The Malta Independent 2 December 2023, Saturday
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Halcyon days, mechanisms and Russian oligarchs

George M Mangion Sunday, 19 March 2023, 09:00 Last update: about 10 months ago

As an introduction, investor citizenship schemes or "golden passport" schemes, allow a person to acquire a new nationality based on payment or investment in the absence of a genuine link with the country. These schemes are different to investor residence schemes (or "golden visas"), which allow third-country nationals, subject to certain conditions, to obtain a residence permit to live in an EU country (Malta provides both). Moreover, Malta's main competitor remains Turkey. The latter has recently increased its application fee to $400,000, while the average timeframe has increased by 152 days with a possibility of minimum investment return of $1m.


As a general rule, the conditions for obtaining and forfeiting national citizenship are regulated by the national law of each member state, subject to respect for EU law. As nationality of a member state is the only precondition for EU citizenship, and subsequent access to rights conferred by the Treaties, the Commission has been closely monitoring investor schemes granting the nationality of member states. So far, Malta was able to raise €1.1bn since 2013 by enticing investment in exchange for passports. It launched its first scheme in 2014, known as the individual investor programme (IIP). Since then, a large number of investors and their family members were granted citizenship. At the end of 2020, Malta established a new scheme, after the original one came close to reaching its limit of 1,800 successful main applicants. This maintains the principle that nationality can be awarded systematically, in return for pre-determined payments, without having to establish any permanent link between the applicant and Malta.

A fund, styled as the National Development and Social Fund (NDSF), was set up in 2015, administering a percentage of the revenue generated from passport sales. Regrettably, it's accountability to the public is questionable since it has not published its audited accounts for 2021. According to the last available financial statements, dating back to 2020, the NDSF received €27.8m in revenue from the passports programme, taking the total amount of proceeds since its inception to just under €600m. Who were the persons that applied for passports? This was principally promoted by sole concessionaire Henley and Partners (friendly with ex-prime minister Joseph Muscat. Henley shared but no other local agents shared a percentage of passport revenue). The answer is, wealthy Russian and Chinese citizens have been major beneficiaries of the scheme. According to a revised scheme, this will be limited to not more than 400 successful candidates per year. It will also be terminated after 1,500 candidates have been awarded citizenship. A misconception about Russians or Chinese successful applicants becoming tax residents in Malta was rebutted. The law states that if a person relocates their primary residence to Malta, they may be able to maintain the status of a "non-domiciled" person and hence have exceptionally favourable tax exposure. The misconception concerns the definition of a resident but not domiciled person. The latter only pays tax on any income earned or received in Malta.

Other member states namely Bulgaria and Cyprus have also come under pressure from Brussels for similar practices and dropped their schemes. Also, Ireland and Portugal closed their popular golden visa schemes thus leaving Malta as the only member state still offering "golden passports and visas". A recent trend saw a number of Americans applying for golden passports and visas more than any other nationality, according to Henley & Partners' 2023 USA Wealth Report. What are the basic requirements for Malta's golden passport scheme. Essentially, being over 18 years, with a minimum contribution of €600,000 for a minimum residence period of 36 months or €750,000 for a minimum of 12 months. Successful applicants need to purchase property of €700,000 or rent one for a minimum of €16,000 annually. A voluntary donation of €10,000 to sport, cultural or NGOs is required. The fly in the ointment is that the European Commission has decided to refer Malta to the Court of Justice of the European Union for the golden passports saying it does not create any genuine link and is not compatible with the principle of sincere cooperation enshrined in Article 4(3) of the Treaty and with the concept of Union citizenship, as provided for in article 20 of the Treaty on the Functioning of the European Union.

The Commission sent an additional letter of formal notice to Malta on 9 June 2021 following the introduction of a new scheme. On 6 April 2022, the Commission sent a reasoned opinion to Malta. Malta's reply did not satisfactorily address the concerns raised by the Commission. What happens now? Basically, the matter is taken to the European Court of Justice (ECJ). The inherent risks of such schemes have once again been highlighted in the context of the Russian aggression against Ukraine, the Commission said. The Home Affairs Ministry, which oversees the scheme, said granting of citizenship falls within the national competence of a member state, adding that "it should remain as such". Malta has promptly suspended the scheme for Russian and Belarusian nationals following the Russian invasion of Ukraine.

Cyprus, which was popular among rich Russians, stopped processing applications and, as of 15 October 2021, revoked the citizenship of 39 investors. On 24 March 2022, the Bulgarian Parliament approved an amendment to the Bulgarian Citizenship Act, which aims to end the investor citizenship scheme. Why is there this sudden impetus to harangue Malta over its exclusive scheme? All investor citizenship schemes undermine the essence of EU citizenship and have implications for the Union as a whole. Every person that holds the nationality of an EU member state is at the same time an EU citizen. EU citizenship automatically gives the right to free movement, access to the EU internal market and the right to vote and be elected in European and local elections. The inherent risks of such schemes have once again been highlighted in the context of the Russian aggression against Ukraine. The Commission stressed that member states still operating investor citizenship schemes need to terminate them immediately. The recommendation also calls member states to ensure strong checks of investor residence schemes.

The popularity of Malta's scheme was highlighted by agents who actively sold or arranged for applicants to hire property. A case in point, the current Prime Minister Robert Abela has been found to have lent his villa in Zejtun to Russian oligarchs to help them fulfill their residence requirements. On top of this, Abela's own wife Lydia is alleged to have played a part in processing golden passport applications. The saga of the "golden passports" was the brainchild of ex-prime minister Muscat who personally toured the world promoting the scheme as a guest of Henley and Partners during the halcyon days of his premiership. We wait with bated breath to see the outcome of the ECJ ruling, in the meantime, applications have waned.


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George M. Mangion is a senior partner at PKFMalta

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