May 4, 2020

What You Need to Know on the Caribbean Citizenship via a Contribution to the National Development Fund

Is citizenship by investment in the Caribbean states worth acquiring it this year? Does the second passport offer real opportunities and benefits as opposed to many common pitfalls associated with such investments?

Someone interested in moving abroad and/or obtaining foreign citizenship in Europe now has more opportunities than at any time in history.

Depending on how much time and money such migrants are going to spend to achieve their goal, the opportunities available to them may include both multi-year naturalization for residence permits issued on the basis of employment, and the prompt registration of the golden passport.

For example, if you are well-heeled you can apply for EU citizenship as an investor in Cyprus, spending approximately 2.5 million euro to meet the combined financial requirements (investing in housing and business plus a contribution).

But if you are not ready for such spending, there are more affordable options. They are offered in the Caribbean. And it is there that the fastest citizenship by investment is available (in St. Kitts and Nevis), as well as the cheapest citizenship by investment (Dominica, Antigua and St. Lucia).

A total of five Caribbean states offer citizenship by investment. At the same time, each of them offers a second passport and citizenship for real estate. When choosing this option, you will have to invest in the real estate approved by the authorities.

In this case you can exit your investment in 3 years (Dominica), 4 years (Grenada) or 5 years (St. Lucia, Antigua, St. Kitts, and Dominica, if the asset is resold to a new member of the citizenship by investment program). And in all those countries you can start immediately renting out your newly purchased property without any obstacles.

The amounts you need to put up in citizenship by investment in the Caribbean vary from USD 200,000 in Dominica, Antigua or St. Kitts to USD 220,000 or USD 300,000 in Grenada or St. Lucia, respectively.

Development projects in the Caribbean in which foreigners invested to obtain citizenship can be assessed in two ways. First, in the context of purely investment offers. Secondly, in terms of lifestyle-buying made by wealthy people who want to get accommodation for a holiday in a tropical island and a new passport as a bonus (or vice versa).

Unfortunately, when these criteria are actually used to analyze the available market offers, many of the proposed projects simply do not qualify. So, what are the best opportunities available to investors who are going to put up their capital in a second passport and citizenship by investment in the Caribbean?

Citizenship by Property in the Caribbean – Investing Mechanisms

In the five Caribbean jurisdictions (Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis and St. Lucia) that offer their passports and citizenships by investment to  the foreigners, the investors are generally offered to choose a single type of assets when investing in the approved real estate:

Shares in a limited company’s equity. This option, as well as the next one, are the most affordable. It means you will need to invest in securities of the company overseeing the construction and operation of the approved resort. This legal structure is a commercial institution based on joint capital, with two categories of members: general partners and limited investors.

A person applying for citizenship by investment is invited to become one of the limited liability investors who are responsible for the company’s liabilities only in the context of their contribution, and can also receive income on invested capital.

On the other hand, general partners are engaged in business activities on behalf of the company (in our case, construction and management of the approved condo / resort), responding to the company’s obligations with all of their own property and participating in the distribution of profits.

Part of a hotel room or a full room. In this case, you will need to invest in fully equipped hotel rooms located in the grounds of the hotel already in operation or preparing for commissioning. The amount of investment may be the minimum legal limit for economic citizenship.

The investor can receive their share of the profit from renting out this room to tourists, as well as stay in the purchased room for a certain part of the year in proportion to their contribution and taking into account the number of other investors (if any) who have also invested in the correspondent hotel room for citizenship on the basis of this investment.

Full ownership of condominium apartments or villas. As a rule, investors are offered real estate that is part of a large resort which has diverse housing as well as numerous recreational facilities including marinas, spas, restaurants, sports grounds and so on.

It is also possible to invest in housing in the villa communities that have a management company and developed infrastructure. This option is the most expensive of all three, because you will have to buy the asset as a whole, and real estate in the Caribbean resorts is not cheap at all.

