Author: Niu Ltd

 

If, as many say, Brexit represents a risk to Britain trade and access to the customs union, then no-one has told the world’s wealthy, who have never been so keen to come to this country and capitalise on its financial infrastructure.

 

In the third quarter of last year the Home Office issued 114 Tier 1 Investment Visas – a rise of 24 per cent over the previous quarter, and an astonishing increase of 247 per cent on the previous year. Simple maths will tell you that is just under a quarter of a billion pounds of investment into the UK economy, and that is before you consider visa extensions that cost up to £10 million. And then there is the investment made by individuals into the UK property market, the stock market, bonds or businesses. The list is endless.

 

Except the narrative around immigration rarely focuses on high-net worth individuals; when it does, it’s seldomly positive. And there is sometimes a perception that people taking up the government’s Tier 1 Visa are using their wealth to jump the immigration queue.

 

One of the topics at the very top of the media agenda currently is immigration, specifically the current situation concerning the Windrush generation. Yet just as the Windrush generation has made incredible contributions to this country – as have so many other of our citizens born overseas – this doesn’t mean that others should be denied the same opportunity. Immigration should be fair to everyone who contributes to this country, and that means upholding the letter and the spirit of the law.

 

Before we go into this in more detail, let’s be clear what the process actually entails. Investment migration enables anyone with £2 million to invest in the UK economy to be granted a Tier 1 Investment Visa. This money needs to be invested in a limited number of ways: in UK Government bonds, or share or loan capital in active, trading and UK-registered companies.

 

Naturally, this represents an important economic opportunity for the UK, especially at a time of such political and financial uncertainty. The money, which immigrants needs to invest within three months of landing in the UK, brings a major cash injection to the economy, helping to create jobs, sustain start-up businesses, and improve our productivity.

 

It’s not just the UK that runs investment migration programmes. By the end of 2017 there were over 80 active programmes in most major world regions. Citizenship-by-investment is a $3bn global industry (residence-by-investment being worth considerably more), bringing major benefits to countries around the world. To take just one example, impoverished Greece has enjoyed a windfall of €1.5bn thanks to its own Golden Visa programme.

 

Of course, having any unchecked investment migration programme is open to abuse, and without oversight and a rigid code of ethics it leaves itself open to claims of corruption, or the potential to circumvent global regulation standards, such as The Common Reporting Standard (CRS), in addition to others.

 

Where does one start with a code of ethics? We believe that such a document should cover such issues such as integrity and ethical practice, competence and objectivity, confidentiality, conflicts of interest and regulatory compliance – among other issues.

 

Who should be involved in drawing up this code? In our view, it’s everyone’s business – from government to business to academia, all should pitch in to give their viewpoint on how we can make investment migration both ethical and effective.

 

And once drafted, will these be adamantine rules – fixed for all time?  It’s hard to see how they can be. Investment migration is a relatively new idea, and as we grope towards a truly ethical way of managing this process across different countries and jurisdictions, we will have to accommodate new viewpoints and adapt to changing economic and political circumstances and realities.

 

In fact, we’ve have made a start on this issue with our Code of Ethics and Professional Conduct: the first stab at creating a worldwide framework for industry best practice. To create the code, we consulted with external academics and professional practice experts to give as well-rounded a view as possible – but we don’t believe that this document puts an end to all debate on the ethics of investment migration.

 

Rather, we see it as the first draft of a living, evolving document – one that every stakeholder from business, government and academia needs to help extend and improve.

 

The ultimate goal is to ensure that investment migration brings value to countries of destination and investment, and that the price for residence or citizenship ends up not in the pockets of kleptocrats, but invested in a way that will bring value to ordinary citizens.

 

Investment migration suffers from staying in the shadows, and that’s bad news for the countries who stand to gain so much – including the UK. Every citizen, every business and public body is, in their own way, responsible for making immigration work for all.

