by Rohit Kapuria
In recent years, immigrant investor programs have exploded around the world. Competition has become increasingly fierce as a growing number of countries are tripping over themselves in efforts to attract wealthy foreign investors to their respective economies. While locals may fret about what benefit, if any, these investor programs have on their respective countries, there is certainly no denying the popularity that such programs hold with the foreign investors themselves.
Passport-seeking investors have a lot of options when exploring the immigrant investor market. There is even an entire industry of wealth managers located in off-shore havens such as Jersey, or burgeoning financial centers such as Dubai, that are dedicated to helping investors passport-shop. The reasons for such shopping ventures are numerous; some investors seek respite from high-taxing economies, some from political tensions, and others for the economic and educational benefits provided by the host country, including visa-free access for international travel.
While demand for the EB-5 program is at an all time high, especially after the government of Canada recently terminated both its federal immigrant investor and entrepreneur programs, it is important for EB-5 practitioners to take heed of the other competitive investor programs.[1] At this time, outside of EB-5, the most popular immigrant investor programs are being offered by: Australia, the United Kingdom, New Zealand, Singapore, UAE, Portugal, Ireland, Greece, Cyprus, Spain, Austria, and the islands of Dominica, St. Kitts and Nevis, Antigua and Barbuda.[2]
While the U.S. EB-5 program faces competition from more affordable and more expensive programs alike, savvy investors are considering more than just the price tag. Further considerations include tax liability after relocating, the form of investment, the level of residency or citizenship, the waiting time required, language and cultural differences, and the presence of home country expatriates. Once all of the above issues are taken into account, just how appealing is the proposed adoptive country?
In the face of the competitive advantages associated with each immigrant investor program, this article intends to explore some of the factors that individual investors consider while prioritizing their decision-making processes.
What is the price of a new passport?
When compared against other immigrant investor programs, EB-5 investments that fall within targeted employment areas, and thus only require a $500,000 investment, can be considered cheap. In contrast, the United Kingdom’s Tier 1 investment category requires an investment of at least £1 million in a mix of government-approved investment funds and money parked in a U.K.-regulated bank, and the country even offers investment opportunities at the £5 million and £10 million levels. Despite greater upfront costs however, the United Kingdom only taxes residents on the wealth contained within its borders, unlike U.S. permanent residents who are taxed on their global income. If, though, investors are looking for lower taxes, the £1 million investors might be better served investing in Hong Kong where the effective tax rates are as low as 15 percent and the investment requirement is HK$10 million. Investors must, of course, weigh their tax concerns against the value of public goods they expect to receive in the host country after all is said and done.
For those investors willing to spend more cash, Singapore’s program requires $2 million in new (or existing) business or government pre-approved funds. Investors must also prove significant business and entrepreneurial experience as well as a history of high profitability stemming from previous investment forays, rendering the cost perhaps even higher. However, the effective tax rate of 20 percent is not something to frown at. Some even speculate that the reason Eduardo Saverin, co-founder of Facebook, renounced (or perhaps “un-friended”) his U.S. citizenship in favor of Singapore in 2012 was because of its low tax rates.
Other expensive options include New Zealand (at NZ$1.5 million) and Australia (at at least A$1.5 million). While both nations have been enormously attractive to foreign investors, they tax at 33 percent and a hefty 45 percent, respectively. Austria, however, takes the cake with the most expensive program. One can either make a charity donation of at least €2 million to an Austrian charity or else make a recoverable €10 million investment into the economy. Even more incredible is the fact that the effective tax rate is 50 percent.
On the other hand, for investors not interested in splurging, the island federation of St. Kitts and Nevis, with its tempting tropical climate and zero personal income tax, allows two relatively cheap alternatives. The first is a $250,000 contribution to the country’s Sugar Industry Diversification Foundation, while the second is a real estate investment of at least $400,000. The twin-island nation of Antigua and Barbuda offers investment options at the same rate. The most attractive option price-wise of all, however, is the island of Dominica, which only requires a $100,000 deposit to the National Bank of Dominica. For the sophisticated investors that cannot be bothered to attend the mandatory interview with a government-appointed committee, he or she can opt to fly a three-member interview panel to his or her respective country. This is certainly a rare perk.
The consideration of where to invest goes beyond the price of the passport, as investors typically look at the form the investment must take, and the benefits and demands that citizenship will offer. An investor may be willing to pay more for access to a country with characteristics they value.
If I buy a house, can I get a passport?
The most common investment forms are government-backed loans, real estate acquisitions, and bank deposit-type investments. Each of these investment models has differing perks that appeal to narrow groups of investors. Some investors prefer the security of a short-term government backed loan, some have the proclivity for acquiring real estate, and others still prefer the purchase of securities in the hopes of residency and a return on investment.
One of the chief benefits of the recently shuttered Canadian program was that would-be immigrant investors posted up to CAD $800,000 in zero-interest five-year loans to one of Canada’s provincial governments. The fact that the funds were guaranteed by the provinces and therefore almost certain to be returned, was extremely attractive. In Canada’s absence, Bulgaria has picked up on the appeal of this model and currently offers a very similar opportunity for BGN 1 million, which is much cheaper than the United Kingdom’s option of at least £1 million. The security attached to a guaranteed return of funds is in stark contrast to the EB-5 program’s “at-risk” requirement, but it also offers no opportunities for returns on investment.