Citizenship by Property in the Caribbean – Assessment Criteria

It is not too complicated to assess the relevant development projects. A trip to the Caribbean to learn about the options in person may be the best solution for a potential investor, primarily because they can walk around the island, meet with the development teams and make sure they have good relations and communication with the local professionals who will take care of the interests of their partner.

If you want to delegate your authority and lack such a valuable resource as your own time, you can choose to hire a licensed immigration agent to negotiate with the developer. Even more so, you will have to hire such an agent anyway, because it is only via such an agent that you can apply for citizenship by investment in the Caribbean (making such an application directly to the receiving country is against the law).

No matter which option you choose after analyzing all the projects, you need to know the following:

1) Location. Where is the construction site that has been allocated for the approved project implementation? Is it located within the existing and operational resort or in a new location? How far is it from the beach? Is it in the city or in the countryside? How far is the construction site from the airport or attractions and places of interest for potential tourist tenants, as well as from restaurants and other recreational facilities?

2) Construction quality. Are there any resort properties under construction or completion that you or your trusted representative could visit to assess the construction quality in person? Have the construction methods used in the Caribbean region and in a particular island been tested? Hurricane resistance guarantees are needed, and so on. Who is the contractor? Who is the general developer? What is the reputation of the companies concerned, and what have they already built?

3) Quality of architectural design and design concept. Who designed architectural solutions and the concept? Do project specialists and companies have the necessary experience in building design in the Caribbean region? Are the designs they offer practical in terms of local climate and environment?

4) Information on the management company. Who will manage the property purchased? Who will rent it out on behalf of the investor if it is provided for? Who will control rental income and cost/profit distribution? Does the management company have experience in the Caribbean? Can its experts show you the actual rate of return on other facilities they used to manage or are managing now?

5) The essence of the exit strategy. This is a critical element in the context of the entire appraiser’s checklist. Yet again you will need to get the answers to a number of questions. Who will be obliged to or will buy your property after a period of 3/4/5 years of compulsory ownership? How will such a sale be processed? Who could like the property you are buying: lifestyle buyers, investors or new applicants for citizenship by investment?

Can a person who buys a property from you, also apply for citizenship by investment? If you only own part of the asset, how will the sale take place? What are your owner’s rights?

Citizenship by Property in the Caribbean – In-depth Analysis of Available Options

You can now explore the available investment mechanisms using the assessment criteria listed above. Let’s take a look at all the options one by one:

Shares in a limited company’s equity. That is what at first glance looks really attractive: a share in the equity of a company that stands behind a luxury resort with a well-known brand, where the developer spends millions of dollars on housing and amenities, probably in a beautiful coastal location.

However, as an investor you should know how many shares are issued to finance the resort. Can the developer issue new shares of his own accord, weakening the shares already issued? Is the system of generating rental income flows transparent? What is the cost of the operator (management company)?

Using the services of a global brand as a management company may result in the fact that the resort will not be making any profit for many years. It takes many years for branded hotels to break even in the Caribbean, let alone make a profit. Operators with big-name brands are paid first, leaving the owners (or shareholders) potentially vulnerable.

In addition, your share in the resort will become attractive to someone else applying for citizenship by investment only when it will be eligible for resale in 3/4/5 years.

And this is the biggest stumbling block. What if the citizenship by investment program is curtailed within five years? Fortunately, some developers are committed to buying back shares in the future. On the other hand, in some cases shareholders are not allowed to participate in the distribution of the resort’s income.

Part of a hotel room or a full room. In a well-managed resort, owning a hotel room can provide a stable annual income. You can expect a yield of 2-3% and perhaps more if hotel properties are really in demand.

Since prices for these rooms are usually close to the lowest possible level of putting up your capital in citizenship by investment to the real estate, and the idea of owning a tangible asset attracts many investors (as opposed to buying a fractional share in equity), such real estate is likely to be in demand for resale after the period of compulsory ownership.

