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Citizenship by Investment: An Update from Nevis

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Contributed by NTL Trust Limited
12 May, 2010


The Citizenship-by-Investment programme of the Federation of St Kitts and Nevis was established more than fifteen years ago, and most offshore practitioners will already be aware of its existence. During this time more than a few economic citizenship programmes have come and gone, but the St Kitts and Nevis programme has developed from strength to strength. It has established itself as not only the reference for clients seeking a new citizenship worldwide, but as the best managed and most respected programme of its type.

There have however been some interesting recent developments, both in the programme itself and in the profile of applicants, that are worthy of attention and are the subject of this article.


Background

Naturalisation is the acquisition of citizenship of a country based on a strong connection that has been established by the new citizen with that country. Requisites for establishing such a connection vary widely between different countries, but as a minimum a period of residence of some years is typically required.

Economic citizenship programmes, however, allow a prospective new citizen to establish sufficient connection with the country by investment or economic interest, with no residence requirement. Practitioners can therefore assist their clients through the process of obtaining a new citizenship and passport within a matter of months rather than years. These programmes are aimed at high net worth individuals seeking the asset protection, travel, safety and confidentiality afforded by citizenship of a neutral nation. Typically tax incentives are also offered.

There are currently only three such citizenship programs in operation: in Austria, the Commonwealth of Dominica, and the Federation of St Kitts and Nevis. (The government of Montenegro has recently announced its intention to offer an economic citizenship program, but it has not yet released full details.)

In the Federation of St Kitts and Nevis, the legal basis for Citizenship by Investment is Part II, Section 3 (5) of the Citizenship Act, 1984. Implementation of the programme, for example setting investment requirements, is the responsibility of the Cabinet. The Cabinet has implemented procedures to allow investors to qualify for expedited citizenship either by purchasing real estate in specially-approved developments, or by making a non-refundable contribution to a development charity, the Sugar Industry Diversification Foundation.

The real estate option requires a purchase of at least US$ 350,000, which must be held for at least five years. Most clients prefer this as they typically acquire a luxury waterfront apartment that they and their friends can enjoy, that will hopefully be an appreciating asset. Other clients who want to avoid the hassle of real estate ownership may prefer the contribution option of US$250,000. (Full details of the requirements are available on request.)


Strengths of a Good Economic Citizenship Programme

Although international law respects the exclusive right of individual states to legislate in matters of citizenship, immigration matters are politically sensitive - therefore international recognition is a must in order for such a programme to be a success. Clients want to travel on a passport that is respected worldwide, preferably without the need to apply for visas. Other programmes have failed in the past because of perceptions abroad that they are not carrying out adequate due diligence or are simply in the business of ‘selling’ travel documents.

The real international seal of approval for the St Kitts and Nevis Citizenship by Investment programme came in May 2009 when a short-stay visa waiver agreement was signed with the European Union in Brussels. St Kitts and Nevis passport holders may now travel visa-free to nearly all of Europe, including Switzerland, the UK and Ireland, as well as to Canada, which in our view makes the programme much more attractive than Dominica’s. Most British Commonwealth countries also allow visa-free access for St Kitts and Nevis citizens.

Sound due diligence is another cornerstone of the economic citizenship programme. Applicants must expect to undergo exhaustive background and character checks that are carried out by internationally-respected independent agencies. The level of such checks has increased further in recent years. It is this level of scrutiny that has maintained the programme’s reputation for over fifteen years, and although clients may initially be surprised by the depth of investigations, they will later no doubt appreciate the international standing and recognition it brings to the programme.

Despite the depth of due diligence, with co-operation of the client, the process can be carried out quickly - typically within a few months. The program has always had broad political support, which is not necessarily the case with competing programmes, where internal political wrangling has often been known to delay applications.


The Twin Island Federation

In our travels and conversations we frequently find people who erroneously refer to ‘St Kitts Citizenship.’ It is important to point out that St Kitts and Nevis is a federation of two neighbouring islands in which each state maintains a substantial degree of autonomy. The island of Nevis has, for example, its own international financial services legislation and regulator completely independently of St Kitts. Indeed the constitution allows Nevis to secede from the Federation completely with a two-thirds majority vote. Nevis is the smaller of the twin islands.

Citizenship, unlike corporate or financial services, is dealt with at the federation level. Clients do however have the choice of investing in an approved project in either St Kitts or Nevis, and equally the citizenship application may be submitted through a licensed service provider on either island. It is very important that clients understand this distinction and the various options open to them.

