Citizenship by Investment Programmes occupy a controversial place within the Caribbean. While regional nations like Saint Lucia, Dominica and Grenada have established CIP industries to go the distance, as a global commodity, CIPs are also subject to change and evolution via supply and demand, like any other product.
That’s why the growing interest in CIPs pursued by ‘regular’ people beyond the global tycoon class is a notable trend, and one of which all in the Caribbean family need to be aware, whether they are pro- or anti-CIP.
Ongoing Coverage of CIPs
At Star Businessweek we have regularly covered developments in the CIP industry locally and globally, alongside outlining the broader debates and perspectives that exist surrounding the sector. But for those who don’t right now have access to the Businessweek back catalogue, or perhaps are just keen on a refresher, the following is a quick overview of the essential tensions that exist in the CIP industry today.
CIP Critics and Advocates
Critics of CIPs cite a range of perceived risks to a nation when it allows cashed-up foreigners a fast track to all the benefits provided by citizenship. Concerns range from poor vetting processes that may allow someone with criminal intent to gain citizenship, to the more philosophical arguments that those who become citizens through an investment programme are less likely to have the same deep sense of identity and patriotism in the nation as would a native-born citizen.
Advocates, by contrast, hold that CIPs are the way of the future in the global economy. Also, that by providing a path to citizenship for a wealthy investor, the nation benefits from a capital injection and their capacity to draw new business to the country from further afield.
Advocates argue that CIP vetting processes are strong, and that if someone truly has criminal intent to a nation, whether or not they have followed the CIP path is unlikely to stop them. Further, it is held that even though successful CIP applicants may not have been native-born, they did select their new nation to invest in, and the more they are welcomed and form ties in the community, the more their sense of kinship with the nation will grow.
These arguments will continue into the future but, up until now, they have typically been framed with the high-net-worth individual in mind. This is a byproduct of CIPs within Caribbean nations commonly costing over US$100,000. As a result (save for exceptional circumstances where a political refugee or similar may seek citizenship) the industry’s ebbs and flows move with a focus on how CIP changes impact primarily HNWI applicants. Yet now things are changing and reframing the CIP debate.
A Taxing Issue
As CIPs will always, by default, be an international issue, understanding the new trend requires recognition of the local impact of global changes. Recent years have seen multinational corporations come under great pressure to ‘pay a dollar where you earn it’. Undoubtedly, the fact that some businesses can earn billions of dollars of revenue from nation A, but then pay only a fractional amount of tax while headquartered in nation B where there is a far lower tax rate, contributed to the outcry following the data leaks of troves of documents commonly known as the Panama Papers and the Paradise Papers.
The new emphasis on local taxation of earnings was also unquestionably a factor behind Donald Trump winning the White House in 2016, running on a populist platform that flirted with a form of economic protectionism not seen in the United States since before World War II. But it’s within the United States that a particular CIP-related phenomenon is occurring, and the reason why is telling.
Although the Trump administration has pursued tax reform, and sought to simplify tax returns with the release of a ‘postcard’ format 1040 income tax form (albeit with six accompanying pages to use for additional information, like student deductions), the US still requires its citizens living abroad to pay US tax annually.
Although there are ways for Americans to reduce the amount they pay while living outside the US, this system still means that some of them have to pay tax to two nations each year. This has resulted in many Americans living overseas long term, looking to acquire citizenship in another nation, and renounce their American status. And the people looking to do this are those whose accountants would classify them less as titans of industry, and more as ‘regular’ people.
Going where you’re treated best
Though the US is an exception to the rule in this case — many nations around the world not requiring their citizens to pay tax locally if living and working overseas — going forward, the pursuit of CIPs by regular people for taxation purposes can be expected to rise.
Some observers may view this as craven tax minimisation. Some may go further and argue that although tax minimisation is legal, it’s morally akin to evasion. This perspective is understandable but the trend is owed to a number of factors.
Alongside the borderless nature of CIPs, the world is ultimately — despite the fiery rhetoric of Donald Trump and similar politicians — becoming more economically borderless. Presently, anything that could be deemed a truly global economy is still a long way off but, besides the rise of CIPs and cryptocurrency, the pioneering of commercial concepts, like Estonia’s e-Residency which allows entrepreneurs from around the world to digitally headquarter their company in the Eastern European nation, means that innovation and mobility in global business will continue to converge.
And in this space, the pursuit of CIPs to maximise benefits for tax, location and business will increasingly entice those outside the HNWI tax bracket.
A Real Civic Issue
CIPs being pursued by more non-HNWIs is inevitable for many reasons, and is nothing to fear, at least if you subscribe to the view that CIPs for HNWIs haven’t been a massive issue so far. But certainly there are cause and effect considerations here.
Although the US taxation system may be regarded as antiquated today, if reforms occur in time ahead that absolve Americans abroad from having to pay income tax each year, suddenly those who sought a CIP exclusively for taxation purposes may no longer have use for it.
While people can usually renounce their citizenship in their adopted CIP nation, can they then apply to have their native citizenship restored after it has already been renounced? What happens if nations start actively enforcing laws, or enacting new ones, to deal with tax-minimising CIP applicants? How secure and reliable are CIPs when the issuing government is booted from office and replaced with an administration that views those who obtained citizenship by investment less favourably than its predecessor?
On these questions we here at Businessweek will continue to pursue perspectives and answers.
