Author: Niu Ltd

Italy opens its borders to foreign investors. From 9 February 2016, applications for investor work permits may be submitted in Italian to the local immigration authorities via a dedicated web site.

In effect, on 2 February 2016, Italy enacted the annual decree setting forth the quotas for 2016 that apply for different categories of foreign workers in Italy. The decree known as the Decreto Flussi explains in detail:

-all numerical limits for each category of worker/citizen permitted to enter with a relevant work permit;
-the timing for the submission of the work permit request; and
-the terms and conditions around applying for a work permit.

In order to work in Italy, Italian immigration and labor authorities require non-EU nationals to obtain a specific authorization, the so-called Nulla Osta al lavoro (work permit). Every year the Italian labor authorities establish a limited number of work permits available.

Background
The quota system was introduced under Italy’s immigration regime in 1998. With this system in place, the Italian labor authority advises the government annually on foreigners’ employment in Italy (non-EU individuals working in Italy) with a view to determining the numerical limit, or quota, for the following year.
Relying on academic and other research, the Italian authorities issue a study on the labor market every three years. The Decreto Flussi is updated annually in order to match supply and demand in the labor market.

Categories of Workers Covered by Decreto Flussi
The government established a quota for investors and self-employed individuals (a “unit” is a “person”).

HIGHLIGHT

• Entrepreneurs need to invest at least €500,000 and hire at least three employees.
Investors and self-employed individuals
In particular, the Decree provides for 2,400 “units” allocated for foreign citizens who belong to the following categories:
a) Entrepreneurs who carry out activities in connection with the Italian economy, invest at least €500,000 and hire at least three employees;
b) Self-employed individuals belonging to a professional association or enrolled with an official/public register;
c) An individual who has a corporate role, as defined, in an Italian company;
d) Highly qualified artists or those who are considered international celebrities;
e) Foreign citizens who want to start up an innovative company, as defined, in Italy.

Furthermore, work permits are issued under the quota system and a pre-determined number of permits are set out in the decree.
Formal international assignments (up to a maximum 5 years in duration) are not part of the quota system and they are permitted according to Italian immigration rules following specific procedures.

 

Maria Barba
Submitted on: 5 April 2016

 

A long term extension of the regional center EB-5 program failed to pass Congress in 2015 mostly because of intractable differences between rural and urban interests. Various proposals were floated seeking to incentivize rural investments and discourage urban investments by providing a reduced investment amount based on various artificial configurations of census tracts. In the end, no agreement could be reached between the divergent interests.

What if there were a way to bridge this divide by incentivizing investments in rural areas and possibly also urban high poverty areas while at the same time providing some benefit to investors in urban areas? And what if it could be done in a way that eliminates any need for gerrymandering, any need for creating a new USCIS bureaucracy with TEA adjudication delays and any need for legislating an artificial number of census tracts to qualify for TEA status? And what if there were a way to do this that removes all doubt about the investment amount required for all investors in the project, even investors in future years? And what if such a solution could ease some of the pressure on the lengthy EB-5 quota backlog that threatens to make the benefits of the EB-5 program unrealistic for most investors?

I suggest that there is such a solution. I regret that I did not originally think of this solution – credit for the idea goes to Tammy Fox-Isicoff, a respected EB-5 attorney, colleague and friend.

Let me set out the premises and then let’s see if the proposed solution achieves the stated goals, is politically palatable and furthers the national interest that Congress had in mind when it created the EB-5 program.

Here are the premises:

• Investments in rural areas and high poverty urban areas are in the national interest and should be incentivized.
• Investments in projects that create employment for US. workers in urban areas should not be discouraged.
• Given the extensive waiting list for most EB-5 investors, reducing or eliminating the waiting times creates a far greater incentive for investors than reducing the minimum investment amount.
• It is logical to have no limit on investments that the federal government believes are in the national interest. Rather, the federal government should encourage national interest investments.
• Carving out of the existing 10,000 numbers (3,000 to 3,500 investors annually) a substantial number for rural area investors, urban impoverished area investors and other investors in the national interest would result in the remaining investors, including a large majority of investors with pending petitions, having a waiting line that could well be in excess of 10 to 15 years. Such a waiting list is totally unrealistic, far too great a disincentive for investors to invest in urban areas and would likely create legal and foreign policy issues for investors who had no reason to believe that legislation would retroactively result in doubling or tripling anticipated waiting times. Such a result would, at best, cripple the EB-5 program.
• Even if Congress can achieve compromise on a new definition of TEA, adjudication delays within USCIS to determine which projects qualify under a new TEA definition will create impediments and backlogs that will make the EB-5 program less amenable to the realities of raising capital for development projects in the U.S.