 

Author: Bruno L’ecuyer, CEO, Investment Migration Council

 

Citizenship by Investment (CBI) and Residence by Investment programmes (RBI) remain popular for many reasons including visa-free travel, opportunity and stability.  However, as the number of countries offering citizenship or residence programmes in exchange for investment continues to rise, so does the scrutiny placed on those programmes, with particular interest placed on the source of the investment funds.

 

CBI and RBI programmes recently attracted attention from the Organisation for Economic Cooperation and Development (OECD) which established the Common Reporting Standard (CRS).  It issued a consultation paper in February 2018 on its concerns that some CBI and RBI programmes ‘are being misused to circumvent the rules on automatic exchange of financial information under the CRS’ under which tax authorities collect and pass information to their counterparts in other countries.  Further concerns include that such programmes ‘can offer a back door to money-launderers and tax-evaders’ as they may be exploited to undermine the CRS due diligence procedures, leading to inaccurate or incomplete reporting. The OECD considers the risk to be higher with programmes that have minimal or no physical residence requirements and those with favourable tax regimes.

 

The consultation received 21 responses which were published on 17 April 2018.  They broadly agree with the OECD suggestions which include comprehensive due diligence checks during the RBI/CBI application process and the spontaneous exchange of information about individuals who obtain CBI/RBI with their existing tax authorities. The OECD and G20 countries will meet in May 2018 to discuss the actions to be implemented going forward.

 

We are also seeing countries taking their own stance, for example in March 2018 the Home Secretary to the UK, Amber Rudd, announced plans to investigate the source of wealth of more than 700 Russians who settled in the UK through the Tier 1 (Investor) programme between 2008 and 2015. We await confirmation on what action will be taken and if the scope will expand beyond Russian nationals.

 

This coincides with the introduction of Unexplained Wealth Orders (UWOs) in the UK on 31 January 2018, which grant powers to enforcement agencies to investigate source of wealth and require individuals to explain how they paid for their assets.  Non-EEA nationals considered to be politically exposed persons and those who are reasonably suspected of involvement in serious crime (including those connected to them) may be subject to such orders, including foreign investors.  The National Crime Agency (NCA) secured the first two UWOs against an Asian politician in February 2018, stating its determination to use all powers available ‘to combat the flow of illicit monies’ to the UK.

 

Therefore, whilst the demand for a second citizenship or residence is increasing, with many new countries entering the market, it is clear that they do so in a climate of increased regulation, with a renewed focus on source of wealth.  CBI and RBI programmes, such as those offered by the UK, must have robust and thorough due diligence processes.

 

With thanks to Kathryn Crane for her contribution to this article

 

Author: Jurga McCluskey, Partner and Head of Immigration (Europe and the Middle East), Deloitte LLP

 

In early 2018, the OECD raised concerns about whether Residence by Investment (RBI)/Citizenship by Investment (CBI) programs are being used to circumvent the goals of the Common Reporting Standard. In other words: Do RBI/CBI programs somehow allow people to improperly escape or obfuscate identifying their country or countries of ‘tax residency’?

 

This OECD concern has been the subject of much commentary, including this recent discussion at ‘Tax Linked’ which includes:

 

In addition to these sets of rules, the OECD is also currently working on an initiative to handle the use of ‘golden’ visas, residency by investment (RBI) schemes and citizenship by investment (CBI) programs to avoid reporting under its Common Reporting Standard project.

 

Back in February, the OECD issued a month-long consultation that ‘(1) assesses how these schemes are used in an attempt to circumvent the CRS; (2) identifies the types of schemes that present a high risk of abuse; (3) reminds stakeholders of the importance of correctly applying relevant CRS due diligence procedures in order to help prevent such abuse; and (4) explains next steps the OECD will undertake to further address the issue, assisted by public input.’

