Nationality Swapping: The Latest Craze Of The World’s Ultra Rich

Nationality Swapping: The Latest Craze Of The World’s Ultra Rich

A growing number of wealthy are “jurisdiction shopping” to take advantage of more favourable tax climes

Tina Turner – the iconic American pop music legend – is no longer American.

 

Last month the 74-year-old Tennessee native signed papers at the US embassy in Switzerland to officially relinquish her US citizenship. She now resides with her German husband, music producer Erwin Bach in the Swiss-German region of Küsnacht, Zurich.

 

Turner, who has a net worth of at least US$40 million according to Wealth-X, joins a growing number of wealthy who are “jurisdiction shopping,” frequently to take advantage of more favourable tax climes. According to the UBS and Wealth-X Billionaire Census published earlier this month, billionaire hotspots such as Singapore, Switzerland and Hong Kong have emerged as favoured destinations for the ultra rich due to factors including quality of life, good education and low taxes. In these three countries, only 36, 34, and 25 percent of their billionaire populations, respectively, grew up locally.

 

With its cumbersome and costly tax policies, the US in particular has seen a record number of individuals renouncing their US citizenship or terminating their long-term US residency in 2013. According to a recent report from the US Treasury Department, 2,369 individuals have given up their US identities in the first three quarters of 2013 – already eclipsing the previous annual record of 1,781 in 2011.

 

Experts cite frustrations over the US’s complex and draconian tax system – which taxes citizens’ income no matter where in the world they are residing and requires US taxpayers to disclose information about their foreign bank accounts and assets – as one of the primary causes of this mass migration.

 

Numerous high-profile ultra high net worth (UHNW) Americans – including Facebook co-founder Eduardo Saverin, songwriter and socialite Denise Rich and 20-year-old oil fortune heiress Isabel Getty – have ditched their US passports in the past year.

 

But the US is not the only country experiencing an exodus of notable UHNW individuals.

 

Turner’s move comes on the heels of French actor Gérard Depardieu, who last year fled his country for Russia. The Oscar nominee reportedly left France to avoid the proposed millionaire’s tax.

 

LVMH boss Bernard Arnault, France’s wealthiest man with a US$28.3-billion net worth according to Wealth-X, reportedly applied for Belgian nationality which he subsequently withdrew after outcry in his home country.

 

Armand Arton, CEO of Arton Capital, a global financial advisory firm that provides custom-tailored financial services and Immigrant Investor Programs to UHNW individuals explains that: “More and more high net worth individuals are enquiring into immigrant investor programs due to the increased financial flexibility and investment options they can offer to them.”

 

Arton deals with various governments around the world who are trying to attract these wealthy Global Citizens through programs that offer an expedited pathway to residency and citizenship – Arton says his clients seek a second residency for a variety of reasons including privileged resident status, family security, or in some cases, direct or fast tracked citizenship.

 

Arton Capital who launched the first ever Global Citizen Forum, in collaboration with Wealth-X, predicts that there will be more than twenty countries competing in the short term for the business of these investors and estimates that around 20,000 families are looking for such solutions every year. “This niche industry has a very promising future for both the countries offering these programs and high net worth investors, who need to extend their reach and global freedom.”

 

Caroline Garnham, a lawyer and chief executive of family office advisor Family Bhive, said that ease of mobility combined with growing wealth is making nationality swapping more common. “The wealthy are mobile and when taxation becomes more onerous than their affection for a country, they can move,” she commented.

 

Tax havens such as Switzerland, Singapore, the Cayman Islands, Luxembourg, and Hong Kong continue to attract flocks of migrating UHNW individuals.

 

In fact, 70 percent of UHNW individuals based in Hong Kong were raised in a different country, while this figure stands at 44 percent and 42 percent in Singapore and Switzerland, respectively – according to Wealth-X data.

 

Garnham added that some moves are more successful than others: “The most successful emigrations are by those moving from a country where their ties are not strong to begin with. Clients may have moved to that country initially for work or marriage and now the irritation with the tax system simply overcomes inertia in making them take a step which they have been putting off for years.”

 

She cautioned: “My first advice is never to let the tax tail wag the dog. Saving tax does not make up for missing friends and family. Émigrés like Gerard Depardieu may find that, on reflection, they soon begin pining for the liberté, égalité and fraternité of their friends and motherland.”

 

Others agree that jumping ship is not always the answer. Micha Emmett, managing director of London-based consultant CS Global, said for many it makes more sense to find a solution that does not oblige them to physically move, but simply take on a secondary citizenship that gives them all the benefits. “Becoming a global player is important for businessmen and entrepreneurs. But ultimately businessmen understand their local markets where they have made their money. So to uproot their families, livelihood and lifestyles to adapt to a new locale is challenging and obstructive.”

 

She added that besides wealth protection, there are many other reasons that individuals change jurisdiction including a desire for greater privacy and anonymity, reduced administration and increased global mobility. In this case, opting for citizenship through investment may be optimal. This practice is becoming increasingly popular with the wealthy, said Emmett, as many governments looking to boost their coffers have launched citizenship-by-investment schemes, granting citizenship to foreigners in exchange for investment. This usually enables the applicant to then travel more freely and settle within a preferred country.

 

Malta this month launched such a scheme, offering citizenship and EU access to investors who make a minimum contribution of €650,000, provided they meet regulatory requirements and background checks. Emmett said that one of the most popular options for individuals from the emerging markets, particularly those that experience trouble traveling, is the scheme offered by St. Kitts and Nevis.

 

Emmett said: “You can understand why clients want a solution that gives them access to other markets without having to forfeit the comfort of their lives in their home countries. An option like St. Kitts and Nevis gives successful businessmen and wealthy families this flexibility – they have a second option without having to compromise their lifestyles.”

 

This trend of nationality shopping is something largely favored by old money wealthy, those in developed markets and rich retirees. The ultra wealthy in newer and emerging markets tend not to move too much out of their hometowns – at least not yet. According to Wealth-X data, 86 percent of Chinese billionaires and 95 percent of Indian billionaires who currently have their primary business in China and India, respectively, also grew up there.

 

But when they do choose to move, the world’s low-tax jurisdictions will no doubt be ready for them.