It has become an effective tool for international tax planning.
Citizenship and national identity are shifting in a globalising world. An increasing number of people carry second passports and travel, study and work in multiple jurisdictions. South Africans are no exception and over the past few years issues of citizenship, visa restrictions and freedom of movement have become more and more important for internationally mobile South African resident individuals.
Citizenship is usually acquired by birth within a country, ancestry, marriage to a citizen or naturalisation. It is however possible to "purchase" citizenship which means becoming a citizen of two countries at the same time and enjoying all the legal rights and other amenities provided to any other citizen of those respective countries.
For South African residents the possibility of acquiring citizenship and a passport in another jurisdiction as opposed to mere residence has distinct advantages:
South African residents are subject to strict visa requirements each time they want to enter a foreign country. Visa applications have become complex and expensive and often there is a delay in getting the visa which could impact on travel plans. The acquisition of a second passport can provide long-term visa-free travel.
A formal emigration from South Africa requires proof of permanent residence in another jurisdiction. While a permanent residence permit allows you to reside in a certain jurisdiction, unlike a passport, it does not grant full security as it may be subject to renewal, revoked or new conditions applied.
Obtaining alternative citizenship has increasingly become an effective tool for international tax planning and as national of two or more states you generally have more planning opportunities open to you especially in terms of double tax agreements.
There are a number of jurisdictions that offer residence permits to wealthy individuals (as opposed to citizenship) either through the purchase of property or by direct investment. These include Mauritius, Malta, Monaco, Bahamas and the United Kingdom to name but a few.
There are, however, only three jurisdictions which have clear provisions in their law for granting immediate citizenship by investment without requiring a specific period of residence in the country. They are St. Kitts and Nevis, the Commonwealth of Dominica and Austria.
St. Kitts and Nevis
St. Kitts and Nevis1is a former British territory which gained independence in 1984. It is located some 2,000 km to the southeast of Miami. It is a member of various international organisations including the United Nations, and the British Commonwealth. It is a democracy based on the British parliamentary system. The official and business language is English.
The Citizenship-by-Investment Program of St. Kitts and Nevis was established in 19842which gave investors the opportunity to apply for citizenship and a passport within the strict guidelines of the law and the relevant regulations.
In order to qualify for citizenship in St Kitts and Nevis, the Government requires the following:
- An investment in an approved real estate development; or
- A contribution to the Sugar Industry Diversification Foundation (SIDF), a public charity3.
Real estate investment
The real estate option requires an investment of least US$ 400 000 in one of the government approved real estate developments4plus the payment of government fees5, due diligence fees6and purchase fees (e.g. conveyancing and agents fees). The real estate cannot be resold until five years after purchase and after that time it will not qualify the next buyer for citizenship.
The SIDF option is the fastest and cheapest way to attain second citizenship in St Kitts and Nevis. The contribution (non-refundable) includes government fees7but not due diligence fees8.
There are four different categories for the SIDF contribution:
- Single applicant: An investment contribution of US$250 000.
- Applicant with up to three dependents (e.g. spouse and two children <16): An investment contribution of US$300 000.
- Applicant with up to five dependents (e.g. spouse and four children < 16): An investment contribution of US$350 000.
- Applicant with up to seven dependents (e.g. spouse and six children <16): An investment contribution of US$450 000.
An additional contribution of US$50 000 is required for each dependent above seven.
Applications take approximately three to six months for both the real estate and SIDF option provided all the documentation is in order.
A fast track option is available but will cost between US$30 000 and US$40 000 depending on the number and age of dependents in the application. Once the citizenship application is approved, a passport can be applied for. The passport is valid for 10 years and can then be renewed.
The benefits of being granted a St Kitts Passport include:
- St. Kitts & Nevis passport has an excellent reputation. It allows visa-free travel to European Schengen areas including UK, Canada and Ireland along with 80 other countries
- No prior residence requirements
- No income ,wealth tax or estate duty
- No restrictions on dual citizenship
- The grant of citizenship not publicised
- No personal visit required to process the application
- Qualification for special rights and privileges in the United Kingdom as a Commonwealth citizen9.