Another attractive structure is the purchase of government backed bonds or similar securities offerings. For example, Hong Kong requires investors to invest at least HK$10 million in permissible investment asset classes that include certain government backed debt securities, certificates of deposits, or a few other collective investment schemes. As long as the value of the investments continues to be maintained in accordance with the current rules and capital gains are not withdrawn, the investor can maintain residency in Hong Kong. In this model, however, even though the capital is safely parked away, the investor is precluded from drawing upon the funds. As such, the investor will need other sources of disposable income for his or her day-to-day living.
In a different model altogether, some countries realized that they would not only be able attract capital to their cash-strapped economies, but they could prop up their struggling housing markets by capitalizing on the real estate hunger of foreign investors (particularly those that hail from China). In return for a shot at residency, Greece asks investors to spend at least €250,000 on property; the UAE requires at least $275,000 in property acquisition (though this investment form precludes the investor from being eligible to work in the UAE unless the investor opens a business in Dubai’s free trade zone); Cyprus requires at least a €300,000 property acquisition; both the island federations of St. Kitts & Nevis and Antigua & Barbuda permit $400,000 property acquisitions; while Portugal and Spain require at least €500,000 in property acquisitions to qualify for their respective programs. Even if the value of the real estate declines because of an economic slump, the investor is not unfavorably penalized as compared with certain job creating programs that may lose the required job numbers.
Residency or passport? And how long will it take?
Aside from cost considerations, a rather important factor relates to the length of time it takes for the investor to see the fruits of his or her investment. An increasingly common complaint voiced by EB-5 investors stems from USCIS’s processing times and the extended period that investors must wait to be granted permanent residency. Yet, the practice of first granting temporary/conditional residency for a few years prior to authorizing permanent residency and/or citizenship is quite common. The average length of time for this transition ranges between two to seven years, worldwide. As such, the United States’ transition period is competitively attractive.
On the other hand, there are a handful of countries that allow investors to purchase fast-track options. For example, the United Kingdom and Bulgaria allow a shorter permanent residence to citizenship period with a greater investment amount.
There are even some investment programs that lead to direct citizenship. Malta’s €500,000 investment (into a combination of property and bonds) allows full citizenship after the application is processed. Austria’s much heftier €2 million charity donation or €10 million investment similarly provides direct citizenship. The same holds true for islands of Antigua & Barbuda, Dominica, Grenada, and St. Kitts & Nevis. Using these latter models, the investor is theoretically able to “buy” a passport.
Cultural integration
The issue of physical presence and integration is a rather tricky one. On the one hand, certain countries, such as Spain, require that the investor spend a significant amount of time each year within its borders. On the other hand, Portugal only requires that the investor spend 7-14 days a year in the country (depending on the residency year in question), but requires a minimum comprehension of the language prior to applying for citizenship.
For example, one of the largest groups of prospective immigrant investors searching for new homes hails from China. While this group does prize real estate and economic opportunities, policies that require integration or the lack of an existing Chinese population in the relevant host country could be a deterrent. Immigrants, after settling in a new country, commonly yearn for some cultural familiarity; language, culture, food, and other familiar vestiges are prized. If language skills and cultural assimilation are required by a host country, it could whittle down the group of those able or willing to meet the relevant standards. Furthermore, it could turn into a deterrent to even those investors that are able to meet such requirements if eligible investors are interested in a large expatriate community. Essentially, the effect of deterring a small portion of the group could theoretically alienate almost the whole lot.
Ultimately, just how appealing is the host country?
At the end of the day, once an investor categorizes the most important factors, each program is compared against the overall economic and cultural appeal of the relevant country. The United States has always been synonymous with the American Dream and has generally been one of the most attractive destinations. This holds particularly true in light of the shuttered Canadian program. However, with the rise of competing investor programs and the looming Chinese quota retrogression that is predicted to hit within the next fiscal year, the EB-5 program will face some market challenges. While the program does not have a gloomy forecast, EB-5 practitioners should be aware that investors have a lot of options. As an advocacy goal, we should strive to make the program more attractive as opposed to encouraging increasingly onerous requirements. After all, in this business, the United States’ loss is another country’s gain.
[1]Note, this article is not meant to be a comprehensive analysis of all the global investor programs; rather, it is focused on identifying common immigrant investor incentives that play a role in country shopping.
[2]This is not an exhaustive list of immigrant investor programs. There are a number of other programs being offered by countries such as Latvia, Hungary, Bulgaria, Macedonia, etc.
Rohit Kapuria
Rohit Kapuria, vice chair and partner of Saul Ewing Arnstein & Lehr LLP’s Global Immigration and Foreign Investment Practice, handles private offerings under the EB-5 investor visa program. Kapuria regularly represents EB-5 lenders, EB-5 borrowers, banks, regional centers, real estate developers, investors working on direct EB-5 projects, and migration brokers. He has worked on over 500 EB-5 transactions, with a combined capital development cost in excess of $7.5 billion. He has received regular recognition for all of his efforts from the EB-5 industry at large and was also named Top 40 Illinois Attorney Under 40 to Watch in 2021.
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