David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: good as gold.
The idea of immigration often conjures up black and white images of huddled masses on ships in New York Harbor. People seeking new opportunities to make their fortune.
But what happens for people who've already made their fortune and don't have time to wait in line for the normal process? And what about the growing class of remote workers who don't need to be physically anywhere?
This week, we're talking about golden passports with Tax Notes reporter Elodie Lamer and Tax Notes contributing editor Nana Ama Sarfo. Elodie, Ama, welcome to podcast.
Elodie Lamer: Hi, thank you for having me.
Nana Ama Sarfo: Thanks, Dave. It's really great to be here.
David D. Stewart: Well, why don't we start off with: what are we talking about when we use the term golden passport or golden visa? Elodie, why don't you start us off?
Elodie Lamer: Yes. So, I think there is a distinction to be made between golden passport and golden visa.
So, golden passports grant you citizenship in exchange for an investment. It can be a different kinds of investments. For example, in Cyprus, you have to invest in the investment fund or buy a house or by a share in a company.
Golden visa is about residency, so it grants you residency rights if you do the same kind of investment.
So there's a big difference in the EU (European Union) because once you get citizenship in an EU country, you get EU citizenship, which means that you get many rights. The right to settle anywhere in the EU, the right to work, the right to move freely, and the right to vote or even run in local and EU elections. So it's a big issue for the EU.
Residency is a bit different because you get residency in an EU country and then you can move freely, but you don't have the same rights, not settling or working anywhere else.
Nana Ama Sarfo: When we talk about golden visas, often the threshold for getting temporary or permanent residency is usually much lower than with a golden passport.
Elodie Lamer: If I may add, so as the European Commission sees it, it's really a shortcut to citizenship or residency. And you can get it without having any genuine link with the country and that's an issue for the Commission.
David D. Stewart: All right, so Ama, why do countries offer these?
Nana Ama Sarfo: Well, Dave, countries want investment. They want wealthy investors pouring money into their infrastructure and into their economies. And these golden visa and golden passport programs essentially are a way to guarantee that, because investment is mandatory for receiving the residency or citizenship benefits that these investors seek.
Elodie Lamer: So in the case of Cyprus, for example, they started it just after they went through the crisis and the eurozone bailout. So, according to Al Jazeera, who made an investigation in this in 2020, between 2013 and 2020 they had €8 billion in revenues.
David D. Stewart: Now, are there any countries, other than Cyprus, that are known for these golden visa programs?
Elodie Lamer: On golden visas — so residency — there are actually a lot of countries, but it doesn't mean that conditions are not strict. For example, Luxembourg, they offer this kind of residency by investment program, but the conditions are much stricter.
On golden passports — so citizenship — you still have Malta. Cypress and Bulgaria, they recently told the Commission that they would abolish it. So you basically have Malta, which is still in a legal battle with the Commission because the Commission says we want it removed in the next two months. That's for the EU.
Nana Ama Sarfo: Well, I would add that countries all over the world have both of these programs, I think in just about every continent except Antarctica. But I think that when people think about golden visas and golden passports, they often think about countries with very large tourism markets, so Caribbean countries, Thailand, Greece, etc.
David D. Stewart: All right. And I'll have to admit, I'm going to probably just switch back and forth between the term passport and visa, but we're generally talking about them separately. So, what sort of individuals are taking advantage of these golden visa or golden passport programs?
Nana Ama Sarfo: Well, we see that there are wealthy individuals in countries who want investment certainty and might not be able to get that domestically, due to economic or political instability. So, oftentimes those sorts of high-net-worth individuals will seek a golden passport or golden visa program.
During the height of the pandemic, during the height of lockdown, we saw wealthy individuals in countries where it might be difficult to obtain a foreign visa to travel, seeking these sorts of programs because they wanted to ensure that they could have continued access to the world for personal or business reasons. They want a passport that facilitates easier travel.
We also see other wealthy individuals who want to lower their tax burdens. They want to perhaps find a jurisdiction where they don't have to pay wealth or inheritance taxes and that becomes a motivating factor for seeking a program.
And then, of course, on the other hand, you also have individuals with ill intention. So, people who are tied to organized crime or other illicit activities who perhaps want to launder their money and see these investment programs as a way to do so.
