Why the EU Should Encourage Investment Migration
Residence- and citizenship-by-investment is not a new concept, and the scrutiny that such programs have been receiving is not novel. As the supply and demand for residence- and citizenship-by-investment programs have increased in recent years, so has interest from media and governments the world over.
The existence of residence-by-investment (RBI) can be traced as far back as when immigration began to be legally considered in certain countries, with residence to a country typically granted to those who own property or elective residence granted to those in possession of significant wealth. Similarly, citizenship-by-investment (CBI) programs have a long history, having existed in Europe for decades: Cyprus’s Cyprus Investment Program is one of the longest surviving, at over 15 years of age.
Many countries in Europe offer fast-track naturalization to foreigners who make an exceptional contribution to the country. Most EU member states have articles in their citizenship law that permit accelerated naturalization for individuals making an exceptional contribution in the sphere of art, science, or sport. To illustrate, think of a rising football star who enjoys swift naturalization so that he can represent his host country at international level. In some cases, this privilege can be extended to an economic contribution.
Today, only two CBI programs are active in the EU, although this number increases marginally, to three, if we consider Bulgaria’s fast-track naturalization option for investors to the country. Additionally, Montenegro and Moldova — both outside of the EU — have recently joined the ranks of European countries participating in the investment migration industry.
In reality, however, many other countries in Europe use their exceptional contribution clause to naturalize investors. Austria, for example, is well documented in this regard, and the practice is also common in eastern European countries such as Poland. What differentiates CBI offerings from other naturalization routes for investors is that CBI programs are vastly more explicit in their marketing of citizenship in exchange for investment and their granting of citizenship is regulated differently. In this regard, RBI and CBI leave the sphere of immigration policy and enter the sphere of economic development policy, making investment migration programs strategic fiscal and economic development tools that, when properly used, can have a significant impact on the finances and economy of a country.
Widespread negative sentiments towards RBI are normally ill-founded, as many detractors confuse RBI with CBI. In Europe, RBIs provide only temporary residence, very much the same as any other legal form of immigration. For individuals who have been granted temporary residence, the journey to permanent residence and/or citizenship is the same as for any other immigrant. The only difference, however, albeit a significant one, is the level of due diligence that is applied to RBI and CBI applicants, who face a more stringent process than any other category of immigrant.
For example, RBI and CBI applicants are often required to pay thousands of euros for the country to perform extensive background checks on them. This thinking is likely underscored by the perception that wealthy individuals are more prone to be of worse repute than typical immigrants, but of course this is unfounded. The irony is that there are a number of countries that don’t require a police report from applicants in other categories when they apply for temporary residence; some countries only require the applicant to declare their past crimes. Because of common government budget constraints and a complementary lack of resources, many applications for temporary residence don’t undergo background checks to verify whether the applicant is indeed of good character.
There is also the uninformed notion that terrorists and criminals are able to obtain EU citizenship thanks to CBI programs; however, this has not proven to be the case. The level of due diligence checking performed when applying for Maltese and Cypriot CBI is incomparable to any other naturalization process in Europe.
Despite this knowledge, Maltese nationals have been making a lot of noise about the Malta Individual Investor Program. Some on the island voice their discontent rather vociferously, claiming that the Maltese government has compromised the country in an effort to restore fiscal balance to the budget (it is well documented that RBI and CBI programs can provide a healthy boost to the GDP of host countries). Certain segments of society view this as losing a part of their dignity. But this, as we have seen before, is a temporary sentiment when the benefits of investment migration offerings begin to bear fruit.
A CBI program in an EU country can collect roughly EUR 500 million a year in cash donations. For a small EU country, government debt amount can equate to nearly 100% of GDP. As such, the choice to consider RBI and CBI — and thus to benefit from such an endeavor — can be a simple one when facing drastic austerity measures and a massive loan repayment. In this context, the EU should encourage member states to develop such programs. Not only would this alleviate pressure on the EU from having regularly to bail out struggling member states and being the bad guy in the story for demanding austerity measures, but participating countries would not have to deal with the harsh effects of austerity measures.
National Debt in EU Countries in Q1 2018 in Relation to GDP
We are in an age in which talent is the most coveted resource for advanced economies. European countries have jumped on the startup bandwagon in the hope that they will attract the head office of the next Google or Facebook. The rush for talent is reminiscent of that of the oil rush a century ago and gold centuries before that. Thanks to today’s technology, an intelligent mind can create wealth at a pace and level not seen before, and everyone wants to benefit from this.
The global investor is the crème de la crème of talent and resources, and every such individual is expected to have a far greater economic impact than any other class of immigrant, due to their ability to make investments, create employment opportunities, and facilitate trade and engagement. In the current European economic climate, every country is proactively seeking to attract talent. The big economies of the UK, France, Switzerland, and Germany tend to win at this, while smaller economies such as Croatia, Bulgaria, and Latvia can struggle to attract and retain talent.
It is a reality that the EU must face that countries with small populations must find innovative competitive advantages in order to prosper. In the past, these small nations found a niche by becoming tax-friendly jurisdictions in order to attract entrepreneurs and investors. This has caused grievance as European superpowers saw their tax money disappear into their small neighbors. The beauty for the EU is that RBI and CBI are made to attract wealth and talent from outside the union and so can transform smaller economies at no cost to the EU.
The EU is slowly waking up and realizing the significant pot of gold it is sitting on: its ability to attract talent from all around the globe and the value of its passports. The important step, now, is to figure out how to make the best possible use of both.