If we agree with these premises, Tammy and I suggest that the following is a solution that addresses all of them:

Create an EB-5 quota exemption for projects deemed by the U.S. government to be in the U.S. national interest.

Here is how it would work:

Given the political realities, and the fact that bipartisan leadership in both the House and Senate Judiciary Committees believe that investments in rural areas and urban impoverished areas are in the national interest, the legislation could include a provision deeming that rural and urban impoverished area investments are in the national interest. This would create a significant incentive for investors to invest in such national interest projects, and there would be no need to reduce the investment amount. At the same time, since the national interest investors would be exempted from the quota, it would remove some of the pressure on the numbers available for urban area investors. The result would be that urban area investors would not be harmed (and would actually receive a benefit) while investors investing in areas deemed to be in the national interest would be incentivized.

USCIS would also have the authority to determine that any particular project is in the national interest. For example, given the pressing need for improving U.S. infrastructure, it could determine that an infrastructure development project is in the national interest. This is nothing new – USCIS has been adjudicating national interest waivers in the EB-2 category since 1990.

Since the purpose of the targeted employment area was to incentivize certain investments, there would no longer be a need for targeted employment areas. The investment amounts for all investments would be the same. This would eliminate the divisive and artificial debate on where lines should be drawn for purposes of TEA qualification. The new governmental TEA bureaucracy would be eliminated; gerrymandering would be eliminated; the state versus federal jurisdiction issues would be eliminated; changes in investment amount for investors in a project based on TEA analysis in different years would be eliminated. Projects would be able to go to market immediately without waiting for a TEA determination.

Significantly, creating a legislative quota exemption to accomplish a goal considered important by Congress is nothing new. Congress has already exempted immediate relatives (spouses, parents and children of U.S. citizens) from the immigrant quota. In addition, Congress has exempted universities and certain nonprofit institutions from the H-1B visa quota.

Unless I am missing something, this solution could bridge the divide between rural and urban interests, and between rural and urban Senators and Congressmen. It would also be at least a small step toward addressing the quota backlog that threatens to render the EB-5 program – and its job creating benefits – unattractive and unrealistic. And it would break the logjam preventing the passage of legislation providing for a long term extension of the regional center EB-5 program. Most importantly, it would encourage investment in projects and in areas that clearly serve the national interest of the U.S. in furtherance of Congressional intent.

I welcome feedback from all EB-5 advocates on this proposal.

 

Ronald H. Klasko IMCM, Managing Partner, Klasko Immigration Law Partners, LLP, New York, Philadelphia, Chicago
Date Submitted: 21 March 2016

In recent years, many countries signed an agreement with the United States, known as the Foreign Account Tax Compliance Act. This enables automatic reporting to the US tax authorities of financial data of any Americans with bank accounts in their territory, such as income from savings.

These agreements inspired the OECD and the G20 to extend the approach of the United States by establishing a system of automatic exchange of information between Member States.

Big Brother exists! The world is financially transparent!

After 20 years of tinkering, the breakthrough followed on the 28th and 29th of October, 2014.

The Member States of the OECD, the G20, and almost all major financial centres signed an agreement that will enable the automatic exchange of tax information. This automatic exchange of tax information can be considered the new standard which will ensure full global transparency.

The first automatic exchange of tax information is planned for September 2017. At least, that is the intention … Although it looks serious, we should not be naive …

However, as appears from the information below, the basis of the new standard (automatic exchange of tax information) is not new. The scale and scope of the new standard, on the other hand, is innovative and this has far-reaching consequences in terms of tax planning.

