A Second Passport from St. Kitts & Nevis Unlocks a New World of Opportunities

A second citizenship and passport provides numerous benefits. It can expand your travel possibilities, give you the right to reside in other countries, enable you to cross international borders if your primary passport is lost or stolen, and even reduce your profile to terrorists.

For U.S. citizens, a second passport has another benefit: it is an essential prerequisite to expatriation. This is the process of giving up U.S. citizenship in order to disconnect permanently from U.S. taxing authority.

Just about everyone can benefit from a second nationality and passport. Unfortunately, it's not easy to obtain one, unless you qualify by virtue of ancestry, marriage, religion, or long-term residence in a foreign country. However, a handful of countries offer “instant” citizenship in return for an economic investment contribution. The Federation of St. Kitts & Nevis, an independent nation in the eastern Caribbean, offers a compelling opportunity in this regard.

Formerly a British colony, the Federation came into being in 1983, when the islands achieved independence from the United Kingdom. St. Kitts is larger and more populous. Nevis is smaller and more rural.

The World's Leading Citizenship-by-Investment Program

Since 1984, the St. Kitts & Nevis Citizenship Act has authorized foreign investors  to obtain citizenship and passport through a qualifying real estate investment, and since 2006, through a qualifying contribution. This makes it the oldest existing citizenship-by-investment program.

There are two options. All prices listed are in U.S. dollars.

Real estate option. To apply for citizenship under this option, you must invest a minimum of $400,000 in qualified real estate. Funds for your investment are placed in escrow and released only after your application for citizenship is approved. This investment qualifies you, your spouse, and your minor children under the age of 18 for citizenship. Children 18-25 enrolled full-time in a university and adult dependent children or parents qualify as well.  You may live in the dwelling you purchase, or rent it out—nearly all approved projects provide a managed rental program.

Not all real estate in St. Kitts & Nevis qualifies for the purpose of acquiring economic citizenship. You must purchase real estate in developments with governmental approval for the citizenship-by-investment program. However, most new real estate projects have this authorization.

There are dozens of qualified developments from which to choose.They vary from small studio or one-bedroom units for the minimum investment of $400,000 to multi-million-dollar villas with spectacular ocean views—and everything in between. You can also opt for a fractional ownership scheme where you can purchase a one-quarter share of a $1.6 million beachfront villa for $400,000. Even a time share, raw land, or a yacht slip qualifies at a few developments.

Charitable contribution option. This option requires a payment of $250,000 or more to the “Sugar Industry Diversification Foundation” (SIDF), an entity set up to benefit sugar workers displaced by the elimination of large-scale sugar cane production in 2005. You make the contribution only after the government approves your application. The same conditions apply for your spouse and children accompanying your application.

Neither option requires you to travel to St. Kitts & Nevis for an interview, but I recommend that you do so, especially if you plan to purchase property there. The program was radically streamlined for 2012 and the government now promises a decision within three months of filing an application.

See the table below for a breakdown of costs for five hypothetical applicants for applications filed through our firm. All applicants must also submit to a thorough background check, provide bank references and letters of recommendation, along with proof of no criminal record in their home country. (The Nestmann Group, Ltd. operates exclusively through government licensed and approved agents.)

Expensive…but a Very Useful Travel Document

The cost alone limits the number of people who can afford to purchase St. Kitts & Nevis citizenship and passport. However, with this expenditure, you'll possess a very useful travel document. The passport gives you visa-free access to more than 120 countries, including all 27 members of the EU. If you have British ancestry, a St. Kitts & Nevis passport may also entitle you to live and work in the United Kingdom.

You need a visa to enter the United States. But, obtaining a U.S. visitor's visa usually is easy if you can prove you have a permanent home outside the United States and have a clean criminal background.  Keep in mind that if you're a U.S. citizen, you need to enter and leave the United States using a U.S. passport.

