The Malta Independent 22 December 2014, Monday

Malta citizenship scheme: Is a consensus possible?

Malta Independent Thursday, 30 January 2014, 07:19 Last update: about 8 months ago

A scheme purportedly intended to attract foreign investment (but talks of a “contribution”) and “talent” (although the link between the two is not given) has become a reputational and political nightmare for Malta on an international scale. The urgency and intransigence of the Government remain unexplained and have instilled many a doubt as to possible undeclared reasons, indeed possibly preceding the last general elections. A scheme of such national importance and sensitivity was excluded from the Labour Party’s electoral manifesto when there is little doubt it had already been conceived. Why? Could it have altered the election results? The Government is now talking to EU Commissioner Reding. Why not before the scheme was introduced?

The European Parliament resoundingly voiced its views on this on 16 January. The Malta Independent wrote: “Parliament calls on the Commission to state clearly whether these schemes respect the letter and spirit of the EU treaties and EU rules on non-discrimination. Some member states have introduced schemes which "directly or indirectly" result in the “sale” of EU citizenship to third-country nationals, even though every member state is expected to act responsibly in preserving the Union’s common values and achievements. These are invaluable, and "cannot have a price tag attached to them", says the resolution, which was passed by 560 votes to 22, with 44 abstentions.”

MaltaToday published a matrix of schemes existing in nine EU countries including Malta. It groups Austria and Cyprus with Malta in the granting of immediate citizenship. Both countries have rejected that their scheme is like Malta’s. It lists another six countries which require a number of years (ranging from 5 to 10) of residence before citizenship is granted.

Evidently, there is an intra-EU (and not only) race to attract foreign investment through the granting of citizenship. However, there are two aspects which distinguish the Malta scheme—a) the contribution, as it is being called, which in effect means a sale of passports and b) the absence of a residence requirement where no bond is created between the applicant and Malta. This is what the Nationalist Party has been contesting from the very start and is what singled Malta out in the European Parliament resolution—a resolution which calls for an examination of all schemes and this has clearly irritated the other countries. There are two other aspects which made/make the Malta scheme unique and unpalatable—the secrecy and agency aspects. That the identity of passport buyers should be kept secret was subsequently withdrawn by Government although it is not clear whether this has been appropriately reflected in the legislation. That a commercial (rather than Government) agency should be carrying out due diligence on wealthy applicants (with a potential risk of illicit sources of funds or of a threat to security) when the same agency stands to earn considerable fees, is a clear situation of clash of interests which could seriously cloud judgement in the vetting process. Henley and Partners stands to earn around €250 million gross[i]. There appears to be no other country, not even in the Caribbean, which utilises commercial agencies and the Maltese Government’s agreement with Henley and Partners is reportedly for 10 years, thus extending beyond the current legislature.

The scheme, in its second version, was promoted as attracting €1.15 million (versus the original €650,000) per applicant. This is not so in every case since the real estate rental option reduces this to €880,000.

Assuming the EU Commission has no issue with other countries’ schemes which require a true investment and a period of residence, below are suggestions of how Malta’s scheme might become acceptable to the EU:

·         The applicant deposits €500,000 in advance corporation tax which can be set off against corporation tax due during the first 10 years (only) from a new business set up in Malta (thus creating job opportunities).

·         The applicant makes and maintains for 5 years an investment of €500,000 in real estate which cannot be rented out but can be re-sold, provided an alternative real estate investment is made for the same prevailing market value. The option to take real estate on rent is removed.

·         The requirement for the applicant to invest in government bonds (which are already oversubscribed locally) stocks or debentures is removed

·         The applicant is granted for the first 5 years a temporary passport which allows intra-EU travel but does not grant the right of abode in another EU Member State.

·         The applicant resides in Malta for 5 years, by way of corporate residence (through the setting up of a continuing business) and/or personal residence for a minimum annual average of say 90 days by the primary applicant and/or one or more of the secondary applicants (restricted to the spouse and children). Provided there is a clean record of good corporate and/or personal conduct at the end of this period, the applicant is granted a full passport.

·         All applicant monies (including any agency fees) are placed with the appropriate Maltese Government Entity (which should more appropriately be named say Malta Citizenship Authority). A commercial agency (or professional firm) represents a risk of default. This also ensures that all financial returns on applicant monies go to Malta’s benefit.

·         If non-Government agents are used, the Entity ensures that there is a fair distribution of opportunity for processing applicants on a peer basis.

·         The cap of 1,800 primary applicants is converted to an annual cap of say 500 between primary and secondary applicants, set from time to time taking into account all relevant socio-economic factors. This would make the scheme sustainable as opposed to one-off. The cry of €1.17 billion seems to be a direct reference to the €1.128 billion obtained from the EU under a Nationalist Government but that is sustainable and was preceded and will be succeeded by other monies—if the relationship with the EU does not come to a disastrous end.

For the prestige of Malta, which has recently suffered so much and so quickly (after building it for so many years), a consensus should be reached, as the Nationalist Party has incessantly tried to do, between all stakeholders—including the EU because the Maltese passport is also an EU passport. Otherwise, the scheme must be abandoned because, at best, there would be no mandate for it.

 

 

[i] €650,000 by 1,800 primary applicants with 4% from Government, €70,000 per applicant and say a 5% pa return on application monies held for an average of 15 months (mid-point between the stated processing times of 6 to 24 months)

 
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