Forerunners of the new standard

1. European Union Savings Tax Directive

The European Union Savings Tax Directive, introduced in 2005, provided for the automatic exchange of information between EU Member States (and certain dependent or associated territories of EU Member States) concerning income from interest.

In other words, the goal of the European Union Savings Tax Directive is to tax savings income, acquired in a Member State of the European Union by a natural person resident in another Member State of the European Union (or in one of the dependent or associated territories of the Member States of the European Union), in accordance with the tax laws of that individual’s country of residence.

After the launch, it turned out that the initial European Union Savings Tax Directive contained a number of weaknesses. This enabled tax residents of the EU Member States to slip through the net:

• The concept ‘interest’ was too narrowly defined. As a consequence, one could use financial products which do not generate pure interest in order to avoid reporting,
• The concept ‘paying agent’ was too narrowly defined. This enabled financial institutions to redirect the payments to outside the territory of the European Union Savings Tax Directive in order to avoid reporting,
• The concept ’beneficial owner’ was defined as an individual who directly collects interest from a paying agent. This means that the European Union Savings Tax Directive could be legally avoided if that same individual was working with an interposed entity to collect interest. For example, international business companies, foundations, trusts, and partnerships could be used to avoid reporting.

Not without a struggle and after severe opposition from Luxembourg and Austria, a comprehensive and amended EU Savings Tax Directive was signed on the 24th of March 2014. The loopholes mentioned above were largely closed by this amended European Union Savings Tax Directive.

The scope of the concept ‘interest’ was broadened, the scope of the concept ‘paying agent’ was enlarged and the scope of the concept ‘ultimate beneficial owner’ was enlarged, covering beneficiaries of traditional offshore entities such as international business companies, foundations, trusts, and partnerships.

The EU Member States were forced to implement this amended EU Savings Tax Directive into national law before the 1st of January 2016.

Austria and Luxembourg start with the automatic exchange of information regarding interest received in year 2016 on the 1st of January 2017, a year later.

Nevertheless, this amended EU Savings Tax Directive could still be bypassed, simply because the European Union doesn’t have enough power on the international stage. The bottom line is that one can simply avoid all the countries and jurisdictions which fall within the scope of the EU Savings Tax Directive for: (1) the interposed entity’s country of incorporation (such as an International Business Company), (2) the country of the bank account and other financial products, and (3) the country where the actual management of the entity will take place.

2. Foreign Account Tax Compliance Act (FATCA)

Recently, the automatic exchange of information also became the standard reporting mechanism under the Foreign Account Tax Compliance Act (FATCA).

The Foreign Account Tax Compliance Act (FATCA) is a United States federal law. FATCA is intended to detect and deter the evasion of US tax by United States persons (including those living outside the US) who hide money outside the US.

FATCA enforces the requirement for United States persons to file yearly reports on their non-U.S. financial accounts. FATCA also requires all non-U.S. (foreign) financial institutions (banks for example) to search their records for individuals with a U.S. person-status and to report the assets and identities of such persons to the U.S. Department of Treasury.

In case of non-compliance with the reporting obligations, the financial institutions concerned are subject to a withholding tax of 30% in the United States on all outgoing cross-border payments originating in the United States. In other words, U.S. payors making payments to non-compliant foreign financial institutions are required to deduct and withhold from such payments a tax equal to 30 percent of the amount of such payment.

As mentioned earlier, this FATCA legislation made other countries realise that they, too, would benefit from a transparent and automatic exchange of information mechanism with regard to their taxpayers.

A first reaction/imitation came from the United Kingdom. The United Kingdom concluded agreements with its overseas territories (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands) and its Crown dependencies (Guernsey , Jersey and the Isle of Man). Financial institutions in these British overseas territories and Crown dependencies are required to automatically provide financial information of taxpayers in the UK to the tax authorities of the United Kingdom. One refers to these agreements by using the term UK FATCA because they are based on the concept of the FATCA legislation in the United States.

The FATCA legislation was also a great source of inspiration for the OECD and the G20 and actually forms the basis for the new standard on the automatic exchange of tax information.

 

The new standard: automatic exchange of tax information

Automatic exchange of tax information means global tax transparency. Financial institutions will provide information about different kinds of income and assets to the authorities, without these authorities having to request it.