It is also important that clients are advised and represented by a licensed local professional. We have seen cases of clients who have made substantial investments on the basis of representations made by foreign real estate agents, without properly understanding the rights and obligations that new citizens automatically acquire.

Whilst there are no residency requirements to obtain or maintain citizenship, we do encourage clients to spend time getting to know the country. The Federation has much to offer visitors, including a tropical climate, beaches, golf, ecotourism and the like. Local people are known for their hospitality and for welcoming newcomers. And, of course, there are no personal income taxes, even for residents.

New businesses that contribute to the economy of the islands are also warmly welcomed by the government, and offered a tax holiday of up to fifteen years. Communications infrastructure is first class and we have seen increased interest from knowledge-based businesses. Many foreign students also come to the Federation to study.


Clients and Potential

Motivations for seeking a second citizenship are numerous, but they tend to revolve around two issues that are very close to the hearts of high net worth individuals and international entrepreneurs: security and freedom.

Today’s global families are more mobile than ever before. Professional advisers and their clients increasingly understand that citizenship and residence can and should be planned as part of an overall tax and capital preservation strategy, rather than being left as accidents of birth. A second citizenship from St Kitts and Nevis will often be part of a plan for immigration to a third country, the citizenship of which is either less desirable from a tax point of view, or is not readily available to the client.

All nationalities are welcome. The island administration has no restrictions on particular nationalities participating in the Citizenship by Investment program - all applications are accepted on the same basis and are subject to the same vetting procedures.

Successful individuals from countries with unstable governments typically seek to hedge themselves, their families and their businesses against political risk – hence the continued interest in second citizenships from Russia and CIS countries, for example.

With the increase in outward foreign investment from China, Chinese entrepreneurs are also thinking more globally than ever before and are discovering the benefits of international planning strategies. Citizenship of St Kitts and Nevis can open up a world of new possibilities for Chinese business people, especially combined with structures such as Foundations and LLCs.

Interestingly, however, recently we have seen substantially increased interest in the Citizenship by Investment program from the United States and other OECD countries. American citizens, scared by the economic crisis and concerned by the massive debt threatening the value of their dollars, are increasingly willing to renounce U.S. citizenship and the worldwide tax and reporting obligations that go with it. An American family might decide for example to retire or start a new business in Latin America, but prefer to do so as citizens of St Kitts and Nevis. By living in a territorial taxation jurisdiction like Panama or Uruguay, and receiving income from outside their ?
country of residence, they can live and work completely tax free. In practice renunciation of U.S. citizenship is a straightforward process that can be carried out at any U.S. consulate, and clients should have no problem obtaining a tourist visa for trips to visit family and friends. Naturally, it is essential to take specialist advice on this serious matter.

Other Americans prefer simply to acquire a second citizenship as their ‘plan B’ in order to sleep more soundly at night. This idea was popularised in the 2009 book Emergency: This Book Will Save Your Life by Neil Strauss, which reached the bestseller list in the U.S.A. In the book, the author writes about his experiences acquiring citizenship in St Kitts and Nevis, though being familiar with the citizenship-by-investment the programme and how it works, one would certainly suspect that Strauss made considerable use of artistic licence.


Conclusion

As the longest running programme of its type in the world, the St Kitts and Nevis Citizenship-by-Investment Programme seems to have a bright future.

As business and finance becomes more global, we must protect our clients against new risks, including turbulence in the global financial system. The onus is on wealth managers and practitioners to maintain and grow assets internationally in an increasingly hostile business and geopolitical environment, and to maintain a delicate balance between transparency and privacy. Traditional and less sophisticated offshore structures are increasingly neutralised by anti-avoidance legislation and a new generation of tax treaties.

On the other hand, citizenship is a very powerful planning tool for high net worth individuals. Technology is making it easier for business to be conducted from anywhere in the world, and families are increasingly looking for business-friendly locations offering security and quality of life in which to base themselves. Taking on a new citizenship is a way to achieve increased freedom and mobility, and to obtain tax and investment advantages that cannot be affected by treaties or legislation. There is an opportunity here for professionals to step up to the challenge and give their clients appropriate advice. The St Kitts and Nevis Citizenship by Investment Programme is well established, positioned, and trusted, and is something your clients should be considering.




 

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