The Citizenship-by-Investment & Residency Programs Compared

The Citizenship-by-Investment & Residency Programs Compared

Citizenship-by-Investment & Residency Programs 

When it comes to obtaining dual-citizenship or dual-residency by investment — there are two main different categories of programs. There are the Citizenship-by-Investment Programs (CBI), in which a person obtains a second passport – or Residence-by-Investment Program (RBI) in which a person obtains a second travel visa. While both of these programs are collectively referred to as “Golden Visa Programs,” they have different pros and cons. Therefore, before purchasing an investment Visa or Passport, Americans must look carefully at the different advantages and disadvantages of an investment visa or passport.

Advantages to Citizenship-by-Investment

Let’s start with the benefits of the Citizenship-by-Investment Visa:

Travel Rights

When a person attends citizenship in another country they also obtain a passport. Different countries have different travel rights associated with their specific passport. By obtaining a new passport a taxpayer has the opportunity to travel the world on their new passport as a citizen of that other country – – which may offer more travel benefits than the US passport.

Expatriation

In order to properly expatriate from the United States, the US government requires that the taxpayer has citizenship in a foreign country so that they are not considered “orphans.” For taxpayers who are not already dual-citizens and do not have lineage in another country sufficient to obtain citizenship, it will benefit them greatly to simply be able to purchase second citizenship.

Access to Purchase Local Assets

Unlike the United States in which anybody can pretty much acquire any type of property if they want, many foreign countries require a taxpayer to actually be a resident or citizen of that country in order to acquire certain assets, such as real estate. Therefore, by becoming a citizen of a foreign country they have the opportunity to acquire assets in our country that they may not already be able to acquire without some form of citizenship or residence.

Disadvantages to Citizenship-by-Investment

Let’s take a look at some of the disadvantageous as well.

Additional Taxes

When a person becomes a citizen of a foreign country by way of the citizen by investment program, they are generally required to acquire certain assets in that foreign country. This may be real estate,  bonds, and sometimes certain investment funds. The problem with owning certain types of investment funds as a US person is that there are certain tax implications — especially if the foreign asset is considered a PFIC. This may lead to the Taxpaying paying more tax to the US government than less tax. In addition, some foreign countries have additional licensing fees and other taxes that will not qualify for foreign tax credits on the US Tax return.

Longer Process, More Intrusive

The process of obtaining citizenship in a foreign country can be very long and arduous. The foreign country will want specific information about any past tax violations, criminal convictions, etc. — and sometimes the fees may not be refundable despite the American being unable to complete the process for reasons outside of the taxpayer’s control. Therefore, it is important to vet each program before considering a CBI submission.

Advantages to Residence-by-Investment

Here are the pros to Residence  by Investment:

More Versatile Visa, without Requiring Citizenship

With a Residence-by-Investment visa, a person is not taking the full-fledged step of becoming a citizen of that foreign country. Instead, essentially what happens is that the person simply acquires travel rights — and residency in the foreign country — if that is the ultimate goal. Stated another way, while a person may not seek to actually be a resident of that country, and generally, most Residence-by-Investment visa countries do not actually seek permanent or continuous residence — the person still acquires travel rights, such as traveling through the Schengen area.

Test Before Becoming Citizen

Some taxpayers may actually obtain Residence-by-Investment in multiple countries in order to test the waters before going through the full process of becoming a citizen of that country — and Residence-by-Investment allows taxpayers to test the waters.

Less Costly

Typically, but not always the fees for obtaining residency versus citizenship are lower and the application processing time is faster.

Disadvantages to Residence-by-Investment

Here are the cons to Residence -by-Investment:

Not Sufficient to Expatriate

A cursory review of expatriation may lead some taxpayers to believe that any golden visa they obtain will help them facilitate their expatriation goals. But, simply obtaining residence in a foreign country — without already having dual citizenship — is not sufficient for the US government to approve an expatriation application from a US citizen. That is because the US government requires the taxpayer have citizenship in another country before authorizing and approving the application.

Tax Misconceptions

Just because a person does not have citizenship in a foreign country does not mean that they are not subject to any additional tax in the US. In fact, if a person has a residence in a foreign country, and they acquired additional assets in the country — as most of these programs require — come then the taxpayer will now have a US tax liability on that foreign income — and oftentimes no foreign tax credits to offset the income.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and expatriation.

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