Countries will thus register all different types of income that are earned within their country (dividends, interests, royalties, salaries, pensions, etc.). Then, every government can exchange this information automatically in bulk to the other governments concerned. There will be an annual bulk exchange of this information by making use of secure IT networks.

Advantages:

1. The tax authorities of the country in which an individual is resident is able to check whether the individual in question has indicated his or her revenues correctly.
2. The tax administrations of the countries are able to determine and map the worldwide assets of each of their residents.

Disadvantages:

1. The exchange of data is done electronically, so there will always be a risk of data theft (both during the data transfer or from local government databases).
2. Financial privacy disappears. A government will have a complete view on the wealth of its residents. This opens the door to capital taxes and all kinds of ‘see-through fees’. There is a real  danger that the effective tax rate is pushed up even further in certain countries. The potential access to large amounts of capital will tantalise many politicians – it is much easier to simply increase tax revenue than to cut government spending. The dictatorship is being installed …

The new standard versus TIEAs

In an international context, this automatic exchange of tax information can be considered as the new standard in comparison to the current Tax Information Exchange Agreements (TIEAs).

TIEAs are bilateral agreements between jurisdictions in which they agree to cooperate if they ask one another for tax information in order to aid any tax investigations. Under the current system of TIEAs, which will soon be replaced by the new standard, these governments ensure that this exchange of financial information will take place, but only upon request.

TIEAs thus allow a government to apply its national tax legislation through the exchange of tax information. However, this exchange of information is always done upon request. In addition, this request must be relevant to a particular case and must relate to an item that is covered by this bilateral agreement.

The volume of information which is exchanged according to the ‘old-fashioned’ TIEAs is limited though. Namely, the exchange under a TIEA requires, in many cases, a complete identification of the taxpayer concerned or it may even be required that there is an ongoing official tax investigation for this particular taxpayer.

The new standard eliminates the limitations of TIEAs and ensures that governments can benefit from automatic information exchange without having to ask for it anymore. The new standard will thus ensure greater financial transparency and is an important step at global level in terms of using the exchange of information in the fight against tax fraud.

 

Pandora’s box

The new standard for automatic exchange of tax information is offered as the ultimate solution against tax fraud. However, it is important to put this new standard in perspective.

We can do this by looking at the evolution of the individual member states, apart from the new standard. This calls for an example so let’s take Belgium as a case study (the same process is underway in many other Western countries).

In Belgium, once a country with banking secrecy and financial privacy, taxpayers have had to process a whole list of measures against tax fraud in recent decades:

• Since 1996: requirement to declare foreign bank accounts.
• Since 2011: abolishment of the internal Belgian fiscal banking secrecy.
• Establishment of a central point of contact with the National Bank of Belgium where financial institutions have to report their clients’ identity, account numbers, and contract numbers.
• Since 2013: requirement to declare foreign life insurance policies.
• Requirement for Belgian companies to declare payments to suppliers based in certain tax havens, once they reach more than EUR 100 000 annually.
• Since 2014: requirement to declare and identify the founders and beneficiaries of international business companies, trusts, foundations, and other private wealth structures. In other words, Belgian taxpayers, who have placed a portion of their assets in a foreign legal construction, and the beneficiaries hereof, must report this on their tax return.
• Since 2015: introduction of the so-called Cayman Tax, a ‘see-through’ tax. Belgium has opted, like several other (European) countries, for fiscal transparency and CFC legislation (Controlled Foreign Corporation). The aim is to avoid the creation of tax-exempt wealth vehicles abroad and to avoid the decreasing tax base that comes with it. The creation of a foreign construction is not made legally impossible, but the favorable tax effect has been completely neutralised. The income of foreign structures, including companies which are not taxed at a rate of at least 15%, are now charged directly in respect of the founder, his heirs, ‘third party beneficiaries’, or shareholders. This is done according to the original classification of the income. For example, 27% on investment income such as interests and dividends versus progressive rates up to 50% on business income.
• Since end of 2015: establishment of online reporting system for social fraud and undeclared employment. This online ‘snitch’ hotline gives civilians the opportunity to report their neighbour for engaging in undeclared employment or other offenses.