Elodie Lamer: Coming back to the Al Jazeera "Cyprus Papers" in 2020, their investigation showed that there were people being accused of corruption in a telecom deal. The former boss of Gazprom [Nikolay Gornovskiy] who was wanted for embezzlement. People who were wanted in Ukraine but were not there to answer the charges because they were somewhere else thanks to their visa or passport. So any kind of criminals or even politically exposed persons.
It also showed that a relative of Bin Laden was amongst the beneficiaries, so all kinds of people.
And what this investigation showed also is that the due diligence of Cyprus which— Actually the condition said: "You have to have a clean criminal record," but that was never really respected. Well, in many cases, it wasn't respected.
David D. Stewart: So, I take it that there are corruption issues. Are there other downsides to golden visa or golden passport programs?
Elodie Lamer: Well, from the EU perspective, the Commission, even the [European] Parliament calls it a Trojan Horse, because it's one thing to grant residency or citizenship and have bad consequences for you, but when you do it in an EU member state, it means that it has consequences for all the EU member states because when you give citizenship, you give rights in every member state. So, it has consequences for all the EU.
Nana Ama Sarfo: I would also add that sometimes the optics can be negative for governments in giving everyday citizens the impression that their governments are focusing their energies on essentially courting the one percent and giving them these plump economic opportunities, instead of trying to essentially spread the wealth and offer economic opportunities to people across all sorts of economic backgrounds.
David D. Stewart: So, what are the tax implications for individuals taking on these golden passports and golden visas?
Elodie Lamer: According to a 2018 study by the European Parliamentary Research Service, apart from giving those individuals access to a specific tax regime, one of the issues is the possible circumvention of the common reporting standards.
Basically, if you have a foreign bank account, but if you have residency in the country of the bank, you can just tell the bank that you live there. So the bank doesn't know it has to give the information to the tax administration of the country where you really live. So, it's a possible circumvention of this common reporting standard and the exchange of information. And the Commission has noticed it recently.
And the Commission recently said that it would try to make sure that the directive and administrative corporation for tax matters were well implemented and that it was considering infringement procedure if it's not well implemented specifically to tackle this possible circumvention of the CRS [Common Reporting Standard] thanks to golden residency. We're talking to golden visa.
David D. Stewart: Now I understand that the EU is putting some of these programs under scrutiny. What is the EU saying its concern is here?
Elodie Lamer: So, in the EU, there is some sort of systematic fight against mostly golden passports. Because as I said earlier, it has consequences for the whole EU because it gives you the right to work, and settle anywhere in the EU.
So the Commission saying that it is granting citizenship in exchange for an investment without any genuine link to the country, is actually not compatible with the principle of sincere cooperation that is enshrined in EU treaties, but it also undermines the integrity of the statues of EU citizenship. So the Commission wants it to stop. So it is in a legal battle with Malta right now.
And in April, the Commission told Malta, "You have two months to just get rid of this scheme." The Maltese press says that the government is considering failing out the scheme or just reforming it. So we don't know yet what they will do. So the Commission will probably bring the matter to court if Malta doesn't act in time. It would be the first time that this would be tested in court.
The Commission has looked for a way to attack those schemes for a very long time. They found legal grounds, the one I just described before, but it has never been tested in court so we don't know what the Court of Justice [of the European Union] might say on this. So obviously I guess they would rather avoid this. So let's see what Malta is going to do.
And on residency, there are many domains in which the EU is trying to act because the EU doesn't have the competence to tell member states what they should ask for before granting residency. So basically, there's a proposal now from the Commission from a few weeks ago that says that you really have to monitor that someone is actually living in the country before granting residency. And there's also another piece of legislation that is being negotiated in each institution. So each institution has to form a negotiating position and in the Parliament, in the new Anti-Money Laundering regulation, they also introduce stricter provisions on residency, but I don't know if it will fly with member state. So let's see.
And the last thing the Commission has said is that countries which granted citizenship or residency to Russians or Belarusians close to Putin or the Kremlin, [they] should just revoke it and Malta has announced that it has done it.
David D. Stewart: So, since the pandemic has changed just about everything, how has that affected the golden passport, golden visa area?
Nana Ama Sarfo: Well, there's been a really significant increase in the number of people looking for golden passports. And I think particularly golden visas.
