds are utilised for public and private sector projects where a need is identified. To qualify for citizenship under the Government fund there are four investment categories with different contribution amounts, based on the number of dependents included in the application. For a single applicant, there is a non-refundable contribution of US$100,000 required. The contribution required increases where a spouse and dependents are involved. To qualify for citizenship of Dominica under the Real Estate Option under the Citizenship by Investment Program, an applicant must purchase authorized real estate to the minimum value of US$200,000 plus government fees which dependent on whether a spouse is included and number of dependents. For further info: http://cbiu.gov.dm/
Grenada – After a thirteen year hiatus, Grenada restarted its Citizenship by Investment programme in 2014. Application is by invitation only. Citizenship can be obtained by investment of a minimum of US$ 350,000 in an Approved Real Estate project plus fees and costs. The investment is subject to a minimum holding period of four (4) years. The second option is a non-refundable donation to the Island Transformation Fund which is not yet open. For further info: http://www.citizenship.gd/
St Lucia – St Lucia has indicated its programme will begin from January 2016 and details about the programme are not yet available. It has stated that they expect significant economic benefits from the programme.
There is little data publicly available on the success of Caribbean CbI programmes. It would be interesting to know the number of applications received and approved on a yearly basis, the countries from which most applicants have come, and what have been the tangible benefits to the host countries. However, the IMF Staff Report on St Kitts & Nevis noted the citizenship by investment programme in St. Kitts & Nevis, the region’s most successful CbI programme, is bearing fruit. It notes as follows:
Continued rapid inflows under the Citizenship-By Investment (CBI) program have led to a surge in construction activity, and supported a large increase in government and Sugar Industry Diversification Fund (SIDF) investments and spending, including on the People Employment Program (PEP). These factors, together with the ongoing recovery in tourist arrivals fueled rapid GDP growth of about 6 percent in 2013 and 2014.
Entangled in the notion of economic citizenship are a whole set of moral and legal issues. For one, the definition of ‘spouse’ in the legislation of these Caribbean countries still means either of a man or woman who are married to each other. In light of competition from other CbI programmes, will this definition eventually be amended to allow gay HNWIs and their spouses to take advantage of these programmes?
There are also regulatory and national security implications, including concerns about the potential use of second passports to facilitate money laundering, organised crime and terrorist activity. Of course, there are stringent screening methods, including requirements of police certificates of character. After all, all countries prefer to attract investors of good character who are self-sufficient, and willing to make a significant economic investment to the country in which they are seeking citizenship. Under the Antigua & Barbuda programme for example, a person can be deprived of citizenship in several instances e.g: fraud, conviction or failure to spend at least 35 days in Antigua & Barbuda during the period of five calendar years after his registration. There is the potential for attracting ‘undesirables’, even with a rigorous programme.
A few countries worldwide have found that the potential investment inflows were not worth the risk or they could not cope with the volume of applications. Canada cancelled its Immigrant by Investor Programme, while Hong Kong has suspended its CIES programme. Barbados has clearly stated that for policy reasons it will not go the route of economic citizenship. It currently offers the Special Entry and Reside Programme (SERP) for qualifying HNWIs and their spouses/dependants. In order to qualify as an HNWI in Barbados, the investor must have assets of at less than US$ 5 million. In spite of this, Eastern Caribbean CbI programmes not only have to compete amongst themselves but also face increased competition globally from potentially more attractive CbI and residency programmes worldwide.
Moreover, countries which offer economic citizenship programmes do open themselves to reputational risks, especially if other States have doubts about the rigor of their screening procedures. The US Treasury has accused persons obtaining St Kitts & Nevis passports for financial crime and Canada imposed visa requirements on St. Kitts & Nevis nationals on November 22, 2014. The merits of these actions are debatable. However, these are the kinds of risks which countries operating these programmes face. Moreover, they may result in holders of those passports, including natural born citizens, being blacklisted or subject to more scrutiny by foreign jurisdictions, which may redound to more harm than good for that State and undermine the very programme itself.
In light of the foregoing, any Caribbean state considering a Citizenship by Investment programme must not only consider the possible investment inflows but weigh them carefully against the potential reputational, security and other risks, as well as the sustainability of such a programme.
Disclaimer: This article is NOT intended to provide investment advice and the Author is not accountable to anyone who relies on the information in this article. The information was taken from sources deemed to be accurate and correct at the time of publication. For further information on the respective CbI programmes stated above, please contact the relevant authorities in the respective countries.
Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, public international law and trade.