The trend in several (European) countries is obvious and can only frighten the attentive taxpayer… Public authorities are quietly mapping all private wealth in order to strike even harder in the pockets of the taxpayers who have already been taxed completely numb. The new standard for automatic exchange of tax information will actually be a godsend for many governments that are running at a loss, including the Belgian one. Or perhaps not quite?

Anyone who is paying attention will recognise that the new standard could well be a poisoned chalice for various countries with high government spending. The new standard is ultimately forcing taxpayers to make a difficult decision: accept legal confiscation and help filling bottomless government pits OR vote with their feet.

Governments which do not work towards creating acceptable tax rates (such as the Belgian one) will be confronted with the undesirable effects of the new standard of transparency. Value-adding taxpayers not only can, but will choose to become resident and taxpayer elsewhere.

Not only a resident! but some, people just are going for more for another citizenship! And they are smart!!

 

Iven De Hoon, Tax Lawyer
Date submitted: 23 March 2016

The biggest issue presently in the U.S. EB-5 investment green card program is the long quota waiting list for Chinese national investors, who comprise over 85% of all investors in the EB-5 program.  Because the waiting list may exceed 4 to 5 years before the investor can immigrate to the U.S., investors and their representatives are seeking options to be able to enter the U.S. during the waiting period, possibly work in the U.S. and have their children be able to study in the U.S.  The B-1/B-2 visitor visa generally only allows the visa holder to spend up to 6 months per year in the U.S.  This is sufficient for some investors, but not for others.

One option being considered more frequently is the E-2 treaty investor visa.  This visa can generally be issued for 5 years and can be extended after 5 years if the investment business is still viable.  It allows the investor to oversee his business, the spouse of the investor to work anywhere he or she wishes and the child of the investor to attend any level of schooling, after which he can change to a student visa.

There is only one major problem with this visa option for Chinese investors.  The U.S. does not have a bilateral investment treaty with China that enables its nationals to obtain the E-2 treaty investor visa.  For this reason, some Chinese investors are seeking to buy U.S. citizenship in a country that has a bilateral investment treaty with the U.S.  One such example is Grenada, which has a citizenship by investment program that enables Chinese investors to obtain Grenadian citizenship, often within 3 months or less.  There is no residence requirement in Grenada.

Assuming the Chinese investor becomes a Grenadian citizen, he then needs to invest in a new or existing business in the U.S.  The business must be owned at least 50% by the investor or by another individual or corporate national of the treaty country.  Surprisingly, there is no exact amount of investment.  Rather, the amount of investment varies depending upon the type of business.  For example, a consulting company requires a far less substantial investment to be viable than would a manufacturing company.  The key is that the investor must show that the amount of investment is substantial enough to create a viable business of the type contemplated.  Employment of U.S. workers, while not required, is very helpful.

The E-2 visa application can be presented at the U.S. Consulate with jurisdiction over the treaty country, or at a U.S. Consulate in the foreign national’s country of citizenship or residence.  Technically, it can be presented at any U.S. Consulate around the world where the investor appears, although application at a consulate with no relationship to the investor is often an undesirable option.

While the E-2 visa option is an answer for some investors, the long term viability of the EB-5 program is dependent upon passage of legislation by the U.S. Congress that would address the shortage of visa numbers provided for EB-5 immigrants.  Various proposals are presently being considered and will hopefully be enacted as part of comprehensive EB-5 legislation in 2016 or 2017.

 

Ronald Klasko, Klasko Immigration Law Partners, LLP
Date Submitted: 24 March 2016

The annual number of relinquishments of U.S. Citizenship has grown exponentially in just the last few years. According to data published by the U.S. Department of the Treasury, in 2015, a total of 4,279 people relinquished their U.S. citizenship, 800 more than the previous year.  In contrast, the number of renunciants was a few hundred per year when I first started practicing in this area in the early 1990s. Many attribute this dramatic increase to the Foreign Account Tax Compliance Act (FATCA), which became effective in part on March 18, 2010 and made fully effective on December 31, 2012. In an effort to increase sources of tax revenue not previously identified, this law requires all foreign financial institutions to search their records for indications that their clients are “U.S. persons” and report the assets and identities of such persons to the U.S. Department of the Treasury.