 

 

The OECD concerns are reflected in the following communications from the OECD and have been expressed as follows:

 

How CBI and RBI schemes can be exploited to circumvent the CRS

 

-CBI/RBI schemes do not offer a solution for escaping the legal scope of reporting pursuant to the CRS. These schemes grant a right of citizenship of a jurisdiction or a right to reside in a jurisdiction. They generally do not provide tax residence (an overview of the tax residency rules for all jurisdictions participating in the CRS can be consulted here). Reporting under the CRS is based on tax residence, not on citizenship or the legal right to reside in a jurisdiction. Even where tax residence can be obtained through some RBI schemes, they do not by themselves affect the tax residence in the original country of residence of the individual. The CRS requires taxpayers to self-certify all their jurisdictions of residence for tax purposes.

 

-Nevertheless, CBI/RBI schemes can potentially be exploited to help undermine the CRS due diligence procedures. This may lead to inaccurate or incomplete reporting under the CRS, in particular when not all jurisdictions of tax residence are disclosed to the reporting Financial Institution. Such a scenario could arise where an individual does not actually reside in the relevant jurisdiction, but claims to be resident for tax purposes only in such jurisdiction and provides his Financial Institution with supporting documentary evidence (e.g. certificate of residence; ID card; passport; utility bill of second house), as illustrated by the below examples:

 

Later the OECD outlines the specific characteristics of the countries of concern:

 

High risk RBI/CBI schemes

 

Not all RBI/CBI schemes present a high risk of being used to circumvent the CRS. Our initial assessment is that the risk of abuse of CBI/RBI schemes is particularly high when the scheme has one or more of the following characteristics:

 

• The scheme imposes no or limited requirements to be physically present in the jurisdiction in question or no checks are done as to the physical presence in the jurisdiction;
• The scheme is offered by either: (i) low/no tax jurisdictions; (ii) jurisdictions exempting foreign source income; (iii) jurisdictions with a special tax regime for foreign individuals that have obtained residence through such schemes; and/or (iv) jurisdictions not receiving CRS information (either because they are not participating in the CRS, not exchanging information with a particular (set of) jurisdictions or not exchanging on a reciprocal basis); and
• The absence of other mitigating factors. Such measures could, for instance, include:

 

• The spontaneous exchange of information about individuals that have obtained residence/citizenship through such a CBI/RBI scheme with their original jurisdiction(s) of tax residence; or

 

• An indication on certificates of tax residence issued that the residence was obtained through a CBI/RBI scheme.

 

 

The comments of various stakeholders can be found here:

 

https://www.oecd.org/tax/exchange-of-tax-information/public-input-received-misuse-of-residence-by-investment-schemes-to-circumvent-the-common-reporting-standard.pdf

 

Citizenship by investment and circumvention of the OECD Common Reporting Standard – Is there a reason for concern?

 

Because ‘citizenship’ is generally unrelated to ‘tax residence’, it is unlikely that the acquisition of citizenship can (except in certain circumstances of United States citizens) sever tax residency from any country.

 

Residence by investment and circumvention of the OECD Common Reporting Standard – Is there a reason for concern?

 

Because the right to reside in a country is often not a sufficient condition for tax residency in that country, the acquisition of residence, neither creates tax residency in the new country, nor severs tax residence in the original country.

 

Even when RBI does make the person a tax resident of the country of investment, it will NOT sever tax residency in the original country (leading to tax residency in more than one country).

 

Therefore, the starting point in addressing the OECD’s concerns would be to better explain (1) what is meant by ‘tax residency’ and (2) why the information that is subject to the CRS is being sought.

 

In a world of global mobility: Be aware of your ‘citizenship portfolio’, your ‘residence portfolio’ and NOW your ‘tax residence portfolio’!

 

An individual acquiring either citizenship or residence, MUST take the appropriate steps to understand how every citizenship or every residence may or may not impact tax residence. It is the responsibility of the individual to sever tax residency from a country of previous tax residence. Severing tax residency may subject an individual to exit taxes or departure taxes.

 

 

Author: John Richardson, JD – Lawyer (Ontario, New York and Massachusetts) – CitizenshipSolutions.ca

 

Artificial Intelligence’s impact on the banking industry has prompted discussions about how immigrant investor industry stakeholders can use Artificial Intelligence (AI) to drive efficiency and sustainability. AI-enabled solutions support modern Know Your Customer (KYC) practices, resulting in better risk analysis and assessment of potential new applicants

 

AI involves training computers to perform cognitive tasks that would otherwise be performed by humans. Machine learning and natural language processing, both components of AI, enable these systems to learn about subjects by analysing and synthesizing large amounts of data to perform research.