As Elodie had mentioned, these sorts of programs are especially important in times of economic stress. She had mentioned Cyprus. So whenever there's any sort of financial crisis governments look to how they can offer these sorts of packages for outside investors.
And so, what we saw during the pandemic was that there was a very strong allure for people living in countries that had weak passports, as I had mentioned before. And so there's one particular firm, it's a London-based Tenley & Partners, they help clients navigate these programs. And they found a 25 percent increase in inquiries from high net worth individuals asking about golden visa programs. And they found that a lot of these inquiries were coming from emerging markets so India, Pakistan, Nigeria, South Africa. They also found that they were fielding a lot of inquiries from individuals in developed countries too.
That they were getting a lot of inquiries from people based in the U.S. (United States) and also based in Canada. Because again, people are looking for opportunities to diversify their investments in times of economic downturn and also position themselves to be in a place where, again, they have the broadest access possible to global markets.
David D. Stewart: Is there any additional benefit to allowing these people, that you referred to in one of your stories, as "digital nomads"?
Nana Ama Sarfo: Yes. So, digital nomads are highly mobile workers. Essentially, I think most office workers who are working remotely could find themselves becoming digital nomads if they decide to travel and work remotely from a sunny beach location.
So, in the case of digital nomads, you have a group of highly mobile workers who are traveling with money, and governments want those workers to spend money in their countries. So, they're not necessarily wealthy workers, but governments know that they have funds.
What you'll see across the board is that digital nomad visa programs will ask applicants for proof of employment, or if they're unemployed, proof of savings or other income, and that they're imposing minimum income thresholds requirements to make sure that these people actually can contribute to the local economies once they do land.
But that being said, I think we are beginning to see a bit of a backlash to the work-from-home trend. So, if people do increasingly return to the office on a full-time basis, we'll see if these digital nomad programs have any sort of staying power. But for now, there definitely does seem to be a benefit and governments are pursuing them.
Greece has a program. I believe the Bahamas has a program as well.
David D. Stewart: Well, this is definitely going to be an interesting space to watch as it develops over the next few years. Elodie, Ama, thank you for being here.
Elodie Lamer: Thank you for having me.
Nana Ama Sarfo: Thanks so much, Dave.
David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what will you have for us?
Paige Jones: Thanks, Dave. In Tax Notes Federal, Marie Sapirie provides background on the recent feud between the Republican governor of Florida and the Walt Disney company. Brian Jenn and Mike Tenenboym explore how the new foreign tax credit regulations affect the compulsory payment rules. In Tax Notes State, Timothy Noonan and Open Weaver Banks offer background on New York City's new passthrough entity tax. Tony Santiago looks at the major factors affecting the hiring and retention of tax professionals over the next year. In Tax Notes International, Peter Mason considers the dividing line between responsible tax mitigation and aggressive tax avoidance from a principal's perspective. Christina Allen analyzes Australia's new common law framework for characterizing worker-hirer relationships. In Featured Analysis, Robert Goulder examines the report by the treasury inspector general for tax administration on the FACTA regime. And finally, on the Opinions page, Nana Ama Sarfo explains that the U.S. digital asset strategy needs a stronger tax focus. David Morris of the Coalition for a Prosperous America and Marty Sullivan of Tax Notes discuss what the U.S. tax response to the Russian invasion of Ukraine should be.
David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a feature episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.
Tax Analysts Inc. does not provide tax advice or tax preparation services. The information you have seen and heard today represents the views of the presenters, which may not be the same as those of Tax Analysts Inc. It may include information obtained from third parties, and Tax Analysts Inc. makes no warranties or representations of any kind, and is not responsible for any inaccuracies. Nothing in the podcast constitutes legal, accounting, or tax advice. The tax laws change frequently, and neither Tax Analysts Inc. nor the presenters, can guarantee that any information seen or heard is accurate. Also, due to changing tax laws, any information broadcast or downloaded after its original air date may no longer represent the current views of the presenters. If you have any specific questions about any legal or tax matter, you should always consult with your attorney or tax professional.
All content in this broadcast is protected under U.S. and international laws. Copyright © 2022 Tax Analysts Inc. Unauthorized recording, downloading, copying, retransmitting, or distributing of any part of the podcast is strictly prohibited. All rights reserved.