A successful resort in a great location on the waterfront can really offer a good profit. A decent room of 200 square feet can be sold even to a lifestyle buyer in the future.

Such buyers are usually tourists from North America or Europe looking for a place to stay in the Caribbean. But it will be much easier to resell your asset to other applicants for citizenship by investment, as lifestyle-buyers are few. At the same time, most of these people would like to have two or more bedrooms, buying a holiday property in the tropical island.

Some hotels have an obligation to transfer the room purchased by the investor to the general rental pool. However, they (the investor) will usually be offered the right to use their property, i.e. for one or two weeks a year, without rental payments.

Full ownership of condominium apartments or villas. This is a conventional choice for Europeans and North Americans who travel to tropical countries to get more sunshine.

And this is probably the best opportunity for investors to get their invested money back by reselling the asset to a lifestyle-buyer in the future. Most likely, such an asset will rise in value over time, increasing the level of return on invested capital.

Investing in such property provides a more differentiated exit strategy, as the owner does not need to rely solely on resale to another person who is applying for citizenship by investment.

The problem is that you will have to invest in the luxury real estate market of the Caribbean islands. This means that the costs will amount to millions, not hundreds of thousands of dollars, as in the case of previous options. High-end real estate is expensive everywhere. If you do not have several million dollars to get them bound when buying Caribbean real estate, then, even with regard to a bonus such as the second passport, experts strongly recommend you looking for other options.

You can expect a profitability of 2-4% per year in the case of transferring your property into the hands of good professionals of a reputable management company. This will at least compensate all operating costs during the mandatory ownership period.

Citizenship by Property in the Caribbean – What about the route to the second passport related to business investment or contribution?

The most popular way to obtain economic citizenship is not investment, but the way of donating funds to the endowment fund. It is simple: this option is cheaper, requiring spending of USD 100,000 (in Antigua, St. Lucia and Dominica) to approximately USD 150,000 (in Grenada and St. Kitts), excluding government and other related fees.

It is cheap. But, in fact, the most economical route in the med-term is investment in real estate or business which you will be able to exit in the future. There are many opportunities for such investments in many areas of specific islands in the Caribbean, particularly in the construction of high-end real estate asset-backed by the developer. If you make the right choice, it will be easy to return and even increase your capital, instead of giving away USD 150,000 in contributions without the right to a refund.

If you are going to invest in a business for citizenship, please note there are only two Caribbean jurisdictions that actually offer this option. This is Saint Lucia and Antigua. And you will have to invest between USD 1 million and USD 400,000, respectively.

Tourism business projects related to the development of premium resorts deserve special attention, as high-end tourism is the strongest industry in many islands of the region. Make sure the project is managed by an experienced team and has a proven business plan.

Citizenship by Property in the Caribbean – Expert Assistance

If you are going to invest in citizenship by real estate, experts recommend the following:

  • Investing in the high-end part of the market (a share in the luxury villa is better than a small property in the low-rated location, with dubious potential for renting out or resale).
  • Choose assets with a sought-after location (best on the waterfront, or near the beach, or inside the existing resort).
  • Give preference to the real estate that is managed by an experienced team.

The ideal option is a new building on a popular beach, bringing rental income. And if commissioning of the resort and return to profitability are still only in the plans, you will need absolute faith in the developer.

Ask as many questions as you can think of! Does the developer have experience and successful projects in the Caribbean and elsewhere? Is it possible to easily sell real estate in the future in the lifestyle market (i.e. to wealthy Europeans and North Americans who are not looking for opportunities to apply for citizenship by investment).

To make the right choice applying for citizenship by investment in the Caribbean, you should contact experienced professionals who have some knowledge of the pros and cons, reliable opportunities and pitfalls.

For more information on noteworthy development projects in the Caribbean that have been approved under local economic citizenship programs and the companies implementing those projects, please talk to an experienced expert today.

You can get a quick answer to your question about citizenship and passports abroad via the purchase of real estate or otherwise by contacting our specialists directly at [email protected].