OpinionReasonable Doubt

Lesperance: 6 Predictions About the Investment Migration Market in 2023

Reasonable Doubt
With David Lesperance

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

Once upon a time, I was accused of being “like Mr. Spock” in the way I viewed the world. While she meant it as an insult, I took it as a great compliment. Not that I claim to have Mr. Spock’s clarity and lack of bias, but I thought it was something I definitely wished to try and emulate.

It is with this aspiration in mind that I will outline what I hope is an unbiased and agnostic list of the predictable events I anticipate will impact the investment migration world in 2023.

Prediction 1: The end of the Zero Covid Policy in China will have a dramatic impact on both Chinese emigration and global travel restrictions

We are in the early days of the elimination of the Zero Covid Policy in China, and already we are seeing record numbers of positive cases and foreign governments imposing Covid testing requirements on Chinese travelers. With the Chinese government soon to resume the issuance of passports and ease internal travel restrictions, you will see the spread of the highly contagious Omicron variant among the 1.4 billion people living in China. This will quickly become a global issue as they travel abroad. 

Rightfully fearing a resumption of the restrictive conditions of the previous Zero Covid policy, many of those with the financial ability to leave China will do so. This is in addition to other immigration drivers, such as newly supercharged tax collection and a wealth tax. This will be a large residence/citizenship by investment market for those who have the wherewithal to relocate permanently outside China.

Another wildcard is the reality that with a new petri dish of 1.4 billion people, the chances of a new contagious variant emerging have increased significantly. If this happens, we will most likely see a return to the travel Balkanization of 2020/2021. North Americans who want to remain able to travel to Europe will need to have “EU club membership” in hand before this happens. Prudence would dictate that they immediately pursue EU country lineage citizenships or residence by investment. Canadians who want to have access to the US would be well advised to secure non-immigrant statuses such as TN, L1, or E1/E2 visa status.

Likewise, Americans who want to maintain travel access to Canada should pre-emptively secure work permits or permanent residence status.

Prediction 2: The EU will lose its case against Malta’s MEIN – But Malta will close the program anyway

The October 2022 referral to the EU Court of Justice will either be thrown out or see a ruling in Malta’s favor. This is because the EU’s attempt to govern in this area is ultra vires, and its argument of “genuine links” has already been dismissed in the 1992 Micheletti case. 

This court case, however, is not the only tool in the toolbox for the European Commission in its campaign against formal CBI programs in EU member countries. It should be remembered that the Schengen Group also has certain powers in determining which country is – and is not – included in the club. Therefore, it is predictable that when the Court of Justice case is lost, Malta will be threatened with loss of membership in the Schengen group.

Given that revenues from the MEIN programs dropped precipitously in 2022 (as a result of the loss of the Russian market and over-the-top KYC regulation), the value of this program in the future will be questioned by more and more Maltese voters. When faced with the possible future chaos (if Schengen membership is lost) of flying into the international terminal of Rome’s Leonardo DeVinci airport, many will decide that the costs outweigh the benefits. As a result, I predict that Maltese politicians will close the program themselves.

Prediction 3: The other Caribbean CBI offerings will adapt their programs to be competitive with the recent changes announced in Saint Kitts & Nevis

The recently announced competitive changes to the Saint Kitts and Nevis CIP will see all of the Caribbean CBI programs revise their own offerings to remain competitive. This is similar to the widespread changes that occurred in response to the Covid pandemic. [Note: the author made this prediction prior to the publication of new Saint Lucia CIP regulations on Friday]

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Prediction 4: Grenada will lose market share as a result of the new US law restricting E2 Visa eligibility

Grenada has enjoyed and successfully exploited its regional competitive advantage of being on the US list of E2-eligible countries. With the recent passage of the National Defence Authorisation Act in the US, this advantage is effectively lost. 

Although enterprising lawyers may successfully make the case that someone who obtained their Grenada CBI through the government donation option did not make a “financial investment”, the argument that they acquired a “domicile of choice” in Grenada simply by acquiring citizenship (with no further ties) is pretty weak.

Prediction 5: US securities regulators will focus on investment migration product promoters that offer unregistered securities to Americans

Clearly, the RCBI world is turning toward an emerging, exploding American market. However, the US Securities and Exchange Commission (SEC) recently signaled that it will be taking a very aggressive position towards those international offerings and marketers to ensure compliance with US securities laws. Just as the crypto world is discovering, offering investment products (which many RCBI products clearly are) without complying with US securities rules can bring a world of hurt.

Just as we’ll see a purge of non-compliant offerings in the crypto world, we’ll see it in the investment migration market as well. Offerings that do comply will grab significant market share as a consequence.

Prediction 6: Crypto enthusiasts will realize that the Satoshi Island and El Salvador promised offerings are busts and that those who used Puerto Rico Act 60 are all being audited by the IRS to ensure that they are compliant with the obligatory physical presence requirements 

Just as the American market for investment migration has emerged in the past few years, so has the market amongst crypto enthusiasts. Unfortunately, many in the crypto world are not terribly sophisticated in the area of tax compliance or in identifying fraudulent or impractical offerings. Too often, they followed the advice of “influencers” who were no more knowledgeable about these topics than they were themselves.

Many in the crypto world naively thought that no tax authority would be able to identify their crypto holdings because it was “in the ether”. Once they heard about tax authorities’ efforts, such as the IRS’ Operation Hidden Treasure, many believed that they could continue to play hide and seek with tax authorities by using mixers, cold wallets, Monero, etc. Some were also mistakenly convinced that the simple acquisition of a second citizenship or residence would magically make their tax obligations disappear. Some even looked to “vaporware” offerings such as El Salvador CBI or Satoshi Island Citizenship, which never materialized in the real world.

Others in the crypto world sought simple tax solutions by acquiring residence in places like Puerto Rico. For those who used Puerto Rico’s Act 60, many have found the minimum six months on-island physical presence requirement difficult to meet. Those who opt to lie about their physical presence are in for a rude awakening as the IRS focuses on them

Those crypto enthusiasts who moved to Portugal got a lesson in the reality of constant change in tax rules when senior politicians mused about changing their policies on crypto taxation. The changes ultimately adopted require some attention to compliant behavior that did not previously exist.

As news spreads about audits and changing tax policies, those who survive the crypto winter will seek more sophisticated tax and RBI/CBI advice. Those who do not will find themselves at the unwanted receiving end of the attention of their local tax authorities.

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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