In the past affluent citizens of unstable or totalitarian countries, or discharged despots and corrupt officials from such nations, have sought to acquire a second nationality. But recently there has been growing demand from Westerners, especially from citizens of the USA, UK and EU member states.

A Western passport used to provide security and was considered to be a major asset. However, in view of rapidly declining economic fundamentals, as well as growing inequality and human rights violations in many developed countries, such a passport might turn out to be a liability in the years to come. We are not there yet, but it certainly is not a mistake to look for alternatives.

Does it make sense for everyone to obtain dual citizenship? There is no clear yes or no to this question. It depends on your home country, your specific situation, your risk affinity, and your ability or willingness to pay. 

Reasons for obtaining dual citizenship

The prospect of easier travel is the main motivating factor for citizens of many developing countries to seek a second passport. Whereas nationals of Japan, Singapore and Germany enjoy visa-free travel to 162 countries, Afghan citizens can only travel directly to 22 countries. All other jurisdictions require them to apply for a visa, which is costly, takes time and might not even be granted.

Covid-related travel restrictions have shown, that dual nationality can also be useful for holders of Western passports. US citizens were largely barred from travelling to Europe, but if they possessed a second passport from an EU/Schengen state, they could use this passport to not only to fly to their European home country, but also travel freely within the Schengen area. In the other direction, EU nationals with a second US passport could fly to the USA, while normal Europeans were usually not allowed.

You would expect that natives always have the right to return home. This might have been the case in the past, but Covid has changed this. Quite a few people got stuck abroad for weeks and even months. They were left in legal limbo facing potential fines or even imprisonment for overstaying. Those lucky enough to have a second passport, had the option to travel to their second home, if they were not welcome in their home country.

An important reason for getting a second passport is to obtain the permanent right to live and work in another country. Some people are content with a long-term visa. But such visas expire within one to five years and extension is not always assured or can be time consuming and costly.

Even if you are lucky enough to obtain permanent residency, this does not allow you to vote and you may also face other restrictions. For instance, some countries prohibit foreigners from buying land, starting specific businesses reserved for ‘locals’, or even opening a bank account. Many entrepreneurs therefore quote facilitating investments as the main motive to seek dual citizenship.

Obtaining tax savings is another consideration to get a second passport. However, even if you have lived outside of your home country for many years, you might still be considered to be a tax resident of that country and US citizens are per se required to file an annual U.S. tax return, even if they have never lived in the USA. Getting a second passport from a low or no-tax jurisdiction does not mean, that you automatically pay much less or no tax. On the contrary, a second passport can lead to double taxation, if no tax treaty between the two countries exists.

From a tax perspective, there are good alternatives to dual citizenship. Spending at least 183 days per year in a preferred lower tax jurisdiction or forming a family trust or foundation, might achieve the same or even better results. To avoid bad surprises, prior consultation of a qualified tax consultant is highly advisable.

A compelling reason to obtain a second nationality is, that it gives you the option to renounce your current citizenship. Such a move might become necessary, when your country of birth transforms into a totalitarian state and prosecutes you for political reasons, or when it imposes excessive taxes and starts confiscating private property. History is full of such examples. If you don’t have a second passport, you can still renounce your citizenship, but then you end up as a stateless person, a position you don’t want to be in. 

Risks of a second passport

It’s not all roses with dual citizenship. An often-ignored risk of a second passport is, that you can lose your first passport. In this case you just swap your native nationality for the citizenship of another country. The risk is twofold. Your home country might not recognize dual citizenship and revoke your native passport. Or your target country might reject it and ask you to renounce your original citizenship. There are country pairs, where both applies.

While citizens of the USA, Canada, UK, France, Switzerland, Australia and New Zealand are free to obtain a second passports, countries like China, Singapore, Thailand, and Vietnam don’t allow this (temporary exceptions might apply for minors until they turn 18 years of age). Laws in Austria, Germany, the Netherlands, and a few other countries allow dual citizenship under very restrictive conditions, that usually only apply to immigrants and not to native citizens.

Some people take the risk of acquiring a second passport, even though their home country doesn’t allow it. They assume that they are safe, as the information is not shared. 20 years ago, this was probably true. But we doubt, that this will be the case in the future. Information about bank accounts belonging to foreign citizens is already exchanged between most nations. And governments certainly don’t only have your health in mind, when they push for the global implementation of vaccine passports.