 

Applied to the immigrant investor industry, here we explore three challenges AI is helping to address more effectively

 

Error-prone and Inefficient Manual Process

Even with the most comprehensive training and procedures, people follow instructions, complete tasks and interpret data differently. Include varying levels of concentration, fatigue, and environmental and personal stressors; and it’s clear that a manually driven search protocol is, at best, inconsistent.

 

Time and again manual due diligence has proven unreliable, specifically compared to AI-powered solutions that offer advanced methods to track information, ensure consistency, and maximise auditability.

 

Excessive Information

Search engines (e.g., Google and Bing), are typically limited by keywords and phrases, resulting in an overwhelming abundance of information, false positives, and duplicate findings. Agents are then forced to sift through all of the noise to figure out what is, and is not, relevant to their applicant.

 

Until a few years ago, sufficient due diligence meant simply verifying whether a new applicant was on a handful of watch lists. However, in today’s world, businesses are expected to look further. Scanning the first several pages of Internet search results and cross-referencing against watch lists are no longer adequate.

 

Citizenship by Investment Units (CIUs)  are required to thoroughly investigate new applicants. In a manual process, high volumes of data, false positives and duplicate documents create an enormous strain on time and budget. Using machine learning and natural language processing, AI systems address these issues, allowing for a more complete, streamlined, exponentially faster, and less costly data collection and review.

 

Search Engine Optimization

Public search engines weren’t built for background checks and fighting corruption. They were designed for commercial purposes – they’re also easily manipulated. Professional consultants can influence search engine rankings, driving up selected content while limiting exposure to content they want to conceal. The best information may be at item 1,000 and never reviewed. The “right to be forgotten” makes the use of standard match even more questionable.

 

In practice, immigration agent agreements require an approved application in order to complete the contract and warrant compensation. Onboarding new clients without access to the most advanced information used by the CIUs leaves agents susceptible to performing significant work for a client, only to have them flagged by the CIU and denied.

 

AI provides agents with the most accurate picture of their subject. With AI-enabled solutions, agents will get results that go beyond basic search results and look deep into all available information to ensure they’re removing risk issues without exposing their reputation, and before spending unnecessary time, money, and effort.

 

By maintaining efficiency, saving time, and providing cost-effective solutions, AI-powered technology can lead to greater reputational protection, consistent screening methods, and effective applicant onboarding and application processing.

 

 

Author: Thomas Anthony, Global Head of Exiger’s
Immigration, Citizenship and Visa (ICV) Practice

 

Historically, seeking permanent residency (Green Cards) in the United States has not been the first choice for High Net Worth Individuals (HNWIs) from Russia for a multitude of reasons.  Taxation on world-wide income – which all US residents are subject to – was the main deterrent. Another obstacle was the distance between the two countries, which can be prohibitive to maintaining a business in Russia while residing in the US.

 

However, the political and economic developments over the last few years are causing new waives of Russian HNWIs to leave their home country, with an increasing number of investors from Russia and CIS seeking the EB-5 Investor Visa (Green Card). The main reasons for the increased interest in the US investor program can be summarized as follows:

 

