Second Citizenships

• Author: Stephen Gray
• Profession: Shutts & Bowen, Attorneys and Counsellors at Law, London, UK
• Pages: 41-58

41

Second Citizenships

6

Second Citizenships: What’s on the Market

Stephen Gray

Shutts & Bowen, Attorneys and Counsellors at Law, London, UK

THE REASONS WHY INDIVIDUALS seek a second nationality are varied,

but the principal ones expressed over the years are these:

1. Travel Insurance

Just as the prudent person buys insurance to protect his health, life, home, car,

personal possessions, etc., every person who is a citizen of a currently or

potentially politically unstable country should possess a second nationality

(and second passport) in case of an emergency. For example, during the Gulf

War, many wealthy Kuwaitis had funds outside of Kuwait, but they could not

escape from their invaded country in the first place in order to have access to

those funds. (According to the Iraqi government, Kuwait had ceased to exist

as a nation.) Commercial airlines were not willing to allow Kuwaitis to board

lest the airline be fined by the next country of destination for bringing refugees

or asylum-seekers to that country. Wealthy Taiwanese may face the same

issue if Taiwan is ever invaded by the People’s Republic of China or is ceded

to the People’s Republic of China in a Hong Kong-type settlement. If one

looks at a world map, the countries where there are (or reasonably may be)

serious problems, outnumber those which are stable. And, there is no place on

earth immune from civil strife, a hard lesson learned recently in Yugoslavia.

The Yugoslav passport was, for a time, an excellent one.

Travel concerns do not merely extend to problems at the national level.

Individuals, who are concerned with divorce, bankruptcy, government

expropriation, violent personal creditors, unwarranted government

investigation, and repressive local government, want the security of a second

passport in case there is a judicial order seizing the known-passport as part of

some other proceeding. Not all courts are free of corruption and act fairly. In

many countries, a court is the last place to expect justice.

LEGAL ISSUES IN OFFSHORE FINANCIAL SERVICES

42

If there is a problem, then it will usually be too late to obtain the second

citizenship. (No one will sell to you fire insurance after your home has burned

down.) The process takes time, and the government granting the citizenship

wants to avoid problem applicants. If there is a requirement that the applicant

travels to the new country as part of the application process, he may not be

able to get there during a time of distress. And, as will be shown, programmes

come and go. The opportunity of today may not be there tomorrow, or may

cost more.

2. Improved Travel

The obvious, main benefit from a second citizenship for most persons is

improved travel. The quality and cost of a legal second citizenship turns on

this factor. Thus, a People’s Republic of China citizen, who can travel virtually

nowhere without a visa, can move about comparatively freely on a new

passport from another country. (But, he does technically lose his People’s

Republic of China citizenship.) Ease of travel is also desired by citizens of

Russia, other citizens of the Commonwealth of Independent States, citizens of

India, and many other countries’ nationals, including the majority of countries

in Africa and the Middle East. In terms of the world’s total population, far

less than half possess even a second-class travel document. While travel may

not be too burdensome for the international businessman, there is still, even

for him, the need to obtain invitations, to stand in queues, and to make travel

arrangements far in advance; and, the problem with family members remains.

3. Tax Planning

With the exception of the United States, no other developed country in the

world taxes on the basis of citizenship. That fact notwithstanding, a second

citizenship is often a critical part of personal tax planning because it allows

the taxpayer to establish a legal residence outside of his former home county.

Residence remains the benchmark for personal taxation in most jurisdictions,

and taxation can be confiscatory.

Under the previous Labour government in the UK, income taxes were as

high as 98%. During World War II, the US income tax rates reached 91% and

were at 70% even as recently as the 1970s. The current US gift/estate tax rate

is 55% and exceeds 80% on transfers to grandchildren. Certain countries still

have similar oppressive rates of personal income taxation, for example 60%

in The Netherlands, 51% in Italy, and 51% in Sweden.