One conversation comes up again and again in this field. Someone wants a second citizenship, and when I ask why, he says it is for asset protection.
That is an understandable answer and, in my experience, a mistaken one. A second citizenship does not protect assets. It protects the person, and few people plan for that with the same care.
The two ideas address different risks; trusts can separate legal ownership from beneficial ownership, and foundations can create a different governance structure. An owner can place an asset inside a parent company, and depending on the circumstances, under another legal system.
All of these work on property. None of them can give the individual behind the property another place where he has the legal right to live.
One question is what happens to my wealth if something goes wrong. The other is what happens to me if the environment in which I live changes. These are separate problems, and I would argue they belong in the same plan.
Concentration risk
Investors accept that concentration is dangerous. They routinely spread money across equities, currencies, custodians, and banks. Yet it is common to meet an entrepreneur whose company, portfolio, bank accounts, property, will, and nationality are all inside a single legal system.
There may be nothing wrong with any individual piece. The difficulty is that the pieces move together.
One government makes the rules, and its courts have jurisdiction. The banks he uses answer to that government’s regulators, and its political cycle decides immigration policy. His liquidity depends on a currency the same state manages. A single legal or political event can reach every part of his life at once.
Good structuring can reduce some of that exposure. An owner can place assets in suitable entities, spread banking relationships across institutions, and plan succession under an appropriate legal framework. Those steps leave the owner’s own legal position unchanged.
His ability to enter and leave a country may depend on one citizenship or one residence permission. So may his freedom to live and work there, or to build a family life elsewhere. That is a concentration of a different kind, and it is the one I think is least examined.
What citizenship protects
People often speak of citizenship as a travel document, which undersells it. It is a continuing legal relationship between a person and a state.
Depending on the country, it can bring a right to enter and reside, access to the labor market, and political rights. Consular protection and the ability to pass nationality to children may come with it too.
Its main advantage over a residence permit is durability. Governments can cancel a permit, let it lapse, reprice it, or attach new conditions. A right of return that comes from citizenship does not depend on any of those conditions. The protection applies to the person and to his options. Separate arrangements cover the portfolio.
Suppose he acquires a second nationality and continues to own a US$5 million investment portfolio in his own name. The second citizenship leaves the owner of that portfolio unchanged. His assets remain in the same entity and under the same governing law, and the account has no trust attached to it.
If someone sues him and wins, the judgment creditor can pursue his assets in the same way as before. A naturalization certificate gives the debtor new travel options. It does nothing to the remedies available to his creditor.
Describing citizenship as an asset-protection tool, without qualification, misleads buyers. It encourages people to rely on a document for a purpose no one designed it to serve.
Four separate statuses
Residence adds to the confusion, because people collapse several legally distinct ideas into one. At the least, these are separate:
- Citizenship, the person’s standing with a state, which once granted is generally durable.
- Residence status, a permission to live somewhere under immigration rules, usually conditional and revocable.
- Tax residence, determined by statutory tests such as days present and economic ties, which acquiring a new nationality does not by itself change.
- Domicile, which in some systems influences succession and inheritance taxation.
A person can have citizenship of one country, be a tax resident in another, and live on a permit in a third. Someone can also become a tax resident in a country where he has no immigration status, because the day-count test applies regardless of his permit. Changing one of these does not automatically change the others, and much poor planning begins with the assumption that it does.
The same mistake appears in banking. Foreign accounts can diversify counterparty, custodian, currency, and payment-system risk, and those are useful benefits.
If an account remains in his personal name, moving it abroad changes where the money is. The owner is the same person as before. A carefully built ownership arrangement can change who legally owns an asset, and it does nothing for the owner’s mobility. Each tool has a function, and the error is to assume that because they are all international, they must all solve the same problem.
Citizenship’s costs
Presenting a second citizenship as a good thing on its own would be unfair. It brings obligations that deserve the same scrutiny as its benefits.
A few countries tax their citizens on worldwide income wherever they live, some impose reporting or military service, and some restrict dual nationality. Changing citizenship can also complicate banking onboarding.
Citizenship by investment makes the point clearer, because the investment buys a route to citizenship and builds no protective structure. Whatever status results is only as useful as that nationality is in practice. An investor who collects citizenships as products ends up with one he has no use for.
Give each jurisdiction a job
This is why I think the better question is whether each citizenship, entity, and account has a clear purpose. One useful test is whether the owner can say, in a sentence per country, what each jurisdiction is for.
A country should earn its place in the structure, as should a bank, an ownership vehicle, and a residence. Any second citizenship should give a degree of permanence or mobility that the person’s existing nationality does not.
These choices interact with each other. A move of residence can alter tax treatment, and an asset placed in a foreign structure can create reporting obligations at home. Relocating the individual can also change the tax residence of companies he controls.
After a permanent move, he may also need to revisit a succession plan that worked under the old domicile. For that reason, he should treat planning as a single design problem, with specialist advice in each relevant jurisdiction. A trust protects assets and a second citizenship protects the person, so a good plan needs both.
The views expressed are the author’s own and do not necessarily reflect those of IMI.