1. The economic decline and sanctions against Russia led to a significant decrease in domestic annual income for many HNWI Russians. With lower world-wide income, the US income taxes became less of a concern, while the need to preserve one’s net worth is now a higher priority. Many US cities offer a high quality of life at a lower average cost of living than the leading European cities.
2. Sanctions against Russia have put many Russian companies out of business. The HNWIs that lost or gave up their businesses no longer have the need to make frequent work trips back home. Thus, the US became a feasible destination for residency.
3. The US offers significant educational and economic opportunities for children and young adults. Many people believe that work and economic opportunities are generally better in the US for young adults and thus seek to raise their kids in the country where they will be able to stay and work in their adulthood.
4. Brexit and anti-Russian measures are causing a wave of Russian HNWIs to consider the US as an alternative to the UK In February of 2018, Britain began implementing a law that allows the government to demand source of funds documents from Russian nationals who own assets or real property in the UK, forcing some investors to prove a lawful origin of funds years after they purchased properties in England. This was followed by more sanctions implemented after the Skripal poisoning event. These measures, coupled with the migration and the economic uncertainty of Brexit, are causing high net worth Russians to look to the United States as an alternative migration destination.
5. The US EB-5 program is being actively marketed in Europe. Traditionally, the US Regional Centers responsible for attracting investment through the EB-5 program have focused their marketing efforts on China, spending approximately half a billion US dollars in marketing funds in that region annually. The Chinese flow of investors has stopped abruptly in 2017 when Chinese nationals reached their annual visa limits for the next 10+ years. The Regional Centers are now diverting significant marketing funds to Russia and Europe, thus attracting more investors from that region.

 

Therefore, we can expect an increased demand for the EB-5 program from Russian HNWIs.

 

 

Author: Irina Rostova
Founding Partner, Rostova Westerman Law Group, P.A.

 

An individual may decide to change residence or acquire a second citizenship for a variety of reasons. These may range from wanting a better education for their children to wishing to boost travel opportunities. It may quite simply be the natural desire to secure a more stable living environment for their family. Whatever the individual or family’s circumstances, whether as a primary motive for such decisions, or as their direct consequence, tax issues and implications will always play an extremely important role.

 

For this reason, the importance of obtaining sound tax advice at every step of this process cannot be underestimated, both from professionals in the exiting country as well as in the country of immigration. When looking at the requirements in the exiting country, one has to ensure compliance with any administrative procedures, particularly in the context of de-registration, in order to ensure that the tax authorities are aware of the day when the individual was last subject to tax in that particular jurisdiction. More importantly, it is critical to ascertain whether any possible exit taxes will apply to the wealth or value of the assets held by the individual in the exiting jurisdiction.

 

There are also matters that need to be examined when it comes to the jurisdiction of entry. Firstly, it is important to note that investing in residence or citizenship programmes does not automatically lead to obtaining tax residence in that jurisdiction – one cannot simply assume this to be part of the deal. The main criteria for a country to impose a tax liability on an individual, apart from source, is residence and, in this regard, by residence we mean ‘tax residence’ which may not necessarily equate to ‘residence’ or ‘ordinary residence’. On the other hand, there are certain residence programmes which are actual tax residence programmes, meaning that the individual would be considered to be ‘tax resident’ simply through obtaining residence through a particular residence by investment programme.

 

Complications escalate if acquiring a new residence results in a dual tax residence situation on the basis of the number of days being spent in another jurisdiction or any other relevant criteria, such as the individual’s centre of vital interests. A few jurisdictions, such as the US, also tax on the basis of citizenship and therefore, while the acquisition of a secondary citizenship provides certain benefits, others may also result in unanticipated burdens, including taxation. Bearing in mind that obtaining residence or being taxed on citizenship could often result in taxation on one’s global income, it is therefore very clear that acting on the basis of professional advice is key to avoiding some very nasty surprises.

 

A further development to consider is that the OECD has also been looking at such programmes in order to ensure that they are managed in accordance with the Common Reporting Standards and that they are not being used to circumvent automatic exchanges of information with an individual’s country of tax residence.

 

This very brief overview confirms that tax in the context of residence and citizenship by investment is an extremely complex topic that must be carefully considered at every stage, from formulating the best option for one’s individual circumstances, to steering the process to a beneficial final outcome. Therefore, it is extremely important that one does not only look at the specific requirements of the residence or citizenship by investment programme but, more importantly, at the tax implications of exiting and entering a jurisdiction as well as the tax implications of any related investment.

 

Author:  Nicholas Gouder, Tax & Private Clients Partner at ARQ Group