Golden visa schemes have been much debated in Europe, particularly in the context of due diligence and compliance. In simple terms, golden visa schemes are entry tickets for wealthy investors into countries that offer such an opportunity. In order to receive a residency permit or citizenship rights, foreign applicants must invest a certain amount of money, commonly by buying property, in the target country. In Europe, numerous countries have established investor visa schemes, ranging between €150,000 and €10 million. These are Austria, Bulgaria, Cyprus, Malta, Portugal, Spain, France, the UK, Ireland, the Netherlands, Luxembourg, Latvia, Greece, and Hungary. Most famous among them, perhaps, are Malta and Cyprus, which have been implicated in golden-visa-related corruption and money laundering scandals. In the UK, the golden visa scheme is much debated among politicians for its risks. This raises the question of what exactly makes such visas a risk.
Considering these visas a clear risk, the Organisation for Economic Co-operation and Development (OECD) has created a blacklist of countries that offer golden visas to overseas investors that foster tax evasion. The organization seeks to establish a Common Reporting Standard (CRS) to ensure that banks monitor and report suspicious information on account holders and to prevent investors from evading income tax by maintaining offshore assets. The international anti-corruption civil society organization Transparency International further demands improved multilateral cooperation between states, governments, and financial institutions to better police investor-based visa schemes.
Golden visa schemes can implicate various risks. Countries that impose a low-income tax rate on offshore assets and do not require foreign investors to spend much time in the country offering the golden visa are considered high risks by the OECD. Such schemes can facilitate illicit financial activity and tax evasion, allowing foreign investors to under-declare their assets. Another risk that golden visa schemes create relates to a country’s housing market and economy. Golden visa schemes are usually offered to wealthy foreigners in exchange for the purchase of luxury real estate property in the target country. Transparency International warns in the 2018 report “European Getaway” that high investment by golden visa investors “in passive segments of the economy (e.g., real estate) […] generate fewer benefits in terms of employment, innovation and industrial development.” This becomes a problem when most of the total investment in a country is generated by real estate purchases, exacerbating economic stagnation. Furthermore, luxury property investments in exchange for golden visas can put pressure on local housing markets, raising housing prices and creating risks for the middle and low-income classes.
A counterargument in favor of golden visa schemes would be the financial benefit for target countries. Most European countries create large revenues from golden visa schemes. Spain has earned as much as €980 million, Cyprus €910 million, Portugal €670 million and the UK €500 million. Highly popular destinations are Spain, Portugal, Hungary, Latvia, and the UK. In the course of the past ten years, over 6,000 new citizens and almost 100,000 new residents have settled in the EU via golden visa schemes. Most of them were originally citizens from China and Russia. To a lesser degree, investors came from the US, India, Ukraine, and Venezuela.
Despite these opportunities, countries, financial institutions, and real estate agencies should consider associated risks and exercise due diligence in their interactions with overseas clients. A lack of compliance in Portugal in 2014 is a case in point. Public officials of the Immigration and Border Service office and the Institute of Registries and Notaries reportedly accepted bribes in exchange for golden visas, selling property to foreign investors for less than the officially-required amount for a golden visa, which is €500,000. In the case of Portugal, the golden visa scheme invited illicit behavior and also decreased revenue for the Portuguese economy, posing a two-fold risk. It is therefore important to strengthen due diligence, good governance, and compliance processes in the management of investor-based visa schemes.
