Passports - tinkering at the edges

Just over 5,300 people were granted Maltese citizenship and more than €1.6 billion was spent by applicants to apply under the golden passport scheme in its first 10 years. The local scheme started solemnly in 2014, to attract talent and business opportunities. This was heralded by the launch of Individual Investor Programme (IIP), later replaced the criteria of the older scheme (pre-2020) with the Granting of Citizenship for Exceptional Services (GCES) scheme.

There must be some clarity that selling the Malta passport may conjure a controversy. Critics at EU level disagree with Castille, saying our sale of citizenship to non-EU nationals bestow upon them full rights as EU citizens, thus granting them freedom of movement and access to EU financial systems. It rules that such "commercialisation" of citizenship is incompatible with the basic concept of EU citizenship as defined by treaties. Malta argued strongly that it has a sovereign right over the issue of passports. This principle was confirmed by the opinion of Advocate General Anthony Michael Collins, published on October 4, 2024, who also concluded that there was no case against Malta.

In its ruling this month, the European Court of Justice decided that the acquisition of EU citizenship cannot result from a commercial transaction. The Office of the Regulator for Granting of Citizenship for Exceptional Services in his regular annual reports, inter alia recalls how top passport concessionaire Henley & Partners netted almost €56 million from Malta’s ‘golden passport’ scheme. In the end, following the ECJ ruling, Malta will respect the court's decision and update its citizenship rules, so that the regulatory framework on citizenship can be brought in line with the principles outlined in the judgment. Readers may recall how in 2014, Henley and Partners won a competitive tender to design the exclusive IIP scheme, amid fierce competition from other concessionaires.

Essentially, the latest scheme, one had to be over 18 years, paying with a minimum contribution to the state of €600,000 if they first reside for a minimum period of 36 months or pay a higher €750,000 when residing for a reduced 12 months. Successful applicants need to purchase property of €700,000 or rent for a minimum of €16,000 annually. A voluntary donation of €10,000 to sport, cultural or NGOs is recommended. Applicants must demonstrate that they have sufficient financial resources to support themselves and any dependents and carry medical insurance. Some cases resulted in hazy proof of funds which led to a rejection. The fly in the ointment is how in its early days, the European Commission had requested Castille to scrap the scheme.

This was not acceded to by Malta, so the Commission proceeded to refer it to the European Court of Justice. Prior to the onset of the Russian invasion, Golden passport schemes were particularly popular, where they offer a pathway to EU citizenship and the associated benefits, such as freedom of movement within the Schengen Area. The Portugal passport scheme requested a property investment of €500,000, or creating at least 10 jobs, or investing €1 million in a capital transfer. Minimal physical presence is required; holders need spend only 7 days in the first year and 14 days in subsequent years. Spain has similar rules - no minimum stay is required to maintain the visa, but to apply for permanent residency, applicants must reside in Spain for a certain period. Greece requests a minimum investment of €250,000 in real estate but demanded no minimum stay making it rather attractive.

Austria, (the only country offering legitimate schemes in the EU) calls for significant investment in the economy, typically starting from €3 million. Applicants must demonstrate a constant connection with Austria. Comparing Italy, one finds different rules starting with options that include investing €500,000 in an Italian startup, €1 million in an Italian company, or €2 million in government bonds. Since 2022 the program obtaining a Bulgarian passport for investments is closed. However, the authorities have retained the possibility for applicants to obtain a residence permit against approved financial investments. To request temporary residence, the investor must acquire 50% of shares of a local operating company for the amount of €127,558 and create at least 5 jobs. If the goal is to obtain permanent residence, the minimum investment amount increases to €511,281. Finally, to qualify for a Turkish passport you must purchase properties for a minimum total amount of US$250,000.

Such investment must be held at least for 3 years, otherwise citizenship may be revoked. In summary, most Golden passport schemes mentioned above have now been revoked. They faced criticism for various reasons, including allowing individuals with questionable backgrounds to gain citizenship. As it solely targets the rich, opponents say the concept is exacerbating social inequality. There are also tax implications for new passports holders. There is a popular misconception that obtaining citizenship automatically confers tax residency. This is not correct. Tax residency is typically determined by the number of days spent in a country (often 183 days or more in a calendar year) or by having a permanent home there.

Most countries have signed Double Taxation Treaties (DTTs) with other nations to prevent double taxation. One should consider whether their home country has a DTT with the country where they are obtaining citizenship, as this can influence their overall tax obligations. As a guide, DTTs often allow taxpayers to claim credits for taxes paid in one country against taxes owed in another, which can help alleviate double taxation. Other countries, like Malta, may have favourable tax regimes, where only income generated within the country is taxed. This can be advantageous for individuals with income sources outside the country.

The impact of golden passport schemes on tax obligations can be complex and varies widely depending on the country of citizenship, the applicant's previous tax residency, and their financial situation. There can be disappointment where applicants are rejected wherever, not meeting the minimum investment threshold set by the program. Again, improper investment types can also lead to rejections. Failing to comply with these requirements can result in denial. Background checks can be rigorous and exceptionally may lead to discovery of a history of serious criminal offences. This forms the root of automatic rejections for which at law, there is no recourse. Other issues such as tax evasion, money laundering, or financial crimes can also result in disqualification. In conclusion, the Malta scheme may now be revised to meet the more stringent requirements of the ECJ ruling and thus reformed, may continue to afford a rich picking for our economy.