Global warming

In a rapidly changing world, the demographics of the ultra-wealthy have shifted from the traditional western economies towards the emerging markets. In 2011, more than half of the new billionaires on the Forbes list of the world’s richest were from the so-called BRIC countries (Brazil, Russia, India and China).

Swiss private banking group Julius Baer’s Asia Wealth Report 2011 predicts that the amount of millionaires (individuals with investable assets of more than $1m) in Asia will grow from 1.16m to 2.82m in 2015. The amount of high-net-worth individuals in China alone is expected to more than double in the next three to four years, rising from 500,000 to 1.4m by 2015.

 

Making waves

 

A BRIC billionaire is younger and more entrepreneurial than his western counterpart. Often self-made, these individuals and their families wish ?to move freely around the globe, ?owning several residences and offices ?in different countries.

Many countries wishing to accommodate the globally wealthy offer economic citizenship or residency programmes. It is not difficult to understand why – a well-respected programme does not come cheap and can lead to many millions being pumped into a country’s economy. Relocation of an ultra-wealthy family often means the purchase of one or more properties, payment of school fees, taxes, wealth advisers, domestic employees and other daily expenditure. Countries suffering from the economic downturn are becoming only too aware of the need to encourage wealthy foreign investors to relocate to their shores.

But why should HNWIs move? The globally wealthy often have myriad reasons for relocating or obtaining a second residency or citizenship. In politically unstable times, safety (both of individuals and their assets) is a primary concern. A second right to residency or citizenship offers the chance to relocate at short notice and potentially obtain diplomatic protection from another country. In the wake of the Arab Spring, individuals and families from emerging markets have become more aware of the need to plan for immediate safe haven or make sure they have access to one if the rule of law in their home country starts to break down significantly.

The rapid growth of developing economies, such as Russia and the former Soviet republics, has not always been accompanied by a similar rate of development of political and legal maturity. Such jurisdictions offer individuals an opportunity to make a large amount of money quickly but many individuals and their families face political and economic pressures and the threat of kidnap. They are concerned to make sure they move at least part of their wealth to a less volatile region and to be able to accompany it.

Travel flexibility is often a primary motivation. Usually owning properties and business interests in several different countries, the internationally mobile millionaire does not want to be restricted in his travel plans. It is little wonder that British passports, which offer visa-free access to Commonwealth countries, the right to work in the European Union, and visa-free access to the US for up to three months each year are highly sought after. Citizens of St Kitts (which runs a successful economic citizenship programme) have visa-free access to over 50 countries.
Tax, of course, will always be a driver for the rich. Switzerland, Canada, Dubai and St Kitts all offer economic residency or citizenship programmes that come with low or zero-tax regimes. The UK allows foreign (non-domicile) individuals to keep their investments offshore without suffering a tax charge unless and until they remit funds as they no longer claim the remittance basis.

Finally, many wealthy individuals are looking for a greater quality of life for themselves and their family. They would like to see their children educated at an English-speaking school and university and enjoy a comfortable and relatively private life (if they want it to be)

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Mutual benefit

 

There are a number of residency programmes available, with many countries, including the UK, offering economic residency programmes to wealthy individuals. Such programmes generally require active or passive investment into the country in return for a time-restricted visa for the investor and his family. Often the residency will lead to settlement or a passport and will require the investor to spend a period of time in the country. Inevitably, some programmes are more well respected than others.

The United Kingdom. The UK runs an investor visa programme and an entrepreneur visa programme. Under the investor programme, individuals are required to invest no less than £1m in the UK. The majority of the investment (75 per cent) must be in UK government bonds, UK shareholdings or loan capital. The remaining 25 per cent may be held in cash or unmortgaged property. The entrepreneur programme requires an individual to take over or set up a UK business. He must invest at least £200,000 in the business and create two full-time jobs.

After five years of living in the UK as an investor or an entrepreneur, the individual and his family may apply for permanent residency. After a further year they may apply for British citizenship and a British passport.

In April 2011, the UK adapted its investor visa programme to make it more attractive to wealthy individuals. Applicants now have the option of investing £5m or £10m to speed up their route to permanent residency (two or three years instead of the usual five). Entrepreneurs also have the opportunity to speed up their route to permanent residency by creating ten jobs or a turnover of at least £5m.

The UK government also reduced the minimum requirement for time spent in the UK from nine months to six months per year.

Immigration minister Damian Green said in March 2011 when the changes were announced: “Today I have sent out a clear message – the UK remains open for business and we want those who have the most to offer to come and settle here.”
Elsewhere in the European Union. Bulgaria introduced an investor visa programme in 2009, offering residency in return for a EUR1m investment. Less successful was Montenegro’s attempt to offer an economic citizenship scheme in 2010 – it was promptly closed down after talks with the European Union.

The United StatesThe US EB-5 Immigrant Investor programme is a hybrid of the UK’s Entrepreneur and Investor programmes – it requires an active investment of US$1m (or US$500,000 if the investment is made in a rural area). The investment must create ten new full-time jobs. Permanent residency is usually granted after about four years.

CanadaCanada runs a very successful economic residency programme. Its stable political environment and high quality of life make it the most attractive destination to many investors. A Canadian passport (which offers a wide range of travel options) is available after just three years of residence. In 2010 Canada doubled the price of their economic residency programme from CDN$400,000 to CDN $800,000.

Other notable and well-respected programmes are run by Singapore, Hong Kong and Austria.

Stumbling block

For the super wealthy, the main drawback of economic residency is the requirement that the investor spends time in the country for several years before citizenship and a passport may be granted. Although the UK has relaxed its residency requirements, it still insists that the visa holder spends no less than six months every year in the UK. For individuals who continue to run their business in their home country the residency requirement can be a major stumbling block.

An economic citizenship programme that leads directly to a passport without the need for a period of visa-based residency may be a more suitable option. Economic citizenship involves making substantial investment in a country in return for a passport. The government of St Kitts does not require individuals to have even visited the country before they will grant citizenship. Some of the most popular jurisdictions are:

Austria. Potential applicants should be prepared to make a substantial active investment of around $4m before citizenship will be granted.

St Kitts and Nevis. St Kitts and Nevis runs arguably the most popular and well-respected citizenship-by-investment programme. Investors may purchase a St Kitts passport either by way of a donation to the Sugar Industry Diversification Fund (SIDF), or by purchasing real estate on the island. In January 2012, the St Kitts government increased the amount of the donation by US$50,000 for a single applicant (total $250,000).

The Commonwealth of Dominica. A cheaper option to St Kitts, offering visa-free access to over 100 countries in return for a cash investment of US$75,000.

 

Helen Manis is a solicitor at ?Berkeley Law

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