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Second passports: How to invest in the ultimate 21st century insurance policy – expert

Nov 14 2016 18:22

From the UK to the US, the world looks like it is closing its doors on immigrants. But, if you’ve got enough money, you can acquire a second passport from many countries, effectively providing you with a ticket to live elsewhere.

Johann van Rooyen, a global citizen with more than one passport, has made a business out of providing South Africans with advice on how to invest in what he calls the ultimate 21st century insurance policy.

In this piece, he sets out some of the places that welcome foreign investors with open arms. If you believe the rand is on an irreversible downward trend in value compared to other currencies, consider taking steps to acquire another passport sooner rather than later.

As Van Rooyen highlights: the currency’s devaluation has made it more expensive than ever to make the move. – Jackie Cameron

By Johann van Rooyen*

Citizenship by Investment (CBI) refers to investor-class emigrants who want to relocate to a different country or simply want a more convenient travel passport, and use their capital to achieve this. Investor-class emigrants do not want to go through time-consuming traditional emigration processes or do not qualify because of their age, or do not have a job offer or in-demand qualifications.

The popular perception of the second passports industry is one of clandestine dealings, suitcases stuffed with bills and often confused with Panamanian tax evasion schemes and corrupt third world dictatorships. On the contrary, obtaining residency and citizenship is a common practice and is protected by legal and constitutional principles.

More than 50,000 investors  globally, including more than 1,000 South Africans, make use of this option each year. They are welcomed by close to 50 host countries with investor-friendly citizenship programs in an industry that is worth around $25bn per year.

Why would you consider getting a second citizenship?

First and foremost, the socio-economic and political outlook do not look promising in South Africa. This makes it prudent for South Africans to diversify abroad, even if they are not prepared physically to relocate.

South Africa has one of the largest divides between rich and poor in the world and in its current form perhaps faces insurmountable challenges over the longer-term.

The post-Mandela/Mbeki era has highlighted some aspects of the country’s incomplete transformation and unresolved racial and economic fissures. Perhaps this is most clearly illustrated by the radical wealth redistribution demands and the anti-white and anti-capitalist rhetoric from a radicalised EFF, and to a lesser degree, from the SACP, ANCYL and others.

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South Africa has among the highest rates of crime and corruption in the world, and its brittle economy is further burdened by a weakening currency, increasing unemployment rates, rating agency downgrades, state capture, anarchy at universities, damaging affirmative action policies and mismanagement of state enterprises.

More than 1.5m South Africans already live abroad, in addition to 20 000 to 30 000 new emigrants each year. About 570 High Net Worth Individuals leave South Africa, with many more to follow. South Africa has almost 40 000 dollar millionaires with net assets of over R14m, and about one-third of these are considering emigration.

Emigrants generally tend to go the traditional host countries such as the UK, Australia, US and Canada.

However, growing numbers of wealthy South Africans now opt for less-traditional parts of the world that offer CBI programmes such as Cyprus, Malta, the Caribbean, Central America and Mauritius. About 20,000 South Africans have settled in Mauritius over the past 15 years, where a property investment of $500 000 guarantees residency and eventual citizenship.

What are the incentives?

Most South African investor-class emigrants physically relocate to other countries with the intention to settle down and start a new life and to enjoy all the benefits of that country’s citizenship. However, not everyone can or wants to emigrate.

For this group, a second passport is the ultimate 21st century insurance policy against future risks and as an alternative in case things go wrong. Hundreds of thousands of South Africans already own second passports, but choose to remain in South Africa.

Many of these wealthy South Africans are now becoming part of a geographically mobile group called Global Citizens, defined as those with two or more passports, with offshore bank and trust accounts, overseas property and perhaps businesses in several countries.

Catering to these global citizens, a growing trend in the second passport industry is to issue passports without the applicants ever setting foot in these countries before or after citizenship is granted. Countries such as Grenada, St Kitts and Nevis, Dominica, Cyprus and Portugal have little or no residency requirements.

Another incentive is that of a more powerful passport allowing visa-free travel. A powerful passport is worth its weight in gold to frequent travellers and business people alike, because of the convenience and mobility that it offers. South Africans have one of the weaker passports in the world, allowing visa-free travel to only 94 countries (as of November, New Zealand will also require visas from South Africans).

Countries with powerful passports include Germany, whose citizens can travel visa-free to at least 177 countries, Canada to about 172 and Malta to at least 163.

Even countries in the Caribbean such as Antigua & Barbuda, Grenada and St Kitts & Nevis have relatively powerful passports that allows for visa free travel to roughly 130 countries, including the Schengen area, making these attractive, affordable and convenient second travel passports.

Another incentive for South African investors who are contemplating going the second passport route is the relaxation of capital controls. South African investors and emigrants can take out a foreign capital allowance of R10m or $714 000 per adult.

In the case of emigration, it is a once-off allowance, but even when remaining in South Africa, citizens can invest a similar amount overseas each year. This investment amount is sufficient to invest in a foreign property and to obtain residency and citizenship in almost 15 countries, including Caribbean states like Dominica (which starts at just over $100 000), and €300 000 in European states such as Portugal, Greece, Cyprus and Hungary.

Malta_Ghajnsielem_Cominotto_Blue_Lagoon

However, the relaxation of capital controls has largely been negated by the currency’s decline from R7 to R15 per dollar during the past five years and similarly vs the Euro. What that means is that investors now need double the Rand amount to buy the same overseas property.

Interestingly, from a South African perspective, is that despite the weak local currency, the Greek and Spanish property markets have crashed by about 50% over the past few years, making them more affordable to Rand-based investors.

What is available to South African investors considering second passports?

Caribbean islands such as Antigua & Barbuda, Grenada, Saint Lucia, St Kitts & Nevis, Bahamas and Dominica offer CBI programmes, starting as low as a once-off $100 000 contribution to a government fund plus fees of approx. $40 000, and going up to about $550 000 for a family of four in a real estate investment in St Kitts.

Costa Rica, Panama and Belize in Central America offer residency to moderately wealthy retirees, often without a requirement to make a capital investment. Applicants must be older than 55 and must show an income of upwards of $1 000 to $2 000 per month.

ropean countries such as Spain, Portugal, Cyprus and Greece offer Golden Visa residency options, requiring a property investment of between €250 000 and €500 000 (Portugal even offers citizenship after six years).

The Swiss, Belgian and Austrian programmes are pricey and complex, and the UK increased the minimum investment to £2m, while Ireland requires a minimum investment of €500,000 and a proven net worth of €2m.

The US offers EB-5 investor-class visas in return for an investment of between $500 000 and $1m, while the province of Quebec in Canada requires an investment of C$800,000 for five years without interest and a proven net worth of C$1,6m.

New Zealand requires an investment of NZ$1.5m and assets of at least NZ$1m, while Australia’s ‘Significant Investor Visa’ requires an investment of A$5m.

  • Johann van Rooyen has a doctorate from the University of Cape Town and is the author of several books, including on The New Great Trek – the Story of South Africa’s White Exodus and Residency and Citizenship through Investment: The 2016 Report for Emigrants, Expatriates and Investors. Van Rooyen runs the Citizenship by Investment Research Consultancy (CIRC), focusing on independent research in global financial, political and migration issues. He delivers presentations at world-class conferences and publishes research on a regular basis. Formerly from Cape Town, he is based in Vancouver.

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