OECD toughens bank checks for participants of residence and citizenship-by-investment programmes
On 20 November 2018, the OECD published a list of the countries whose residence or citizenship-by-investment programmes it regards as high-risk. The OECD recommends that banks more thoroughly check the clients who obtained citizenship or residence under these programmes and especially the documents verifying the investors’ physical presence in certain countries. This applies not only to new clients but also to those holding at least €1mn in bank accounts.
Which programmes are recognised as high-risk?
The OECD established two main criteria to identify high-risk investment programmes: the low-income tax on financial assets in the issuing country and the absence of investor residence requirements.
Country | Residence or citizenship-by-investment programme regarded as high-risk by the OECD |
---|---|
Antigua and Barbuda |
Antigua and Barbuda Citizenship by Investment |
Permanent Residence Certificate |
|
Bahamas |
Bahamas Economic Permanent Residency |
Bahrain |
Bahrain Residence by Investment |
Barbados |
Special Entry and Residence Permit |
Cyprus |
Citizenship by Investment: Scheme for Naturalisation of Investors in Cyprus by Exception |
Residence by Investment |
|
Dominica |
Citizenship by Investment |
Grenada |
Grenada Citizenship by Investment |
Malaysia |
Malaysia My Second Home Programme |
Malta |
Malta Individual Investor Programme |
Malta Residence and Visa Programme |
|
Qatar |
Residence Visa for Real Estate Owner |
Panama |
Reforestation Investor Permit |
Economic Solvency Permit |
|
Friendly Nations Permit |
|
St. Kitts and Nevis |
Citizenship by Investment |
Residence by Investment |
|
St. Lucia |
Citizenship by Investment Saint Lucia |
Seychelles |
Type 1 Investor Visa |
Turks and Caicos |
Permanent Residence Certificate via Undertaking and Investment in a Home |
Permanent Residence Certificate via Investment in a Designated Public Sector Project |
|
Permanent Residence Certificate via Investment in a Home or Business |
|
United Arab Emirates |
UAE Residence by Investment |
Vanuatu |
Development Support Programme |
Self-Funded Visa |
|
Land-Owner Visa |
|
Investor Visa |
What is driving the OECD initiative?
In 2016, the Multilateral Competent Authority Agreement (MCAA - an nternational treaty compelling banks, brokerages, investment bodies and insurance companies in signatory countries to provide local tax authorities with bank account information pertaining to non-residents) was signed. In turn, the local authorities pass on the obtained data to the tax authorities where the account holders are resident. The agreement has over 100 signatory countries: European states, Canada, island countries (the BVI, St. Kitts & Nevis, the Bahamas, etc.), in addition to several Asian nations (e.g., the UAE, and Saudi Arabia).
The OECD believes that residence-for-investment programmes can become a tax loophole. As reported by the organisation, the absence of tax residency control under residence and citizenship-by-investment programmes may lead to violations in reporting under the Common Reporting Standard (CRS).
What types of violations are concerned?
Residence and citizenship-by-investment programmes may be used to conceal the investor's actual tax residency. For instance, when the investor does not actually live in the country, but claims to be a tax resident there and provides the bank with the correspondent documentation: a resident's ID or passport obtained via the programme.
The OECD recommends that banks check the clients claiming to be tax residents of the high-risk jurisdictions specified. This includes clarifying residence or nationality grounds, requesting tax returns for the past few years and proof of the client's address.
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