As an introduction, investor citizenship schemes or "golden passport" schemes, allow a rich person to acquire a new nationality based on payment or investment and in most cases 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 to return to $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 due 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 revised the scheme, after the original one came close to reaching its limit of 1,800 successful main applicants. Many discovered that the scheme abused of 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 National Development and Social Fund was set up in 2015, administering a percentage of the revenue generated from passport sales. This saga was principally promoted by a sole concessionaire, Henley and Partners, who took a cut from proceeds of successful applicants.
Henley & Partners said, in a statement to BBC News, it was "fully aware of the potential inherent risks in handling client applications for residence and citizenship" and was committed to perform due diligence. Other local agents shared no percentage of passport revenue. Wealthy Russian and Chinese citizens have been major beneficiaries of the scheme. According to a revised scheme, it will now be limited to no more than 400 successful candidates per year. It will be shelved once 1,500 candidates have been awarded citizenship.
The law (as it stands now) states that if persons relocate their primary residence to Malta, they may be able to maintain the status of a "non-domiciled" person and hence enjoy exceptionally favourable tax conditions. Other member states such as Bulgaria and Cyprus have also come under pressure from Brussels for similar practices and have decided to drop them.
Also Ireland and Portugal closed their popular golden visa schemes thus leaving Malta as the only member state still offering "golden passports and visas". What are the basic requirements for the golden passport scheme? Essentially, investors have to be over 18 years, with a minimum contribution of €600,000 to the state but they must reside for a minimum period of 36 months or pay a higher €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 recommended. The fly in the ointment is that the European Commission has requested Castille to scrap the scheme.
This was not acceded to by Malta, so the Commission proceeded to refer it to the European Court of Justice. Leaked documents show some investors met the one-year residence requirement by renting empty properties. The EU has repeatedly raised concerns over "golden passport" schemes in Malta, Cyprus and elsewhere. It objected saying the golden passports scheme 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. 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.
The EU noted that investor citizenship schemes carried "inherent" security issues, as well as risks of money laundering, tax evasion and corruption. The Home Affairs Ministry, which oversees the scheme, disagreed. It said granting of citizenship falls within the national competence of a member state, adding that "it should remain as such". On the outbreak of the Ukraine invasion, Malta promptly suspended the scheme for Russian and Belarusian nationals.
Cyprus, as a domicile, was popular among rich Russians, but stopped processing applications as of 15 October 2021, and 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 a 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 Commission stressed that member states still operating investor citizenship schemes need to terminate them immediately. The recommendation also urges member states to implement rigorous checks on investor residence schemes.
The popularity of Malta's scheme was highlighted by agents who actively sold to, or arranged for applicants, to hire property. A case in point, the current Prime Minister Robert Abela has been found to have rented a derelict villa in Zejtun to two Russian oligarchs to help them fulfil their residence requirements.
In conclusion, the saga of the "golden passports" was the brainchild of former prime minister Joseph Muscat, who personally toured the world as a keynote speaker at all of Henley and Partners' international conferences.
George M. Mangion is a senior partner at PKF Malta
gmm@pkfmalta.com