Even if you are willing to renounce your original citizenship, such a step should not be taken without thorough assessment. Tour retirement benefits, healthcare coverage and the ownership of some assets could be at stake, and you might have to pay ‘exit tax’ and high renouncement fees.

For nationals of a no-dual-citizen EU member state, who don’t want to lose the benefits of being an EU citizen, but also seek a safe haven outside of the EU, there is a potential solution. In a first step, they can obtain the passport of a Schengen country that allows dual nationality, and then renounce their original citizenship. This ensures, that they can continue to travel freely within the EU and don’t lose most entitlements earned in their country of birth. In a second step, they can acquire a new passport from outside of the EU. This is certainly not an easy and cheap solution, and details need to be checked carefully.

Those who can legally hold a second citizenship also face risks. A country that appears attractive today, might enter an accelerating downward trend in the decades to come. Rapid economic, political and social deterioration, surging income and property taxes, and a dramatic decline in the number of countries for visa free travel are threats that can’t be ruled out for the future. Regulations in your home country can also change, especially with regard to the taxation of non-resident citizens. Eventually your second passport might not provide benefits, but only headaches.

Australia has traditionally been regarded as a Western democracy with high respect for human rights. In order to ‘protect’ the population from Covid-19, its government has implemented measures, that are reminiscent of Australia’s origin as a prison colony. Residents have to ask for permission to leave and enter the country, and tough lockdowns were implemented when a single person tested positive. We doubt that many people had this in mind, when they applied for Australian citizenship. People who seek a passport from the USA, Canada, the UK or a member state of the EU might also be in for an unpleasant surprise in the coming decades.   

Ways to secure dual nationality

There are four main ways to become the citizen of a foreign country: by descent, by marriage, by naturalization or through investment. Other ways exist, but they are too special to be covered here.

The easiest way is by descent or ancestry. Many countries allow you to apply for citizenship, if one of your parents held their nationality. Some go a step further and accept your application, if one of your ancestors (e.g., your grandfather or your great-grandmother) was a citizen.

Italy is a good example of a country, that grants citizenship based on ‘jure sanguinis’ or ‘right of blood’. Applicants have to prove, that the last relative born in Italy was still an Italian citizen at the time of birth of the next in line relative. The process involves a lot of paperwork but is straight-forward and comparatively inexpensive.

Marriage to a local can also fast-track citizenship. If you are married to a Brazilian, have resided in the country for at least one year and can communicate in Portuguese, you are eligible to apply for a Brazilian passport. Switzerland, which doesn’t grant nationality lightly, allows you to apply after six years of marriage, provided that you prove to have a close relationship with the country (“mit der Schweiz eng verbunden”).

Naturalization, which is offered by most countries around the world, is another option to obtain foreign nationality. To be eligible, applicants must generally be existing residents and possess an adequate knowledge of the local language and culture. Requirements vary a lot, but in most countries, several years of residence are required. For people who prefer to stay in their home country at least for the time being, this is hardly an option.

Those, who can’t claim ancestry, don’t want to get married and have no time for a lengthy naturalization process, citizenship by investment is the preferred choice. Contrary to what some people assume, passports from every country on earth are for sale. What varies is the amount of money required and the time and effort needed to get it.

Even in those countries that officially would never admit to it, a multi-million USD ‘contribution’ and several backroom negotiations with politicians should do the job. For instance, a large and well-respected immigration advisor advertises Austrian citizenship for a “minimum contribution of EUR 3 million” on its website. 

Several countries in the Caribbean (Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia) and other nations such as Vanuatu, Turkey, and Montenegro officially offer Citizenship-by-Investment Programs (Cyprus was forced by the EU to suspend its program and the revised program in Malta continues to be opposed by the EU). Some countries allow you to make a non-refundable ‘donation’. Expect to pay USD 100,000 to USD 150,000 for a single passport and more for a married couple or a family with children. Fees and commissions will set you back at least another USD 38,000.

