Are Two Passports Better Than One? For The Right Price, You Can Find Out

During these recent times of turmoil, investors are diversifying their holdings to reduce exposure to various risks. Yet beyond their stock portfolios, more explore options to diversify their citizenship with another kind of asset – a second passport.

According to the International Monetary Fund, the demand for citizenship by investment programs has surged in recent years. So-called “golden passports” are not just popular among wealthy elites fleeing corrupt dictatorships either.

In fact, Nomad Capitalist, a boutique firm that advises high-net-worth individuals on offshore strategy, reported a 300% increase in Americans looking for second citizenship during the pandemic.

Yet buyers must pick carefully – the power of passports varies wildly. The mobility gap between passports has grown wider than ever before, according to the 2023 Henley Passport Index released in January.

World of Difference

Japan tops the list for 2023 as the most powerful passport, with Japanese citizens able to visit 193 countries visa-free. South Korea and Singapore tied for second, having visa-free access for 192 destinations, while Germany and Spain tied for third, with 190 nations.

Bottoming out the ranking of 199 countries is Afghanistan, whose citizens can only enter 27 countries without a visa.

The results highlight the stark disparities between citizenries' access to the global economy and the relative power of their passports. Take South Korea and Russia as examples. Both have similarly-sized economies (around 2% of global GDP), yet a South Korean passport holder can freely enter 81% of the world's economy, while a Russian passport can only access 19%.

Although the size of China's economy (19% of the global GDP) is quite comparable with the U.S. (at 25%), the relative power of an American and Chinese passport are still worlds apart. American passport holders can reach an extra 43% of the global economy visa-free, bringing their total to 68%. Chinese citizens, by contrast, can only travel to 7% of the world economy without a visa, bringing their total to just 26%.

“Greater access to the world's economic output is advantageous as it expands the basket of products available to any individual,” said Dr. Areef Suleman, Director of Economic Research and Statistics at the Islamic Development Bank Institute.

Suleman pointed out that while information and trade are increasingly digital, some non-exportable benefits, like high-quality education and healthcare, still need to be accessed in person.

Professor Trevor Williams, a former chief economist at Lloyd's Bank Commercial Banking, said the links between travel, investment, trade, and economic opportunity are mutually reinforcing.

“Skills and talent go where there is the ability to work, invest, and travel, attracting others wishing to do the same and creating a positive loop,” he said.

Going Global

There are a number of incentives for acquiring additional citizenship. Obtaining a second passport can provide access to more favorable tax laws, greater political stability, and increased mobility.

It can facilitate a “Plan B” in case of an emergency. A second passport can also diversify one's portfolio geographically, offsetting political and regulatory risks in one's home country. This may give individuals greater peace of mind knowing their assets and financial well-being are protected across multiple jurisdictions.

Being a citizen can open up access to business and investment opportunities, as some countries limit access to banking or areas of their economy to foreigners. Investment is also a way to get in the door and an alternative to more traditional pathways.

Investment Destinations

However – very few of the top-ranking passports for 2023 have official citizenship by investment programs.

The Caribbean is the birthplace of the citizenship by investment model, with St. Kitts and Nevis, and Dominica being among the earliest programs. The number of countries has grown in recent years. Andrew Henderson, the founder of Nomad Capitalist, lists St Lucia, Grenada, Dominica, Turkey, Malta, Egypt, and Cambodia among the top destinations for this year, with Turkey being the most popular program.

Some countries only accept a direct donation, while others allow applicants to invest, typically in real estate. However, applicants can only buy government-approved property, which, Henderson warns, is typically overpriced.

“People often get confused by the word ‘investment' sometimes,” he said. “You are making an investment in the country.”

Despite the cost, Henderson describes citizenship by investment as a “highly-efficient way” to get a second passport as it is more commoditized, which brings certainty and requires a shorter time horizon. Most programs grant investors a passport within six months, whereas naturalization and other channels typically take much longer, exposing applicants to disqualifying rule changes.

Henderson views the investment route as more than just a backup plan. It gives people what he calls a “Plan A – an active option” that can be used within months instead of years.

Whether it be for added security, extra mobility, or tax efficiency, getting a second passport can open new doors for development. In an increasingly volatile world beset by economic turmoil and geopolitical tensions, this trend is likely to grow for those who can afford it.

This article was produced and syndicated by Wealth of Geeks.