Why it pays for the region’s wealthy to invest in a second citizenship

The pandemic and emerging green shoots of recovery, alongside worldwide wealth tax changes and growing interest in the sought-after US E2 visa, are ramping up interest in citizenship by investment programmes in places like Grenada

The Six Senses La Sagesse in Grenada, set for completion in 2022, will be Range Developments’ third luxury resort project in the Eastern Caribbean

A combination of the coronavirus pandemic, amendments to the Indian tax regime revealed in the country’s 2021 Union Budget and a political changing of the guard in the US has resulted in an unprecedented rise in demand for second passports by ultra-high-net-worth individuals based in the Gulf.

These passports, typically obtained through citizenship by investment (CBI) programmes, allow their holder to not only avoid being liable to taxes in their home country but also provides them freedom of movement – something invaluable as the pandemic and its aftermath complicates travel and migration options worldwide, said Mohammed Asaria, managing director of Range Developments.

Mohammed Asaria, managing director of Range Developments: “We are the only developer that takes an execution-first approach”

“Obtaining a citizenship by investment offers a hedge against political, social and economic anxieties – especially for investors residing in emerging markets.”

Talking taxation

The past year has seen an increasing number of governments adopting or amending the rules around wealth and citizenship-based taxation, with non-residents potentially facing income taxes in their home countries.

An example of this is India, whose 2021 Union Budget introduced three amendments to its tax regime for non-resident Indians (NRIs), who represent a substantial part of the Gulf population.

Viren Miskita, a Mumbai-based lawyer with M.T. Miskita & Company, said that NRIs need to pay attention to changes in the country’s concept of tax residency. “This assumes significance as the residential status of a taxpayer determines the scope of taxable income in India for a financial year. The 2021 Union Budget proposes to reduce the threshold from 182 days to 120 days to be deemed an ordinary resident. NRIs will therefore have to be in India for shorter durations.”

Additionally, he pointed to the concept of a ‘Stateless Person’, something first introduced by the 2020 Union Budget as an anti-tax evasion measure.

“Accordingly, a person would be treated as an Indian resident for tax purposes if they are not liable to tax in the country of residence. This could, in effect, result in the levy of Indian income tax upon persons who have taken up residence abroad to avoid the same. This has led to consternation amongst non-resident Indians in GCC countries.”

Lawyer Viren Miskita warns non-resident Indians in the Gulf about their tax liability changingin the new Union Budget

For Asaria, the shifting taxation landscape has led to an increase in inquiries from UAE-based NRIs, in particular. “They are very concerned about extraterritorial taxation on their UAE or global income.

“That’s why they are seeking Grenada citizenship, obtaining an Overseas Citizenship of India (OCI) card and relinquishing their Indian citizenship.” The OCI card grants its holders – who must be of Indian origin – the right to live and work in India permanently, although it isn’t a citizenship, and holders cannot vote or run for office in the country.

A key difference in wording between the two Union Budgets – “liable to tax” versus “liable to pay and bear tax” – has been of particular concern to GCC-based Indian expats. “In countries like the UAE, NRIs are ‘liable to tax’ but as the prescribed rate of tax is zero, they are not ‘liable to pay and bear tax’,” says Miskita.

“The introduction of this measure may have a negative impact as residents of tax-efficient jurisdictions would be taxed in India on their (previously) tax-free income.”

He urged NRIs to not rely on speculative online reporting around the subject, and instead seek professional advice based on the black-and-white text of the legislation and taxation enforcement policies, and thereafter structure one’s affairs appropriately.

Asaria says one potential consequence of a citizenship-based tax is an exit tax, as with the US. “In effect, you have to pay a significant fine to surrender your original passport. As countries embark down the path of citizenship-based taxation, this is a natural corollary.”

Developing the Caribbean luxury travel sector

Founded close to a decade ago, Range Developments is an investment and hospitality operator with interests across the East Caribbean – St. Kitts and Nevis, Dominica and Grenada. During this period, Range has assisted over 4,200 individuals with their second citizenship journey and completed two five-star luxury resorts in the region, the Park Hyatt St. Kitts and Cabrits Resort & Spa Kempinski in Dominica, with another, the Six Senses La Sagesse in Grenada, set for completion next year.

Despite the pandemic hitting the global travel and tourism hard over the past year, Asaria is bullish on future prospects for luxury travel. “When borders open and it is safe to travel, tourism will roar back,” he said, citing Dubai’s increased tourist inflow over the past few months as an example. More importantly in the Caribbean context, he added, is that the region’s natural resource is tourism.

“This drives its economies. The US, the world’s largest economy, is on their doorstep and provides a captive market.” He believes CBI programmes are the best means of unlocking the region’s tourism potential, which comes from its abundance of beautiful beaches and picturesque vistas, rather than capital markets or significant bank debt. “CBI is the route to drive this industry and ensure job creation as well as the direct/indirect economic impact that hotels provide.”

The Wall Street Journal recommended Cabrits Resort & Spa Kempinski for its close proximity to one of Dominica’s national parks

The region’s leadership seem to agree with Asaria’s assessment, with the Range website featuring  testimonials from the prime ministers of all three Eastern Caribbean states.