St. Kitts & Nevis citizenship also comes with a lot less “baggage” than, say, U.S. citizenship. This makes a St. Kitts & Nevis passport very convenient to open offshore bank accounts and establish offshore businesses. Unlike the United States, St. Kitts & Nevis doesn't tax on the basis of citizenship—only residence. As a St. Kitts & Nevis citizen, you pay tax only on income you earn on one of the islands. Nor does St. Kitts & Nevis impose capital gains taxes, wealth taxes, or inheritance taxes. Offshore banks and service providers like dealing with St. Kitts & Nevis passport holders because its government isn't trying to chase down its citizens outside its territorial boundaries. Nor does it have armies of tax collectors offshore.

You have no obligation to live or work on St. Kitts & Nevis once you acquire citizenship and passport there, although you can do so any time. And, in the unlikely event you ever find yourself in a terrorist situation, you'll be comforted by the fact that you possess a passport from a peaceful, neutral country not at war with anyone.

Incidentally, it's not difficult to establish permanent residence without citizenship in St. Kitts & Nevis. However, you'll need to live there for 12 years in order to qualify for citizenship by naturalization. That's a long time to wait for a second passport. If you're interested in obtaining citizenship in a country after a reasonably short period of residence, without needing to make a large investment, St. Kitts & Nevis isn't a good choice.

Unfortunately, dual citizenship for U.S. citizens doesn't end the obligation to pay U.S. income tax on your worldwide income and file U.S. tax and reporting forms, even if you live permanently offshore. The only way to end this obligation is to give up your U.S. citizenship and passport—something you can easily do once you obtain your St. Kitts & Nevis passport. I discuss this process of “expatriation” in my newly-updated special report, The Billionaire's Loophole.

Real Estate or Contribution…Which Option is Best?

The answer depends on your particular circumstances. In some cases, real estate is a better choice:

• If you would seriously consider living on one of the islands for at least a few months each year. In that event, your qualifying real estate investment gives you a permanent home on the islands.
• If you want to purchase offshore real estate as an investment. That makes the real estate option more compelling since along with your investment you obtain citizenship and a first-class passport.
• If you're concerned about lawsuits, real estate you own offshore will never show up in a domestic asset search. Moreover, foreign real estate you own in your name need not be reported to the IRS or U.S. Treasury as a “foreign bank, securities, or 'other' financial account.” This includes both Treasury Form 90-22.1 and the new IRS Form 8938. However, if you rent out the real estate, the income generated is taxable and reportable to the IRS.
• If you can find a compelling value in a property that has good prospects for future appreciation or cash flow. Properties located near airports or medical schools on both islands, for instance, often provide a relative steady income stream from flight crews and students. A few developments guarantee a rental income (4% is typical) for a certain period. Just remember that such guarantees are only as reliable as the financial standing of the developer.

In other cases, the SIDF option is preferable:

• If you want the lowest initial cost for your passport. As the table demonstrates, the initial cost of the SIDF option typically costs around $200,000 less than the real estate option. However, after you’ve held qualified real estate purchased in 2012 or thereafter for five years, you can sell it to someone else seeking economic citizenship. Assuming you break even after adding whatever rental income you’ve earned, and deducting your costs, a 12% transfer tax and broker commissions (typically 5% or more), your net costs may be less—perhaps considerably less—than if you'd made an outright $250,000 contribution.
• If you want the fastest possible way to economic citizenship and passport. Once you pass the background check, you make your contribution. A few weeks later, you receive your certificate of naturalization, and subsequently, your passport. You avoid the hassles and inevitable delays of large real estate investment, some of which can also delay processing of your application.
• If you don't want to be tied down to a large real estate investment. Like real estate anywhere, property in St. Kitts & Nevis costs money to maintain. The SIDF option avoids continuing utility bills, homeowner's association fees (typically $500 or more monthly, covering all external repairs), and a local tax of 5% of the estimated rental value of your property. If you do rent out the property, though, the actual rental income is tax-free.

Bottom line: If you’re risk-averse, the SIDF option is the preferred option. But, if you’re looking for an easy avenue for offshore diversification, or you’d enjoy spending a few months annually on a largely undiscovered tropical island, buying qualifying real estate and obtaining a second passport as a bonus is worth considering.

For more information, contact The Nestmann Group, Ltd.

Copyright © 2012 by Mark Nestmann

An earlier version of this article was published in the Simon Letter