As a practical matter, the U.S. had no organized method of identifying the assets of U.S. citizens living abroad, so this legislation threatened to cut off access to U.S. financial markets to those financial institutions found not reporting the details of bank accounts held by U.S. citizens.  Many banks, not wanting to undergo the burden of reporting, but also fearing the business consequences of being cut off from U.S. financial transactions, instead started communicating with their account holders that they would have to affirmatively establish that they were not U.S. citizens and not subject not the reporting requirements.  Non-responsiveness on the part of account holders could lead to closure of accounts.  These notifications from financial institutions are, in large part, what is awakening a long-sleeping issue at this time. Professional advisors are also affirmatively contacting their clients about the United States’ renewed enforcement interest and exploring whether a citizenship decision must be embraced in this new environment.

The U.S. is one of the very few countries to impose global income taxation on their citizens, even non-resident citizens.  Many “incidental” citizens have heretofore not been aware of this requirement, or not understood the seriousness of the consequences of non-reporting.  The relatively recent focus on non-resident enforcement has caused word to be spread internationally about the changing reality and caused non-resident citizens, in unprecedented numbers, to re-evaluate the cost/benefit ratio of U.S. citizenship.

What is an “Incidental” Citizen?

There are perhaps more than 100,000 U.S. citizens who have not resided in the U.S. for any meaningful period as adults. “Incidental” citizens are individuals who have either derived citizenship from U.S. expatriate parents while living abroad or have been born in the U.S. over the last half-century to parents of means from the Caribbean or Latin America who were looking for superior medical care in the U.S.   Incidental citizens can also be the children of parents on assignment or in graduate school in the U.S. at the time of their birth.  These incidental citizens may have also attended some schooling in the U.S. and visited from time to time on their U.S. passports. However, their lives and residence are primarily outside the United States, and they may feel a closer connection to another country and utilize their U.S. passport as merely a travel convenience and perhaps a form of insurance policy for whatever future decades may bring.

Those modest benefits may now be outweighed once the reality of the attendant responsibilities of U.S. citizenship and the reality of enforcement are understood.

Other Profiles

There is also a distinct subset of individuals who may have been born and raised into the U.S. but whose life changes in their adult years either through marriage to a spouse residing in another country, expat career opportunities, or some other life changing event where they find themselves more closely connected to another country.  Those individuals may over time apply the same cost/benefit analysis to retaining U.S. citizenship.  Political views and disagreement with the evolution of U.S. society or the direction of U.S. governmental policies may also cause individuals to consider abandoning their U.S. citizenship.

Renunciants as a Scrutinized Class

Although renunciation may be the most commonly used term when referring to loss of U.S. nationality, renunciation is only one of the seven expatriating acts that may be performed voluntarily and with the intent to relinquish U.S. nationality stated in Section 349 of the Immigration and Nationality Act (INA). The expatriating act of renunciation became an issue of media notoriety in the 1990s which was referenced in the legislative history underlying the passing of the Reed Act, which imposed the threat of permanent exclusion to the U.S. if the purpose of renunciation is determined to be taxation avoidance. Renunciants are also a class of individuals that were identified in the Federal Gun Control Act of 1968 to restrict possession of firearms or ammunition to the same extent as convicted felons. The Reed Act and the Federal Gun Control Act treat renunciants differently than those that may lose citizenship through other means, and specifically cite the act of renunciation rather than the section identifying the other methods through which citizenship may be voluntarily and intentionally relinquished.

How Does One Abandon U.S. Citizenship?

Renouncing U.S. citizenship involves a two stage, in-person interview with a U.S. Consular at a U.S Embassy or Consulate outside of the U.S. which may, or may not, trigger an “exit tax” assessed on global assets of the renunciant and could, at a later date, result in exclusion from the U.S. under the provision of the Reed Act. More common are stories of individuals who renounce their U.S. citizenship and, having not been appropriately prepared, cannot secure a visa to return to the U.S. due to a presumption of “immigrant intent” and a failure to demonstrate appropriate qualifications, including sufficient ties to their home country or country of residence.

