Demand for golden visa schemes like the one operated by Malta might also be driven by illegal tax practices and tax evasion opportunities, a report has warned.
In a working paper on global passport and residency schemes, the IMF, an international financial agency, said beneficiaries of residency schemes may declare tax residence in a country where they have only limited physical residence.
The impact on other economies should not be underestimated too, the IMF said, as other countries can be affected through negative tax spillovers, for example, when such schemes allow tax avoidance or evasion.
Schemes like Malta’s have long been criticised for offering citizenship and residency to people without any real link to the country. The IMF said for the countries that offer them, they could lead to corruption if they are not well-administered and monitored, with some recent examples supporting this view.
There are also potential security risks if background checks are not thorough.
The IMF warned that countries should undertake a careful and comprehensive cost-benefit analysis before considering introducing such schemes.
Security risks if background checks are not thorough
These should include all the economic and political costs involved in commodifying citizenship and residence rights, ensuring also that there is sufficient transparency and oversight to prevent misuse of the schemes, the IMF said.
Malta is facing a legal challenge by the European Commission to the continued operation of its scheme.
The commission’s case hit a snag last year when the EU’s advocate general said it has failed to prove that EU rules on citizenship require “a genuine link” or “prior genuine link” to grant citizenship.
In what is considered a key development in the ongoing legal battle between the European Commission and Malta over the controversial golden passport programme, the advocate general rejected the commission’s arguments. It is the penultimate stage before the European Court of Justice decision on Maltese citizenship-by-investment scheme.
Advocate General Anthony Collins noted that the issue of nationality falls under the sovereignty of individual member states, which retain the right to set their own conditions to grant citizenship.
His opinion, though not legally binding, typically carries significant weight in the final ruling of the Court of Justice of the European Union.
A final judgment in the case is expected at a later date.