In Tuesday’s speech to a joint session of Congress, President Donald Trump said his proposed $5 million “gold card” citizenship program would exclude participants’ foreign income from U.S. taxes in what would be an exception to U.S. tax code.
That detail, which would likely require congressional approval, may be essential for the program to gain traction with the world’s uber-rich, according to advisors familiar with similar programs.
“It would be a challenge for the uber-wealthy to become a U.S. resident because they would be subject to worldwide taxation,” said Peter Sengelmann, partner and the director of international investments at Creative Planning.
U.S. citizens must pay a worldwide income tax, which includes wages, unearned income and tips. Sengelmann said an exemption would be essential for the U.S. “gold card” program to work, particularly at such a high buy-in rate.
“We have clients who have bought passports in other countries and others who have made a commitment to financial resources to obtain residencies at a financial loss or a low rate of return,” he said. “Conceptually, I’m not opposed to the idea … but given the hurdles and size (of the payment), I’m not sure how much interest it would get.”
Commerce Secretary Howard Lutnick is spearheading the program, which will be on sale “very, very soon,” according to the president.
Over 100 countries offer some kind of investment migration program, according to Henley & Partners, a firm specializing in residence and citizenship through investment.
In 1990, the U.S. launched an investment program to stimulate jobs and the economy by which foreign nationals could gain a path to citizenship. The EB-5 program requires investment in a U.S. business that creates or maintains at least 10 full-time jobs at a price tag of about $1.05 million, or $800,000 if investing in a “targeted employment” area such as a rural locale needing job creation.
Nuri Katz, founder of Apex Partners, noted that the new “gold card” program would be a non-starter without the non-U.S. assets tax exemption but would likely require both congressional approval and enduring legal challenges for those who disagree with the special tax status for non-citizens.
However, Katz said if the administration could make the exemption happen, it would attract interest from the international upper-high-net-worth crowd.
“If you could become a U.S. citizen relatively quickly in exchange for a $5 million fee with your earnings outside of the U.S., you could basically live in America tax-free,” he said. “With that, I believe this could become a very popular program.”
But even with that setup, Katz said he doesn’t believe the program would bring in the $5 trillion that Trump initially floated, as there aren’t enough people with $5 million in cash to pony up for a passport. Usually, he said, wealthy people will put up about 10% of their capital to gain citizenship.
“The numbers aren’t there for people worth $50 million or more who want to become U.S. citizens,” he said. “You’re talking about a person in a very different category of high-net-worth.”
Katz notes the much lower cost of other passport purchase programs. In Malta, a person can gain citizenship for €600,000 ($646,917) for a minimum residence period of 36 months or €750,000 ($808,647) for a minimum of 12 months. Various Caribbean islands offer programs ranging from $200,000 to $250,000.
Dominic Jones, who spearheads a foreign investment program for New Zealand, was visiting New York when news of the “gold card” program broke. He said he wasn’t surprised at the announcement because such programs have become more popular. He said the drivers of that interest include geopolitical uncertainty, a retrenchment of globalization and high-net-worth individuals looking to diversify risk by having dual residencies.
The specific countries people are interested in vary by their goals and tastes.
“It’s a bit like when people buy cars,” said Jones, managing director of Origin Capital Partners and head of Greener Pastures New Zealand. “Some people will buy a Toyota, some will buy a Mercedes, and the reasons for that depend on what they are after in a car and the price point.”
Jones said New Zealand has attracted investor interest because of its relaxed lifestyle, stable political and economic landscape, and safety.
The U.S., he said, would have its own attractions.
“The U.S. is a phenomenal place for many reasons,” he said. “I’m sure it would be popular around the world …. we’ve seen demand for this product increasing steadily worldwide, and so, of course, the U.S. would fill some of that demand.”
Creative Planning’s Sengelmann said the $5 million payment could also be used to purchase someone amnesty from another country.
“You could have an uber-wealthy person who is running from somebody else, with a lot of money, who buys their ticket into the United States and cuts ties,” he said.
Ultimately, Sengelmann doesn’t see the gold card program as a monetary decision for investors. It will be for those who are truly interested in U.S. citizenship and potentially setting up a life in the country, including investments, businesses and the like—just as Trump noted in his Tuesday speech.
“This isn’t an all-or-nothing proposition, so maybe this is an enhancement to bring more wealth into the country,” Sengelmann said.