Second Citizenship Investment

Acquiring a second citizenship through investment programs provides the peace of mind of having a hassle free travel document, as well as tax incentives and financial confidentiality for high net worth individuals. Yann Mrazek, Managing Partner of the Dubai law office of Cramer-Salamian, shares his thoughts.

What types of clients look to have second citizenships?

Obtaining a second citizenship may be considered for various reasons. Prime candidates are citizens from countries with poor international relations or under sanctions, who can through the second citizenship benefit from a visa-free travel. The second citizenship de facto acts for them as insurance in times of political, personal or economical turmoil.

Other typical candidates are entrepreneurs which require to be able to travel at first notice to some country and for which securing a visa with an advance notice is not an option, as it may end up negatively impacting their business.

Finally, many high net worth individuals opt for a second citizenship because of the asset protection, tax incentives, safety and confidentiality associated with the citizenship of a neutral nation.

Which countries are popular for second citizenships among UAE residents?

The UAE counts a large foreign population base from emerging markets – Russian and CIS countries, Subcontinent, other Middle-East countries and Africa – which historically have been actively seeking second citizenships.

With the increase in outward foreign investment from China, many Chinese entrepreneurs use the UAE as a hub and take advantage of the jurisdiction to initiate steps towards an alternative residency or citizenship. For a number of years, Canada, Singapore and the United Kingdom have been the most popular countries for second citizenship.

But with the tightening of the conditions of the regulations in established countries, valid alternative have emerged, most notably Belgium, St. Kitts & Nevis and Bulgaria. The latter two are particularly interesting, as the respective programs do not require actual residency in the country to apply for the citizenship.

What are the main tax related issues investors need to look at when considering a second citizenship?

Acquiring a second citizenship offers many benefits but also has some potential drawbacks.

Becoming a citizen of a specific country may automatically subject the applicant to the laws of such country, including tax regulations and the obligations contained therein.

The tax obligations in the country of second citizenship may be limited to yearly tax filings, without a duty to pay taxes as long as the citizen is not effectively a resident of that country. In some events though, the tax obligations in the country of second citizenship extend to all the country’s citizens, irrespective of their effective place of residency.

The citizen may then end-up becoming the subject of income and/or wealth tax from more than one country. Becoming a citizen of one country is further likely to increase the scrutiny of the tax authorities of that country. Finally, acquiring a second citizenship may negatively affect the tax treatment of an inheritance.

When the benefits of a citizenship fail to justify the specific tax burden related thereto, one may consider acquiring a second citizenship by relinquishment of the current one, or if already a dual- or multiple- nationality citizen, formally renouncing to a second citizenship.While a formal approval from the correspondent authorities is required for both options, a relinquishment procedure is usually more straight-forward than a renouncement.

Are there any hidden costs associated with these programs?

Most programs are quite comprehensive and the relevant information is often publicly accessible. Standard costs usually involve the actual investment, due diligence fees (background check) and government fees.

In some countries, gathering the required supporting documents can also generate costs, particularly when a translation is required. The process is generally handled by a qualified intermediary (or agent), which needs to be compensated accordingly. Adequate due diligence should therefore be undertaken on both the program and the agent.