Alternate Citizenships and Passports

If someone were to renounce their U.S. citizenship without having an alternate citizenship in place and their alternate passport valid and containing appropriate visas, they could find themselves stateless or otherwise unable to travel.

Many relinquishers hold dual nationality to which they may revert to their second citizenship upon loss of U.S. citizenship, whereas others acquire a second or third nationality on the basis of which they relinquish their U.S. citizenship. The expatriating acts of relinquishment associated with acquiring a second nationality are found in INA 349(a)(1) and (2) for obtaining naturalization in a foreign state and swearing allegiance to such state, respectively. Under limited circumstances, the acquisition of an additional citizenship with the intent of abandoning U.S. nationality can result in a loss of nationality under U.S. Immigration and Nationality laws that is technically distinct from the “renunciation” identified in the Reed Act and Federal Gun Control Act of 1968.

There are a significant number of countries that offer residency or direct citizenship by investment with varying levels of physical presence required as a prerequisite to citizenship. It’s important to determine if the potential expatriate may have ties to a particular country through ancestry or their own birth in that country that may be sufficient upon which to claim citizenship without a substantial investment.

More common are residency by investment programs, which may or may not result in citizenship after a substantial period (years) of physical presence as a prerequisite to citizenship. While there may be approximately three dozen countries that provide residency based on investment, there are only a handful of countries that do not impose a length period of physical residency in their country as a prerequisite to citizenship by investment. These programs generally require an investment in real estate and/or a contribution of a specific amount to a government program in order to secure citizenship in as short a time as a year.

U.S. nationals benefitted from visa-exempt or visa on arrival travel to approximately 172 countries and territories in 2015, substantially more than the travel benefits of holding a passport from the countries identified above in the Caribbean but not significantly different than the benefits of EU member countries that have currently open citizenship by investment programs. For frequent international travelers seeking to secure a citizenship in the European Union, the citizenship by investment programs of certain EU countries may present a viable option. However, the programs in these European countries impose additional requirements and investments in the millions of Dollars/Euros compared to similar programs in the Caribbean which require investments in the hundreds of thousands.

Certain other direct citizenship by investment programs have been rumored but not officially published. There are many countries in which large scale programs are not in place but in which citizenship may be granted in unique individual situations as a result of substantial contributions to the social, economic, and cultural development of a country.

It’s important to note that residency as it relates to the immigration laws of many countries requires a totality-of-the-facts-and-circumstances test rather than the black-and-white day counting approach common in tax laws. When seeking to secure a secondary citizenship by investment and thereafter relinquish U.S. citizenship, it is important to determine the required investment as well as the level of physical presence and period of formal residency required in that country to secure citizenship. In every case the background of the individual should be explored to determine if there are ties through residency, decent, ethnicity, cultural affiliation or existing business commitment to a specific country by which citizenship may be obtained in a bespoke manner.

Can’t Citizenship Be Shed Quickly?

U.S. citizens have an unrestricted right to abandon their citizenship.  A U.S. consular officer must make him or herself available for an initial interview followed by a “cooling-off” period, and then a second interview to determine that a renunciant is of sound mind and understands the irrevocable consequences of his or her actions.  That will likely be the last time the renunciant has a “right” to require anything of a U.S. Consular Officer as thereafter the renunciant will become “an alien” to the United States.  Therefore an appropriate level of humility and understanding is always advisable so that bridges are not burnt and appropriate visas can be issued at a future date. Those interviews will create a permanent written record of the state of mind and intentions of the renunciant as understood by the Consular Officer. Those records can be referenced throughout the renunciant’s lifetime and may impact the individual’s ability to return to the U.S.

Relinquishment of U.S. citizenship can be one of the most consequential and stressful decisions one can make. It is not unlike the decision to marry or divorce and should be approached with appropriate planning and a full understanding of any and all consequences.

 

Robert F. Loughran, Partner, Foster Global Immigration
Date Submitted: 16 March 2016

While the concept of residence planning for wealthy individuals is not new, the motives behind such considerations are continually evolving, particularly in Asia. There are various reasons why wealthy individuals may consider relocating. These reasons include quality of life, security, education and most notably tax planning.

