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Will Caribbean CBI Residency Rules Trigger OECD Tax Concerns?

Experts dismiss tax fears over potential Caribbean CBI residency requirements: "That argument doesn’t hold water."

Experts dismiss tax fears over potential Caribbean CBI residency requirements: “That argument doesn’t hold water.”

A recent article by the Associates Times posed a timely question about the Caribbean’s plan to introduce residency requirements to their Citizenship by Investment (CBI) programs. The piece highlighted potential regulatory concerns that could emerge from this shift.

The article argues that Caribbean residency requirements could trigger objections from the Organization for Economic Co-operation and Development (OECD), as these programs have traditionally granted citizenship without requiring physical residence. 

The Associates Times warned that adding residency components might enable individuals to claim non-residency in their home countries, potentially undermining international tax compliance frameworks and drawing OECD scrutiny.

To this end, we have contacted experts in the field of investment migration and tax, and here is what they have to say.

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Experts agree that Concerns Lack Merit

The experts largely dismiss the concerns raised by the Associates Times as unfounded. Jimmy Sexton, Founder and CEO of Esquire Group, believes that while “wealthy countries and the OECD may complain about residency requirements, I don’t see this argument holding much water.”

Sexton argues that “people have options now to avoid tax by leaving their home country for countries that offer tax advantaged living. For example, the UAE, Qatar, Switzerland, Italy, Cyprus, as well as many Caribbean nations.” 

He believes “the argument doesn’t hold water because people have enough options now in terms of places offering tax advantaged living.” He views the residency requirements as CBI countries “basically trying to force CBI clients to become residents there so they can reap the benefits of wealthy residents who spend money there and invest there.”

David Lesperance, Founder and Managing Director of Lesperance & Associates, provides a more technical perspective on the tax implications. He argues that “acquiring the immigration right to physically reside in a country will only make an individual a tax resident where the tax law of that jurisdiction specifically connects the two.”

Lesperance notes that while the US automatically makes Green Card holders US persons for tax purposes, “none of the Caribbean countries have a similar provision in any of their tax codes.” He explains that “obligating minor physical presence for citizenship will not automatically make the individual a tax resident of that country.”

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From a practical standpoint, Lesperance suggests that unless someone “spends months in the CBI country and acquires other connections such as a house, and minimizes their time and connections in their home country, it will not be possible for them to argue that they are tax resident in the CBI country rather than their current tax home.”

He dismisses the Associates Times concerns about OECD intervention, stating that “there may be lots of reasons relating to financial transparency that the OECD could move a country onto a grey or black list, but adding some minor physical presence requirements for the purpose of acquiring citizenship is not one of them.” 

Despite these reassurances, he notes that he doesn’t think physical presence requirements “will be a deal breaker but given price increases and long processing times, it’s not going to help!”

Legal Tax Planning vs Tax Evasion

Sexton emphasizes the crucial distinction between legal tax planning and illegal tax evasion. He argues that the residency requirements “will not increase tax evasion, but possibly tax avoidance, which is legal.”

Adam Juchniewicz, CEO of Bitcoin Lawyer, acknowledges that “these proposed changes could create the possibility for new CBI citizens to take advantage of residency loopholes in their home countries.” He provides detailed scenarios showing how legal tax planning might work under the new requirements.

Juchniewicz uses the example of a Bitcoin millionaire in Germany who acquires Grenadian citizenship through investment. If they physically relocate to Grenada and drop tax residency in their home country, they could potentially trade or cash out crypto holdings without reporting gains back home. “Bitcoin and crypto often present a challenge to tax authorities because, if the gains are not properly disclosed, they might remain invisible to tax authorities,” he explains.

Juchniewicz notes that Germany taxes non-residents only on German-source income, meaning capital gains from selling Bitcoin on a foreign exchange while living in Grenada would escape German taxation entirely. 

He outlines another scenario involving a British citizen acquiring Saint Lucia citizenship and living there for two to three months annually, creating a situation where “the investor’s worldwide investment income or gains effectively go untaxed, or are taxed at a very low rate.”

Why High-Tax Countries Should Compete Instead

Sexton argues that rather than attempting to restrict other countries’ policies, “OECD countries should consider making themselves more attractive to the wealthy rather than trying to stop other countries from competing with them for residents.”

Sexton contends that the scenarios described represent normal international competition rather than problematic tax evasion. He believes the Associates Times concerns about regulatory backlash are misplaced, given the existing alternatives available to wealthy individuals seeking tax optimization.

Potential Political Pushback

While experts agree the Associates Times concerns lack substance, Juchniewicz acknowledges potential political responses from high-tax jurisdictions. He projects that “home countries will attempt to tighten the loopholes through exit taxes and continued taxation mechanisms, while the OECD and EU will both keep a close eye on the Caribbean programs while these residency requirements are being finalized.”

Juchniewicz warns that “both individuals and policymakers need to proceed with caution,” noting that rules can change and potentially undermine expected tax benefits. He suggests that Caribbean governments face the challenge of balancing economic gains from attracting wealthy residents while managing international political pressure.

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