I’m fond of calling the emerging global elite the “cloud people” because they are untethered from the places the rest of us call home. Way back when Obama was running the first time someone asked him about American exceptionalism. He responded with something along the lines of “everyone thinks their country is exceptional.” He not only did not understand the question, he went out of his way to say citizenship is for chumps.
Obama is typical of the new global elite. He does not know a whole lot about his host country and its people. He has weird ideas about people worshiping fire gods and carrying boom-sticks, but he’s really not all that interested. When he leaves office, expect him to live mostly abroad in global capitals, rubbing elbows with the rest of the global class.
When George Osborne last Wednesday announced a shake-up of tax rules for foreigners living in Britain, the chancellor was careful not to damage his country’s underlying appeal.
The “non-dom” tax status “plays an important role in allowing those from abroad to contribute to our economy”, he said.
The UK is not alone in rolling out the red carpet for wealthy foreigners. As Mr Osborne noted, many countries have some sort of special tax status to attract the global rich. Cyprus last week announced plans to introduce the concept of “domicile” into its tax regime. Portugal, Israel and even France have all introduced tax concessions for foreign incomers.
In Switzerland, as in Britain, there has been pressure to increase the fairness of special tax rules for foreign residents but it has stopped short of their abolition. Switzerland is set to increase the bills for rich outsiders using its lump sum tax system but in a recent referendum it rejected proposals to axe them.
When countries try to draw in rich foreigners, it is not just tax privileges that are on offer. A growing number of countries — including about half of the EU — are selling residency rights. A smaller but fast-growing group are selling passports. The number of cash-for-passport schemes have increased since the financial crisis. In the case of Cyprus, there was a direct link: affluent foreign investors were offered citizenship as compensation for their bank deposit losses.
Antigua, a tiny nation in the eastern Caribbean, offers one of the most popular “citizenship by investment” programmes. It sells itself as a tropical paradise “with some 365 beaches of clean turquoise waters” and the prospect of visa-free travel to 130 countries to prospective citizens. Antigua only requires its new citizens to visit for five days every five years.
In 2014 George Georges, a Syrian businessman, became the first of Antigua’s new citizens under the investment scheme. Since then more than 500 other passports have been sold to Chinese and other nationals. The scheme has brought in $65.9m for the cash-strapped island, which is still scarred by the massive fraud carried out by Allen Stanford, who until 2009 was the island’s largest employer.
Christian Kalin of Henley Partners, a specialist in immigration and citizenship, said that several thousand people a year were opting to acquire additional passports. His clients were driven by a desire for long-term security, easier, visa-free travel and, in some cases, fears of being targeted by terrorists.
He said: “Since 9/11 it has accelerated. A lot more people are seeing the value of an alternative citizenship.”
In a recent working paper the International Monetary Fund said that citizenship by investment programmes were reporting “a surge in clients from China, followed by Russia, and a steady rise in clients from the Middle East, although to a much lesser degree”. Citizens from “advanced countries” were also well represented and generally motivated by tax savings.
Some countries offering citizenship investment programmes cite “their favourable tax treatment in an attempt to attract high net-worth clients seeking global tax planning”.
The IMF cited preferential tax treatments available with economic citizenship programmes in Cyprus and Malta as well as investor residency programmes in Bulgaria, Hungary, Ireland and Portugal.
There is no shortage of controversy surrounding the sale of residency or citizenship rights. In Portugal, there were arrests in connection with its “golden visa” programme last November. Also last year the US Treasury warned that Iranian businessmen were seeking to exploit citizenship for investment in St Kitts in order to skirt international sanctions. In 2014, the European Parliament passed a resolution criticising Malta for offering EU passports for sale.
Tax is another potential source of controversy, although the IMF said the global crackdown on avoidance and evasion was reducing the scope to misuse citizenship or residency investment schemes. It said their use “may become increasingly difficult as more advanced countries adopt anti-avoidance provisions in their tax legislation and enact financial transparency laws”.
The Tax Justice Network, a campaign group, is not so sure. It fears that residency rights are being sold to people who want to circumvent new transparency rules. Banks are starting to report tax information to their clients’ country of residence which — if it is a tax haven — will ignore it. John Christensen, a director, said tax evaders had a big incentive to adopt a tax haven as their country of residence.
“Selling residency and special tax treatment is contagious. It is creating a new tax loophole that will spread geographically,” he said.