Traditionally, and amongst Europeans in particular, the only way for a wealthy individual to reduce the tax burden and regulatory restrictions legally and in a significant manner was to relocate. The main driver for Asians, however, has typically centred around quality of life and education.

With the introduction of the Common Reporting Standard (CRS), there has now been a shift towards the tax planning aspects of residence planning for high net worth individuals in Asia. Regarded primarily as a measure to counter tax evasion, the CRS builds upon existing information sharing legislation such as the United States Foreign Account Tax Compliance Act (FATCA) and the European Union Savings Directive (EUSD).

The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. As of January 2016, there were a total number of 79 signatories to the CRS Multilateral Competent Authority Agreement (MCAA) which governs the automatic exchange of information under the CRS. Based on the timelines to which the various jurisdictions have committed to implementing the CRS (i.e. 2017 or 2018), it is expected that the first exchange relationships under the MCAA will become effective in late 2016 or early 2017.

This globally-coordinated approach to the disclosure of income earned by wealthy individuals does, however, introduce a level of risk in terms of the security of those individuals and their families once governments, and particularly those in developing counties, begin exchanging sensitive financial information. Relocating to another country that presents a more attractive proposition in terms of lifestyle, security, education and tax is therefore becoming a popular option to counter this risk.

Established in 2002, the Malaysia My Second Home (MM2H) program allows foreigners, who fulfil certain criteria, to legally stay in Malaysia on a multiple-entry social visit pass for an initial period of ten years and is subsequently renewable.

Malaysia offers a multi-cultural society and affordable lifestyle to its residents. The country is a member of the United Nations, APEC and a founding member of ASEAN and is also a key tourist destination, located near the equator, offering excellent beaches, breath-taking scenery and dense rainforests.

Applicants to the MM2H program are required to demonstrate the capability to support themselves financially in Malaysia without seeking employment or government assistance. Under the MM2H program, applicants are not allowed to work while staying in Malaysia and the program does not lead to permanent residence.

Successful applicants are allowed to bring their spouse and children below 21 years old; purchase any number of residential properties at a specified minimum value; purchase a locally assembled car which will be exempt from excise- and stamp- duty or import a car from their country of​ residence.

Most importantly, applicants are expected to be financially capable of supporting themselves in Malaysia. In this regard, the following is required for applicants below 50 years old; proof of bankable assets of at least MYR 500,000 (USD 135,000) and proof of income of at least MYR 10,000 (USD 3,000) per month. For applicants 50 years and above, the requirement is proof of bankable assets of at least MYR 350,000 (USD 95,000) and proof of income of at least RM 10,000 (USD 3,000) per month.

During the approval processing period, applicants are expected to open a bank account, obtain a medical report and purchase medical insurance from a local insurance company.

For applicants below 50 years old; a bank account must be opened with a deposit of at least MYR 300,000 (USD 80,000). After a period of one year, the applicant is allowed to withdraw up to MYR 150,000 (USD 40,000) for approved expenses relating to a house purchase, education for children in Malaysia or medical purposes. A minimum balance of MYR 150,000 (USD 40,000) must be maintained from the second year onwards and throughout the stay in Malaysia under the MM2H program.

For applicants 50 years old and above; the required bank deposit is MYR 150,000 (USD 40,000) and applicants are allowed to withdraw up to MYR 50,000 (USD 13,000) for approved expenses after one year. The minimum balance to be maintained from the second year onward is MYR 100,000 (USD 27,000).

In terms of taxation, Malaysia is based on the territorial source principle and therefore tax is only levied on income sourced in Malaysia. Malaysia has an extensive network of double tax agreements with other countries, which means a resident may be able claim a tax refund on foreign income taxed in overseas countries.

With over 27,000 successful applicants since inception, the MM2H program offers wealthy individuals and their families an attractive option to live in one of South East Asia’s most vibrant economies for what is considered a relatively low investment requirement when compared to other options in the region.

 

Dominic Volek, Managing Director Henley & Partners Singapore, Head South East Asia
Date Submitted: 17 March 2016