An EU passport is very valuable to an investor or business, and countries like Malta know this. By offering golden visas, which are attainable through investment into the country, Malta has been generating good money with its capital-laden visa scheme - but the EU is not happy.

What is Malta’s Golden Passport?

Malta’s golden passport is a way of gaining citizenship into Malta. The typical way of gaining citizenship in EU countries is to apply for residency in a country and live there for 5-10 years before citizenship can be applied for. Of course, citizenship of Malta means being a citizen of an EU member state, which grants access to the free market.

Malta's golden visa requires large sum money transfers, but no physical presence. This essentially means that anyone with enough money can very quickly gain citizenship. In other words, Malta citizenship is up for sale.

European Court of Justice

The EU is claiming that Malta is breaching EU law, and is thus taking them to the European Court of Justice over the passport scheme. EU justice affairs commissioner Didier Reynders tweeted “European Union values are not for sale”.

The main fears over this passport scheme are money laundering and accepting high-risk individuals very easily into the EU. If the ECJ rules against Malta, the country will have to face heavy fines for non-compliance. Given that the core driver behind the scheme is to gain Foreign Direct Investment into the country, a monetary punishment makes sense to deter them. It is not an ideological or cultural scheme, after all.

Malta has stopped granting Russian and Belarussian citizens into the passport program, which is seen as a step in the right direction. It is thought that Russian citizens were one of the main beneficiaries of the program before the war in Ukraine, and given the mass exodus out of the country, this ban has likely turned away a large portion of the applicants. But, this is still not enough for the EU, which wants to see a blanket ban altogether.

Cyprus and Bulgaria have history of similar schemes

Cyprus and Bulgaria are two countries that have offered a similar cash-for-passport scheme in the past. These too came under fire from Brussels, and even caused national scandals, which caused both to stop offering them. Cyprus only stopped the scheme as recently as last year, but nevertheless, it leaves Malta as the last remaining chink in the otherwise close-knit EU armor.

Bulgaria’s scheme was to provide permanent residency in exchange for one million levs, and Bulgarian citizenship for another one million. Despite being operational for almost a decade, Bulgaria abolished the scheme earlier this year because of criticism over it being linked to money laundering and corruption.

Ultimately, much of the public in many countries like Serbia wishes to join the EU on the basis that it helps stop corruption. It’s no surprise that corruption still exists after joining the EU, but it’s important that the EU enforces these anti-corruption measures consistently.

EU policing and coordination

This story is not wholly dissimilar to the Leprechaun economics orchestrated by Ireland, which saw ruthlessly low corporate tax rates to attract multinational corporations into the country. Again, it’s about large-sum money transfers into the economy. Whilst this is less about corruption than with golden passports, it highlights how an individual member state can damage the union as a whole by offering something that others can’t. In this case, extremely low corporation tax. 

Of course, if other member states compete with this, there will be a race to the bottom in which all members are worse off and with no competitive gain. Sure enough, this became a big concern, and a minimum 15% tax rate was agreed upon. Coordination at the cost of some sovereignty, like forcing Malta to withdraw from its passport scheme, is a feature not a bug of the EU.

A hit to the Maltese economy

Clearly, this scheme is centered around the idea of receiving large sum money transfers from abroad. Foreign Direct Investment is one of the best ways to better the current account of the country; that is to have more money being injected into the economy than leaking out of it. This way, the country gains in wealth.

With constant large money transfers of €100,000+, Malta has been able to prop up its struggling economy. It is estimated that since 2013, Malta has raised €1.1 billion through the scheme, with mostly Chinese and Russian beneficiaries, though perhaps some Brits since Brexit too.

Malta is a country that does benefit strongly from the EU, too. Not just with holidaymakers and expats, but through EU funding, like the €817 million received to help Malta’s economy become more inclusive, green, and digital. With Bulgaria and Cyprus backing down over their cash-for-passport schemes, it seems likely that Malta will too.

Of course, there will be negative immediate impacts on the Maltese economy that has grown used to this free cash, but as the EU has pointed out, it does not align with the union’s values. And, long-term, the EU is perhaps more lucrative to Malta than short-term cash from high-risk individuals.