Did Malta start late in the race for Citizenship by investment?
Mr Mangion is a senior partner of PKF an audit and consultancy firm, and has over 30 years experience in accounting, taxation, financial and consultancy services. He can be contacted at gmm@pkfmalta.com or on +356 21493041.
The scheme is so popular with Chinese applicants, which awards about 10,000 visas annually against the payment of about $1 million each in approved schemes which promise to create a prescribed level of employment – the so-called Green card. Smaller states have offered a more direct route to citizenship without or on the basis of very limited residency requirements including Cyprus, Dominica, St Kitts and Nevis, Ireland and several Pacific Islands – practically none expect a compulsory period of residence of 12 months (as is the case in Malta). Most demand applicants to pay an initial visit to submit personal biometrics data.
The IIP scheme was proposed in October 2013 and was fiercely criticized by the Opposition leader. He solemnly declared that his party would not support the “selling of passports” because in his opinion this was “immoral” and equated to the “selling of Malta’s soul”, adding that this was being done without the proper measures being taken on board. The Opposition leader objected to the early version of the scheme saying that there was no link to residency and therefore the applicant was not manifesting any wish to really support the island. A local MEP from the centre-right European People’s party was quoted by the Financial Times as saying: “The sale of citizenship without any tangible connection to a member state is something that is of concern. European citizenship confers certain rights which should simply never just be put up for sale.” She said that such schemes raised questions “particularly in terms of transparency and security for this to be viable in the long term”.
Three years down the line, Identity Malta published a growing list of 134 accredited agents, plus Henley& Partners, all clamouring to administer the scheme. It includes a law firm whose partner is the president of the party in Opposition and it sports top names from the Big Four audit firms, not forgetting the name of an ex Speaker of the House of Parliament in the previous administration. The latter is reputed to have hit the jackpot as he attracted a substantial number of wealthy applicants not surprisingly due to his vast political contacts when he was Speaker of the House. This may seem pure envy coming from the writer (himself an agent) but really and truly it contrasts with the boisterous remark in a website by a legal firm that it proudly holds the unenviable position of being the first on the agents register.
Readers may ask why the Malta government risked so much bad publicity by offering the IIP scheme when the economy was doing well and the level of employment was respectable. There is no easy answer to this question... certainly the scheme had created a deep chasm among the political class, as the ones who preferred to keep the status quo chose not to risk attracting applicants, mostly unknown rich patrons who may in the end never reside or even fully participate as real citizens. Pragmatists on the other hand pointed out that over the past years a debt mountain had accumulated and needed to be repaid.
It is reassuring that the 2017 budget contemplates that the debt to GDP will be reduced to acceptable levels to reach 60 per cent in two to three years’time. We know that debt averages the six-billioneuro mark – a figure reached net of proceeds from privatization of the lion’s share of our family silver. This debt resulted from initiatives such as bailing out the ailing Drydocks, shipbuilding, repaying the China dock loan, Air Malta, the BWSC plant, repairing roads, maintaining growing welfare payments and salaries of 48,000 civil officers. Surely we feel grateful that the government has taken a pragmatic step to reduce the deficit and slowly build up a National Development and Social Fund – administered by an independent board of trustees. In the end, the EU had approved IIP scheme but imposed a one-year residency requirement. and although comparisons can be odious, one cannot help remarking that the same condition does not apply to Cyprus, Spain, Austria and Portugal.
The scheme comes with an obligation to pay the state a non-returnable sum of €650,000. The Henley and Partners 2015 annual report made favourable comments about Malta scheme which it placed in the top 10 global rating. It has raised over €1 billion in capital since its launch which in a short lapse since its inception may supersede the EU funds granted as aid for seven years. To their delight, accredited agents and Henley & Partners have marketed the scheme in various fora and this included the appearance of the prime minister who met with encouraging demand from a growing list of high net worth individuals in China, Russia and Middle Eastern countries to invest in an individual investor programme (IIP). So far it appears that the majority are coming from Russia and other exCommunist countries but surprisingly one notes a smaller number of US millionaires who plan to register as permanent residents and in the process renounce US citizenship. If properly done, they can claw out of the US worldwide income tax net.
Suddenly, we discover that Cyprus is also competing for the rich and powerful, but does not oblige applicants to reside for one year like we do. Cyprus promises a passport within three months and equally gives freedom of movement within the European Union/the Schengen area and all this complements the efforts of this ex-British colony which is now experiencing a successful exit from its three-year Troika bailout programme. The Cyprus economy is on the mend and registered a sustainable growth path and, as early as 2013, started offering letters of naturalization to foreigners on condition that they hold a permanent privatelyowned residence. Last month the Cypriot Council of Ministers announced the implementation of an updated procedure by reducing the financial criteria from €2.5 million to €2 million (a minimum investment of only €2 million is acceptable provided that the investment is only made in residential property, of which one property must be worth not less than €500,000 and must be the investor’s private residence).
Other economic criteria now include: land for development, Alternative Investment Funds (AIFs) and financial assets (bonds/debentures) of Cypriot companies. The amount that can be invested in Government Bonds is now capped at €500,000 and the previous option to invest in collective investment scheme is no longer available. Cyprus does not claim any contribution and the entire €2 million can be liquidated after three years. Therefore, the race is on to attract well-heeled applicants in a number of jurisdictions. These are actively competing with us in a quest to attract such illusive investment. It is commendable that the government has decreed that 70 per cent of contributions so collected are to be channelled to the National Development and Social Fund and in the process, build a reserve to buttress future social and ecological contingencies.
Alas, the race to sell our mythical souls continues unabated.