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May 7, 2021

Citizenship by Investment

If you're looking for a way to move money offshore, “beat the system”, and pay none of your US taxes, this probably isn't the blog for you!  If you are a US citizen, you will always be a US tax resident…even if you move offshore and move all your money offshore.  There are options for reducing your tax burden (or eliminating it completely), but we'll get into those in a future blog.

So what is Citizenship by Investment and why should I be interested in it?  Quite literally, it's exactly what it sounds like.  You are making an “investment” in another country in exchange for citizenship.  This investment might take the form of a donation to the foreign government, a real estate purchase or a government bond.

Countries offering CBI Programs:

There are currently 11 countries offering a CBI program.  In Europe, CBI is available in Malta, Montenegro and Turkey.  In the Caribbean, you'll find programs in St. Kitts & Nevis, Dominica, Antigua & Barbuda, Grenada and St. Lucia.  Other locations include Vanuatu in the Pacific, Jordan and Egypt.  Most people who have heard about CBI think of the Caribbean as it started there in St. Kitts & Nevis in 1984.

There are pros and cons to each location and you'll definitely want an advisor on your side to help you through your options.  Most people will find that the donation option makes the most sense.  Coming from someone who owns a real estate brokerage, you may wonder why I'm not recommending the real estate investment route (for most people).

The truth is most of the approved real estate is over-priced (not including the extra government fees tacked on) and resale could be challenging if new properties are available or if the government decides to lower the minimum investment required.  You also better make sure you do your due diligence.  We aren't used to it in the US, but fraud can be rampant in other countries.  You need to understand if you are buying a time-share, if your builder will actually complete the project, if the photos you see online are actually from the project or just taken from some exotic location miles away, what insurance will/won't cover, etc.  Also, don't count on any of these projects turning big rental profits…even if the local property manager/agent is telling you otherwise!  If you're planning on spending well over the minimum purchase required, then the real estate option may make more sense (although Turkey currently has some less expensive real estate opportunities as well).

St. Lucia also offers a 5-year bond option.  Most CBI donations start at $100K for an individual (more for the whole family).  That's a sunk cost.  The bond requires a $250K investment, but you get it back after 5 years less a $30K fee.  That saves $70K in costs…but you have to decide if you can make a better return for the additional capital required or if the liquidity is more important to you.  This program is currently available through the end of 2021 as part of a COVID-19 incentive.

Why do I need a second passport?

Having a second passport can be a part of a good overall financial plan and strategy…not just for the wealthy, but for all US citizens.  You may be someone who lives abroad now, does business (or invests) overseas, or someone who just wants a “Plan B” in case life changes down the road and you need options or a safety net.  Maybe you listened to me last year, bought a ton of crypto and need to renounce your US citizenship so you don't have to pay those proposed steep capital gains taxes! 🙂  Whatever the case may be, CBI is something worth considering and researching further.  You never know when or how tax laws may change or opportunities like these programs may go away.  Now might be a good time to take advantage of the reduced expenses that came from this black-swan economic event.

If you have any questions or would like to discuss this further, please feel free to reach out to us anytime.  In future blogs we'll also cover other paths to citizenship, the Foreign Earned Income Exclusion, the closest US offshore haven – Puerto Rico, as well as buying foreign properties with a residence permit and/or as an investment.

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