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Even for The Super-Rich, Citizenship by Descent is Extremely Useful: Lessons From Abramovich

Reasonable Doubt
With David Lesperance

A contrarian expert on contingency plans for the wealthy delivers uncomfortable truths.

I always have to premise this personal revelation with a disclaimer that myself and my siblings did not go out nightclubbing looking for Europeans with whom to dance. However, as it turns out, my older sister married a Latvian; my brother an Italian; myself a Pole; and my younger sister an Irishman.

While I am the only one of the four siblings to actually move to Europe, almost all of my nieces and nephews have used their EU country lineage citizenships. This has included studying at Trinity College in Dublin, working for British Telecom, spending an extended gap year, and even permanently relocating. Clearly, the privileges of the right kind of family history are invaluable.

A more high-profile example of the power of lineage citizenship was demonstrated in May 2018, when Russia-born Chelsea FC owner Roman Abramovich took up Israeli citizenship. He took this action at the same time as he was apparently facing long delays in the renewal of his UK residence visa. Mr. Abramovich took advantage of the fact that as a Jew, Israel would grant him citizenship under its Law of Return.

In addition, he would immediately receive an Israeli passport. Unlike his Russian passport, Israeli passport holders can enter the UK without a visitor visa. A month after obtaining an Israeli passport, Mr. Abramovich withdrew his UK residence visa renewal application.

Interestingly, while Mr. Abramovich’s ancestors were from Lithuania, he was unable to qualify for lineage in that EU member state under its nationality rules. However, in April 2021, Mr. Abramovich was able to further diversify his passport portfolio by obtaining a Portuguese citizenship and passport under Portugal’s naturalization scheme for descendants of Sephardic Jews. This program offers naturalization to descendants of Sephardic Jews who were expelled from the Iberian peninsula during the Inquisition.

Mr. Abramovich’s new Portuguese citizenship gives him access to all EU and EEC member states under the Treaty of Rome’s “Four Freedoms”. Along with his Israeli passport, his new Portuguese passport also gives him visa-free travel to the UK.

Much of the UK press have speculated that Mr. Abramovich’s acquisition of Israeli and Portuguese citizenship was to ensure his continuing on-going access to the UK – especially to watch in person his beloved Chelsea FC. Given that he has only visited the UK once since becoming an Israeli, however, it may be worthwhile to look for other potential motivating factors. Could it be that Mr. Abramovich wanted to avail himself of the ability to continue a tax-advantaged lifestyle?

The convergence of citizenship-by-descent and favorable tax deals

What received little attention at the time he acquired Israeli citizenship was the fact that Mr. Abramovich enjoyed a favorable UK tax situation as a “Non-Dom”. However, he was rapidly approaching the end of the 15-year period when he could no longer take advantage of this remittance tax regime. In moving to Isreal, he would cease being a tax resident in the UK but be exempt from paying tax in Israel for 10 years. Furthermore, if he were to become subject to Israeli tax in the future, he would not need to explain the sources of his wealth. It has often been speculated by the press that this latter point was the “sticky wicket”, which may have been complicating his UK residence visa renewal.

Furthermore, should he decide that he no longer wanted to have his tax home in Isreal, Mr. Abramovich could receive favorable tax treatment in Portugal under its Non-Habitual Tax Resident regime. With his Portuguese passport, other EU member states which could also be attractive future tax homes include Italy, Greece, Ireland, and Malta. Finishing out the list, in September 2020, Swiss voters confirmed that Switzerland remained on the list of future potential tax homes with its long-established lump-sum tax regime

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From this perspective, it seems quite plausible that Mr. Abramovich’s actions in 2018 were not principally motivated by UK residence concerns. Rather, he may well have applied at that time for both Israeli and Portuguese citizenship in order to avail himself of other favorable tax regimes beyond the one he had been enjoying in the UK. With the Israeli application taking a matter of weeks to organize, this was the first to reach fruition. His Portuguese application was always going to take longer and, with Covid slowing processing even further, the spring of 2021 is a completely reasonable date for completion.

As Mr. Abramovich has demonstrated, alternative citizenships obtained through family history can serve more than one purpose. With this revelation, what lesson can be learned by other HNW individuals elsewhere?

Given that all of the Americas were immigration destination countries during the 19th and 20th centuries, a significant portion of the wealthy from Canada to Argentina may well qualify for one or more lineage citizenships. All told, about half a billion people around the world may have a claim to European citizenship by descent. HNWIs concerned about tax-the-rich policies and/or political and social polarisation should be looking at their family trees to provide themselves the same type of optionality that Roman Abramovich now enjoys.

So whether a descendant simply wants to enjoy faster entry at foreign airports or is a HNWI who wants to maximize mobility and legal tax avoidance options, lineage citizenships can be well worth the time and effort to pursue. It can also be a gift that one can give to children and future generations.

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David Lesperance AuthorSubscriberParticipant

David Lesperance is a global leader of international tax and immigration advisors.

A published author in the field, his personal interest in these areas of law grew from his experience working as Canadian immigration and customs officer while studying law. Since being called to the bar in 1990, he has established his expertise with major law firms, his own law firm and as a private consultant. David has successfully advised scores of high and ultra high net-worth individuals and their families, many of whom continue to seek his counsel today. In addition he has provided pro bono advice to many governments on how to improve their Citizenship by Investment, Residence by Investment or Golden Visa type programs to better meet the needs of his global clients. David is supported by a team of professionals, some of whom have worked with him since the early 1990s.

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