Commonwealth of Dominica
The Commonwealth of Dominica (to be distinguished from the Dominican Republic) is known as "the Nature Island of the Caribbean". It lies between the French overseas territories of Guadeloupe and Martinique. In 1978 Dominica was granted independence by the United Kingdom. It is an independent state with parliamentary democracy and a judiciary system based on English common law. English is the official language but the French dialect creole is widely spoken. Dominica is a member of a number of international organisations, including the Commonwealth of Nations, United Nations, Caribbean Development bank (CDB), and the International Monetary Fund.
The economic citizenship programme is based on the law and is guaranteed by the Government. In order to participate in the economic citizenship programme10, a cash investment in the form of a direct non-refundable payment made to the Government is required. The funds must be placed into an escrow account before the Government will consider an application.
There are two options for obtaining citizenship: a Family Option and a Single Option.
Under this option the investor-applicant pays US$100,000 which qualifies the investor, a spouse and two children under 18 for economic citizenship. An additional US$15,000 per child is required for children who have turned 18 years but are less than 21 years old. Also, a further cash contribution of US$25,000 will be required for any additional child under 21. Any person in the family over 21 is required to apply separately under the Single Option.
Under this Option, the investor (whether single or married) is the sole applicant for economic citizenship. The "Single" investor would be required to make cash investment of US$75,000.
Additional expenses11under both options would include agent processing fees12, due diligence fees13and government registration fees14.
The documentary requirements are quite onerous and the procedure includes mandatory interviews in Dominica which cannot be waived. The law provides for the processing time of two months but varies from case to case to case15. Like St Kitts, the passport is issued for 10 years and can be easily renewed on expiration.
The benefits of acquiring a passport in the Commonwealth of Dominica are:
- Dual citizenship recognised
- Citizenship granted for life and is not revocable
- No residence requirements to obtain citizenship
- No notification or publication of new citizenship
- Visa-free access to the first world countries, including United Kingdom, Hong Kong, South Korea, China, Singapore and most British Commonwealth countries. Visa-free travel is, however, not as good as for holders of a St. Kitts & Nevis passport
- No taxes on capital gains, gift, wealth and inheritance
- No taxes on foreign income (unless you reside in Dominica)
- The most affordable option of all currently existing economic citizenship programmes
- Qualification for special rights and privileges in the United Kingdom as a Commonwealth citizen.
Austria is the only country in Europe offering citizenship by investment to foreign and non-EU persons who invest substantially in the growth of the Austrian economy.
Under the citizen-by-investment programme16, Austrian citizenship is offered to foreign nationals either under a direct investment or donation route. According to the provisions of the Austrian Citizenship Act, to qualify for a grant of citizenship without prior residence an applicant must provide extraordinary scientific artistic cultural or economic benefit to the State17.
Direct investment route
Under the direct investment route, an applicant is required to provide extraordinary benefits to the Austrian State. Direct investments by foreign investors in local businesses, (usually with a local JV partner), which results in job creation or generation of new export sales would qualify. Investments are typically made in manufacturing or technology based businesses. Investments in government bonds or real estate do not qualify under the citizenship program. Currently a minimum equity investment of EUR 8 million is expected.
Alternatively, a donation to a public project or private project of public interest can also be recognised as providing extraordinary benefits to the State. This can be, for example, in the form of an endowment for a scientific research program, or a contribution to an important museum. A contribution of this nature would typically be not less than EUR 2 million and can be spread out over several years.
Whether the citizenship application is made through the direct investment or donation route, the application and processing costs are very expensive and can be in the region of
EUR 600,000 or more depending on the complexity of the application.
One is only eligible to apply for an Austrian passport once the citizen application is approved by the Government. A personal visit to Austria to finalise the application is required. Family members such as spouses and children under the age of 18 can be included in the citizen application. A separate application is required for children over the age of 18.