However, the pandemic has seen a change in luxury travellers’ expectations. Now, open spaces and distancing has taken on greater priority, says Asaria – echoing a similar sentiment Red Sea Development Company CEO John Pagano shared with Arabian Business last month. “To be successful in the post-coronavirus luxury travel sector, you need to have designed the hotel correctly,” explained Asaria. “Look at our Six Senses Grenada – 100 rooms across 28 acres, 40-plus swimming pools, two beaches, three restaurants – and no corridors or elevators.” Such “natural distancing” is what the post-pandemic luxury tourist is seeking, he adds, and there is a shortage of such properties, not only in the Caribbean but worldwide.

He points to the Maldives and its strong tourism figures over the past six months as evidence the natural distancing concept works.

Why Grenada?

While there are a number of worldwide CBI spots, Grenada has become particularly popular in recent years, according to Asaria. He cites a number of reasons for this:

“The first is cost efficiency. The $220,000 required investment (plus government fees) must be kept for five years, after which it can be sold to another CBI investor – while the original investor keeps their Grenada citizenship in perpetuity.”

It’s not just cost that’s efficient – the entire process can be done within 90 days, without the investor needing to even set foot in the country.

Finally, Grenada is a signatory to the US E-2 treaty, which means holding a citizenship allows easier access to the States. “Whether or not it’s exercised, the ability for an investor – or their family – to migrate to the US is of critical importance to ultra-high-net-worth individuals.” This, combined with Grenada’s unique visa-free travel access to China, means Grenadians have access to the two largest global economies.

Whether these people are travelling for business or pleasure, the Grenada citizenship certain opens plenty of doors. As of October 2020, citizens have been able to access 144 countries and territories either without a visa, or by receiving one on arrival. These states include the UK, Schengen area, Russia and many others.

Asaria also points out the taxation benefits that come with an E-2 visa. “You aren’t taxed on worldwide income if you spend less than 122 days a year in the US – a massive advantage over other US immigration options such as the EB-5, which sees holders taxed from the outset.”

Mobility and access to the US

Miskita explained, “Other than the usual benefits of CBI programmes abroad – tax benefits, wealth preservation, a higher degree of privacy/personal security and visa-free travel – the biggest benefit for Indian NRIs to take up citizenship in Caribbean countries such as Grenada, is if the ultimate aim is to obtain US residency.”

Carolyn Lee, principal at Carolyn Lee PLLC, believes Joe Biden’s administration will be far more immigration-friendly than that of his predecessor. “With Democrats in control of both chambers – the Senate and the House of Representatives – as well as the White House, we can expect at least some of the Biden Administration’s immigration agenda will be fulfilled.”

She highlights legislative reforms in the offing, such as the expansion of visa numbers available to workers; not counting dependents against the visa quota; the creation of programmes that promote the integration of new residents and citizens; and specific provisions that prohibit religious discrimination.

Carolyn Lee says CBI programmes are often a preferred route to obtaining an E-2 visa for the US

Lee points out an interesting irony – while the US has E-2 treaties with about 80 countries, many states with a strong history of immigration to the US, such as India, China, Nigeria and South Africa, aren’t on the list. “For nationals of these countries, a solution is to obtain citizenship in a country with whom the US does have an E-2 visa, such as Grenada. Obtaining citizenship by investment, or CBI is often a preferred route to open up the E-2 visa benefits to these nationals.”

She adds that there’s a broad range of investment opportunities open to E-2 investors. “The visa is highly flexible and imposes no requirement on the type of business, location, or even investment amount. Some applicants start or purchase a business in the service sector industry, such as real estate finance and management. These types of businesses have low capital thresholds and can align with some investors’ experience nicely.

“Others are more interested in brick-and-mortar operations, such as owning and operating a hotel. These businesses are quite different but they would both work for E-2 purposes.”

CBI misconceptions

Asaria is keen to set the record straight on a number of widely held misconceptions surrounding CBI programmes – the first being that such programmes are used nefarious businesspeople. “In fact, the opposite is true – with the increasing scrutiny of due diligence, applicants for CBI now need to be of good repute.”

During an official visit to the island in October, Linda Taglialatela, US ambassador to the Organisation of Eastern Caribbean States, praised Grenada’s usage of the Joint Regional Communications Centre (JRCC), which the country uses to conduct due diligence on CBI applicants.Through the JRCC, Grenada is able to run checks on applicants through international agencies such as Interpol to ensure they aren’t on any wanted lists..

However, Asaria points out that there are plenty of dubious operators in the CBI space, whose empty promises bring the entire industry’s reputation down. “I’m tired of hearing developers promising they are opening next year, when next year never seems to come.”

The Park Hyatt St Kitts. Opened in 2017, the 126-room property was Range Developments’ first CBI-funded luxury resort in the Caribbean

He contrasts this with Range Developments’ properties, which were not only delivered on time but also featured on numerous international shortlists.

“We are the only developer that takes an execution-first approach – we manage the construction of our projects and have a stellar reputation and track record.” He points to the reviews of the Park Hyatt St. Kitts, which opened in 2017 and topped CNN’s list of best new Caribbean hotels and resorts while also making Conde Naste’s hot list.

“The Kempinski opened in 2019 to similar reviews from the Wall Street Journal, and we look forward to the completion of the Six Senses Grenade at the end of 2022 to make it a hat trick.”

“Range has earned the trust of citizenship by investment community whether this is the Caribbean governments, prospective CBI applicants or indeed the world’s leading hotel operators for one simple reason” concludes Asaria. “Range Delivers.”

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