As wealthy foreigners rush to get citizenship in Malta under a new programme, the residency requirement is taking many forms.
Russians rent high-end villas, then stay in five-star hotels when they visit. An American financier plans to live in Switzerland but occasionally vacation in Malta.
One Vietnamese businessman, eager to start the clock ticking on the 12-month timetable for residency, sent the necessary paperwork on his private jet to expedite renting a property he had never seen.
“They come twice, once to get a residency card and once to get a passport,” said Mark George Hyzler, an immigration lawyer at a firm.
Malta’s citizenship programme, which offers a passport to those willing to pay €1.2 million (Dh4.8 million, $1.3 million), has been controversial since it was introduced more than a year ago. But the residency requirements, meant to make the programme more palatable, are only increasing the consternation among critics, who say the programme has resulted in the sale of citizenship to the global 0.1 per cent.
Applicants must show they have rented a property in Malta for 12 months. But they do not necessarily have to spend any time in this Mediterranean island nation, raising the question of what genuine links they are establishing.
“It is questionable how the residency requirement is being applied,” said Tonio Fenech, a member of Malta’s Parliament
Lawyers, accountants and real estate agents say the citizenship programme has catapulted Malta onto the radar of the global elite. Applications are pouring in, and the programme aims to raise 2 billion euros, more than a quarter of Malta’s gross domestic product.
“We want to attract individuals who can add value to our country because of their ideas, and their networks and their businesses and their talent,” said Jonathan Cardona, chief executive of Identity Malta, which administers the Individual Investor Programme.
Housed in a sprawling, fortresslike 16th-century building once used as a hospital, the Malta citizenship programme nods to the country’s multicultural past, punctuated over the years by invasion. The Phoenicians, Carthaginians, Romans, Byzantines, Fatimids, Normans, Sicilians, Spanish, French, a European lay religious order and the British all tried to conquer or rule Malta, and many succeeded.
Maltese, the official language with English, looks and sounds Arabic, but its speakers are primarily Roman Catholics who pray to Allah.
The citizenship programme also reflects Malta’s present. Malta, which covers 122 square miles and is about 50 miles south of Sicily, has few natural resources and a population of just 424,000, about half that of South Dakota. Malta counts on the reliable sun and shimmering blue sea to attract tourists.
Beyond that, it has had to be creative to keep the country’s coffers filled.
The tax system, in particular, has been a boon. Some foreign companies can be structured to pay 5 per cent in corporate taxes.
Malta also has double taxation treaties with 65 countries, allowing individuals and businesses to avoid being taxed in two places.
Significant tax advantages and a pro-business regulator have created a booming financial services industry. It now represents 12-15 per cent of the country’s GDP, up from 6.3 per cent in 2004.
Online gambling companies have flocked to the island, as have hedge funds.
With a strong corporate base, Malta sailed through the economic crisis relatively unscathed. The economy grew 3.5 per cent in 2014. Unemployment is 5.8 per cent, the fourth-lowest in Europe.
Malta was looking to expand that economic growth through the citizenship programme. Under the initial plan in 2013, the newly installed Labor Party government proposed selling passports for 650,000 euros, with few other requirements for citizenship.
Almost immediately, it drew protests. The country, critics argued, was not an economic basket case like other European nations trying similar programmes. They also worried that the programme would damage its reputation as an attractive place to do business.
“We do not want to form part of a law which prostitutes Malta’s identity and its citizenship,” Mario de Marco, a vocal member of the opposition, said.
The opposition took the programme to the European Parliament in an effort to block it. While the Parliament condemned the programme, it could do little else, because citizenship is controlled by national governments.
To placate the Parliament and the opposition, the government raised the bar for citizenship. Strict due diligence standards were set to weed out money launderers and criminals. It also raised the cost and adopted a residency requirement.
In addition to the €650,000 fee to the government, applicants must now invest €150,000 in government bonds, buy property for at least €350,000 or rent a place for at least €16,000 a year — all of which must be held for at least five years.
“This is not ‘tick the box,’” said Cardona, the chief of the programme.
Hyzler, the lawyer, and others note that the newcomers are establishing real links to Malta. They are setting up bank accounts and buying health insurance, both of which are required. They are also joining country clubs and donating to local charities, which is encouraged.
“Clients genuinely want to do more than just make the investment,” said Mark Stannard, managing director of the Maltese office of Henley & Partners, a residence and citizenship planning firm.
He said a Saudi national with a Lebanese passport who had applied for Maltese citizenship had recently returned with a delegation of 12 to consider setting up businesses in aviation, life sciences and real estate.
Hyzler said some of his Chinese clients wanted to invest more than the €150,000 in government bonds and were weighing establishing businesses.
But critics have taken aim at the roll-out.
Henley & Partners was initially awarded the exclusive rights to market the programme and process the applicants, collecting fees in two ways. A family of four with two minor children and two grandparents pays Henley about €135,000 to apply; the government pays Henley €26,000 to handle that application.
Henley also makes money from ancillary services. The company can rent and sell property through Henley Estates and manage that property for those who are not living in Malta.
In January 2014, before the programme officially started, Henley gave up the exclusive rights, sharing half of the business with other private companies. But critics still bristle at the outsourcing of such activities by the government.
The tax advantages are also raising concerns. Maltese citizens typically pay income tax of up to 35 per cent. But foreigners who become Maltese citizens under the new programme may be able to enjoy tax benefits awarded to foreigners.
The globally mobile have taken note.
One American finance professional, who spoke on the condition of anonymity, said he moved to St. Kitts and Nevis seven years ago for tax purposes, eventually deciding to give up his US passport. He then moved his family to Switzerland for the schools, European culture and competitive tax benefits.
His family is now applying for Maltese passports, attracted by the speed of the programme. He would have had to wait 12 years in Switzerland to gain citizenship.
He does not, however, plan to live in Malta. “We will spend some vacation time there.”