If you don’t want to give away money and can afford to invest a minimum of USD 200,000 plus another USD 38,000++ in fees and commissions, you can purchase real estate (except in the case of Vanuatu). However, often your choices are limited to ‘approved’ projects, which have higher price tags. Some are starting at USD 1 million with the sky being the limit. As many of the offered projects are overpriced and/or entail high maintenance costs, proper due diligence is required to avoid heavy losses.

Depending on the program, you might alternatively be able to invest in government bonds, public development funds, fixed-assets or local businesses that generate jobs. For all investments there is a minimum holding period, which is usually 5 years, after which you are free to sell the acquired asset.

The whole process takes 6 to 15 months. If you are not in a hurry and want more options, you can consider those Residence-by-Investment programs, that open the way to expedited citizenship after a few years of residence. While some require you to be a real resident, others only expect you to spend a few weeks per year in the country.

Citizenship laws and regulations are usually complex, not always precise, and can be changed at short notice. It is therefore no surprise, that a global industry of immigration agents has evolved. They can provide value, if they have an excellent understanding of the various programs and the right connections, which might sometimes be needed to expedite things. But we recommend to be cautious.

Countries with citizenship-by-investment programs pay agents for every successful application. The commission level is not fixed, but increases in tiers. For instance, one country pays USD 25,000 per case for the first 60 successful applications, USD 30,000 each for cases 61 to 80, and USD 35,000 for each additional case. Consequently, agents have a great incentive to focus on one or two programs or steer customers to a program, where they are close to reaching the next threshold.

Be aware that your interest and that of the ‘immigration agent’ don’t match. Most firms don’t employ advisors but salespeople, who only focus on earning commission for the company and themselves. They will sell you a second passport, even if it provides no value to you, and some might even sell you the least suitable option to earn the highest commission.

Many immigration ‘consultants’ have only minor or no tax and legal expertise, and you better don’t rely on their assurances. Once you have focused on one or two options, it makes sense to hire a qualified lawyer to look into tax, immigration and other issues. Such a lawyer or better law firm must be well-familiar with the legislation in both your home country and the target country. It won’t come cheap, but being stingy at this point can cost you dearly in the long run.

Evaluating the pros and cons

For some people, the possession of a second passport has proved to be life-saving. Many holders gain a lot of benefits from it, such as easier travel or living and working abroad. But there are also people who have paid a lot of money without getting much in return.

Provided that you don’t have to give up your original citizenship, it makes sense to obtain a second passport, if you can get it easily and without high costs, such as through descent or because you are married to a national of that country. Naturalization is the way to go, if you have time and want to live in a foreign country in the future.

Citizenship by investment is almost a no-brainer for those who can afford it, such as UHNWI (Ultra High Net Worth Individuals with liquid financial assets > USD 30 million) and most VHNWI (Very High Net Worth Individuals with liquid assets > USD 5 million). Everyone else should carefully weigh the pros and cons and especially consider the effect on net worth. If you just have a few hundred thousand dollars in liquid assets, spending most or all of your money on a second passport can only be justified under very specific circumstances.

For those who intend to obtain a second passport by investment, following the below steps might be helpful:

  1. Clarify the reason(s), why you want to get a second passport
  2. Check, whether your objectives can equally or better be met by other alternatives (e.g., permanent residence or an offshore trust/foundation)
  3. Clarify, whether laws in your country allow you to obtain a second citizenship
  4. Talk to various immigration agents and do your own research. Eventually focus on one or two countries (make sure that the targeted countries allow dual citizenship)
  5. Do a rough cost calculation and ask yourself, whether the money and time spend to get the second passport is really worth it
  6. Consult a lawyer with an excellent knowledge of tax, immigration and other relevant laws in your home country and the target countries
  7. Investigate and decide, whether you need an immigration agent or can apply by yourself (the latter is not an option in many countries)
  8. Decide on an immigration agent, who does not only have the right connections but also possesses sufficient integrity (during the application process you are required to provide personal data, that even your closest relatives might not have access to)
  9. Review all the pros and cons as well as the updated cost calculation and confirm, that the findings from step 2 above are still valid
  10. Take a final decision

The decision to apply for a second passport should not be taken lightly. If in doubt contact us at info@livebeyondborders.com.

Disclaimer: The above is for informational purposes only. It is not an offer or advice to buy or sell any products or services. Adexo Ltd does not provide specific investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this blog.