Organization for Economic Co-operation and Development (OECD) has identified certain investment schemes promoted by some countries to enable rich people to obtain citizenship in that country without insisting on their physical presence in the country at least for a minimum period of 90 days in a year.
The investment schemes are termed as Citizenship By Investment (CBI) and Residence By Investment (RBI), while different names have been assigned to the schemes by the countries. Individuals may be interested in these schemes for a number of legitimate reasons. However, information released in the marketplace and obtained through the OECD’s Common Reporting Standard (CRS) public disclosure facility, highlights the abuse of CBI/RBI schemes to circumvent reporting under the CRS.
Such a scheme promotes rich people to invest in these countries sums amounting to a few million dollars (or) Euros to obtain permanent residency (or) temporary residency (or) citizenship. This might also enable the rich persons to stash their assets in these foreign countries and pay negligible tax to evade higher tax burden in their original jurisdictions as the income tax rates in CBI/RBI countries are much below 10%.
Doesn’t it look like a sale of Citizenship as a commodity for a price without ethos ?
Some individuals intending to circumvent the CRS via CBI/RBI schemes might attempt to avoid income tax on their offshore financial assets in the CBI/RBI jurisdiction and without fundamentally changing their lifestyle by leaving their original jurisdiction of residence and relocating to the CBI/RBI jurisdiction. Such people may evade tax by claiming residency in these countries offering CBI/RBI schemes with low tax rates and thereby avoid furnishing the details of tax residency in the original jurisdiction.
The countries offering such CBI/RBI Schemes include Antigua & Barbuda, the Bahamas, Cyprus, Dominica, Grenada, St Lucia, St Kitts, Nevis, Bahrain, Colombia, Malaysia, Mauritius, Montserrat, Panama, Qatar, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.
OECD has advised the Financial Institutions(FI) not to rely on the self-certification or Documentary Evidence, if the FI knows or has reason to know, that the self-certification or Documentary Evidence is incorrect or unreliable. The FI may also verify the results of the OECD’s CBI/RBI risk analysis. Wherever doubt exists as to the tax residency of an Account Holder (or) Controlling Person, it should take appropriate measures to ascertain the tax residency of such persons.
In such instances, FIs may consider raising further questions, including:
Did you obtain residence rights under an CBI/RBI scheme?
Do you hold residence rights in any other jurisdiction(s)?
Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
In which jurisdiction(s) have you filed personal income tax returns during the previous year?
The responses to the above questions will help in ascertaining whether the provided self-certification or Documentary Evidence is incorrect or unreliable.
After ascertaining the correct tax residency status of the Account Holder (or) Controlling person, the FI may report the CRS status to the respective jurisdictions accordingly.