Updated 1.55pm with reaction from government

Malta's 'golden passports' scheme violates EU law, Europe's top court has ruled, effectively sealing the fate of the controversial scheme.  

The scheme gives wealthy foreigners the chance to obtain Maltese citizenship by making financial contributions ranging from €600,000 to €750,000, alongside property investments and donation.

In its decision on Tuesday, the Court of Justice of the European Union said the acquisition of EU citizenship cannot result from a commercial transaction. Such "commercialisation" of citizenship is incompatible with the basic concept of EU citizenship as defined by treaties, it ruled. 

The government said Malta will respect the EU court's decision and update its citizenship rules.

It follows years of extensive criticism from the European Commission, after more than a thousand foreigners, including from Russia, China and the Middle East, obtained a passport since 2014 that enabled them access to all EU countries due to Malta's membership in the bloc.

But the decision came as a surprise considering the EU's Advocate General said last October that the European Commission had failed to prove that EU rules on citizenship require "a genuine link" or "prior genuine link" to grant citizenship.

What does the ruling say?

According to the ruling, the scheme, first introduced in 2014 and amended in 2020, infringes the principle of sincere cooperation and jeopardises the mutual trust between member states concerning the grant of their nationality, the court said. 

Malta violated EU law by establishing and operating the 2020 investor citizenship scheme, which amounts to the commercialisation of EU citizenship, the court ruled. 

While acknowledging that member states are free to lay down the conditions under which citizenship is granted, the court ruled that this must be done in compliance with EU law. 

The court said member states cannot grant nationality, and by extension EU citizenship, in exchange for pre-determined payments or investments, as this essentially amounts to rendering the acquisition of nationality a mere commercial transaction. 

Such a practice does not make it possible to establish the necessary bond of solidarity and good faith between a member state and its citizens, or to ensure mutual trust between the member states and thus constitutes a breach of the principle of sincere cooperation, the court ruled. 

Tuesday's decision stems from a challenge by the European Commission before the courts, arguing the scheme violates EU law by granting European citizenship to individuals without them establishing a genuine or prior link with Malta.

What happens now?

The EU member state concerned must comply with the European Court’s judgment without delay, according to a statement from the EU Court of Justice.

If the European Commission considers that the member state has not complied with the judgment, it may bring a further action seeking financial penalties.

Tuesday's decision is binding and Malta must comply or risk hefty fines.

However the government stressed those who obtained citizenship under the scheme would not be impacted. More than 5,000 people and their dependents received passports through the scheme, according to the latest annual report from the regulator. 

If measures transposing a directive have not been notified to the Commission, the Court of Justice can, on a proposal from the Commission, impose penalties at the stage of the initial judgment.

Concerns have long been raised by the commission about the corruption, money laundering and security risks posed by such schemes.

How has the reaction been?

Joseph Muscat, who introduced the scheme when he was prime minister, said the ruling was a "political decision" and pointed out that the Court of Justice went against the opinion of the EU's Advocate General. 

He said he believed there is scope for a version of the scheme to continue, with some changes and pointed out that the US had recently unveiled a similar scheme.

The ex-Labour leader said EU Parliament President Roberta Metsola and the Nationalist Party deserved a "round of applause" for "working against the country".  

Metsola said PN had long warned that "the decision to hook up the nation's economy on this get-rich-quick scheme was legally and economically reckless" and left "huge holes in the security of our country and our Union."

The PN called for the government to publicly declare it fully accepts the ruling in the interest of safeguarding the country’s reputation. “For the PN, the Maltese passport had value, not price,” it said. 

In a statement, the government said it would respect the court's decision and that anyone who had already received citizenship would not be affected. 

"At this moment the legal implications of this judgment are being studied in detail, so that the regulatory framework on citizenship can then be brought in line with the principles outlined in the judgment," it said. 

On the eve of the ruling, Prime Minister Robert Abela defended the scheme's "robust" due diligence system, in the wake of reports that Russians hit with EU sanctions over the Ukraine invasion were able to partially circumvent travel restrictions thanks to the scheme.

Last December, Times of Malta reported that a Russian man who ran a “professional banking service for criminals across the world” was set to be stripped of his Maltese citizenship.

Semen Kuksov, who acquired citizenship in 2022, was jailed in the UK in 2024 for his role in a billion-dollar money-laundering network.

An investigation by Times of Malta in 2021 revealed how Maltese passport-buyers would spend an average of 16 days in the country during their mandatory one-year residency period in the early days of the scheme’s launch.

The government insists that the scheme’s residency requirements have since been tightened.

How did we get here?

The European Commission issued a letter of formal notice to Malta in October 2020, highlighting its concerns about the scheme. 

In response, the government said it had amended the scheme in a bid to allay concerns about the transactional nature of it. 

The European Commission sent an additional letter of formal notice to the government in June 2021, saying the amendments had not addressed its fundamental concerns. 

This eventually led to the Commission challenging the scheme before Court of Justice of the European Union.

Malta was not the only member state to run a citizenship scheme for foreign investors. Cyprus scrapped its version in 2020 over alleged abuses and Bulgaria scrapped its scheme in 2022 after intensive criticism from the European Commission.