The benefits of acquiring an Austrian passport are:
- Access to all Schengen countries including Switzerland and the right to live anywhere in the EU
- No prior residence requirement
- Visa-free travel to over 180 countries
- Dual citizenship now recognised
- No reporting of citizenship information to other countries
- German language requirements no longer applicable18
- Citizenship is irrevocable unless applicant has provided false information in citizenship application19
- Only subject to Austrian taxation if physically resident.
For South African residents evaluating the "purchase" of a second passport the most critical factor to consider is that the citizenship must be acquired in accordance with the laws of a particular jurisdiction. All three jurisdictions discussed above comply with this requirement. Other factors to consider prior to making a decision are the political and economic stability of the jurisdiction, the legal system, the geographical location, international reputation, accessibility to visa free travel, and most importantly, costs.
Important note:The South African Citizenship Act provides for retention of South African citizenshipPRIORto the acquisition of a foreign citizenship. A condition of attaining dual citizenship for all South African citizens aged 18 years or older is that they must apply and be granted permission to retain their South African citizenship prior to the acquisition of a foreign citizenship. Failing this they will automatically lose their South African citizenship on voluntary acquisition of a foreign citizenship.
1St. Kitts and Nevis is also known in the country's constitution as Saint Christopher and Nevis. The Federation comprises two islands: Nevis with an area of some 93.2 km2 and St. Kitts with 168.4 km2.
2Regulations regarding citizenship-by-investment are contained in Part II, Section 3(5) of the Citizenship Act 1984. New regulations were introduced in January 2012, which introduced higher investment requirements.
3The Sugar Industry Diversification Foundation (SIDF) is a public charity which was set up in 2006 by the St Kitts and Nevis Government to support displaced sugar workers as a result of closure of the sugar industry. The SIDF program aims to raise funds for the country to diversify the agricultural sector and to stimulate the economic development of the country.
4Approved real estate developments in St Kitts include, inter alia, Calypso Bay Resort, Golf View, Beaumont Estate and Horizon Villa. There are a number of other approved real estate developments to choose from. Projects are approved on an on-going basis by the Government following application by the developer and a comprehensive review by the Government.
5$US 50 000 per single applicant plus $US 25 000 for a spouse and each child under 18. For children over the age of 18, the government fee is US$ 50 000.
6$US 7 500 per single applicant plus $US 4 000 per dependent over the age of 16.
7There is one exception: for qualified dependents (between age 18 and 25) and in full-time education, government fees are $US 50000. The fee does not apply to a spouse.
8US$ 7 500 for a single applicant plus US$ 4 000 for each dependent over the age of 16.
9For example, children may go the UK to study without having to obtain a student visa. After graduation, they may take up employment in the UK for two years without having to obtain a work permit.
10In Dominica, citizenship-by-investment is based on Section 101 of the Constitution and Sections 8 and 20 (1) of the Citizenship Act. It allows the government to operate a programme under which citizenship is given to persons who qualify under criteria set by the government in its policy guidelines.
11See Guide of Reference 2011 Commonwealth of Dominica Economic Citizenship Program.
12US$ 15 000 for a single applicant and US$ 25 000 for a family unit.
13US$ 3 000-US$ 10 000.
14Application fees-US$ 1 000 per application, naturalization fee US$ 550 ( per applicant), government processing fee US$ 200 (per applicant), stamp fees US$ 15 per applicant.
15Average processing time can range from 5-14 months.
16Since 1985 Austria has allowed the acquisition of citizenship without residence requirements under certain conditions set by section 10(6) of the Austrian Citizenship Act (Staatsbürgerschaftsgesetz 2005).
17Section 10(6) of the Citizenship Act.
18Prior to 2006 an applicant had to show a basic knowledge of German.
19The Austrian Citizenship Act generally requires the surrender of the current citizenship of an applicant as a prerequisite to the grant of Austrian citizenship. However, if citizenship is granted in terms of section 10 (6) of the Citizenship Act, the former citizenship can be legally maintained.