## B.8 Recording Citizenship-by-Investment Programs ## Source details **Canonical URL:** [B.8 Recording Citizenship-by-Investment Programs](https://www.imf.org/-/media/files/data/statistics/bpm6/bptt/b8-recording-citizenshipbyinvestment-programs.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/bptt/b8-recording-citizenshipbyinvestment-programs.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/bptt/b8-recording-citizenshipbyinvestment-programs.pdf.json) --- ### Background and scope - Citizenship-by-investment (CBI) programs allow individuals to obtain an additional citizenship, passport, or long-term visa by making economic contributions to another country. - CBI programs often have minimal to no residency requirements or look-back rules of past presence in the country and are designed to use contributions to improve welfare and economic development. - Statistical manuals do not explicitly describe CBI programs or provide guidance on how to record large nonrefundable contributions; the updated Balance of Payments Manual (BPM6 update) is recommended to include such guidance. ### Contribution mechanisms under CBI programs - Four contribution mechanisms identified: - Significant purchases of land or property. - Business activities (e.g., investments in business assets/job creation schemes). - Investments in financial assets such as placing large deposits in resident banks or large purchases of government debt securities. - Large, nonrefundable contributions to the government, nominated development funds, or possible non-profit institutions serving households. ### Examples of macroeconomic significance - St. Kitts & Nevis: collected large one-off fees amounting to at least 9 percent of GDP in 2015, and 5 percent of GDP in 2016 in a development fund. - Vanuatu: CBI programs became a regular source of government income, enabling a government surplus and a stimulus package in response to the COVID-19 crisis. - Portugal: 13 percent of direct investment (DI) inflows in 2014 came from its Golden Visa Program that requires real estate investments. - Prevalence: at least 23 countries have CBI programs; around 11 offer citizenship or long-term visas for large one-off fees (Antigua and Barbuda, Cambodia, Dominica, Grenada, Malta, Moldova, Montenegro, St. Kitts and Nevis, St. Lucia, Thailand, and Vanuatu). ### Residency and timing implications for recording - BPM6 residency guidance: a household is resident where household members maintain or intend to maintain a dwelling (paragraph 4.117); if timing of transaction and change of residence is unknown or simultaneous, a convention can be adopted such as change of residence occurs first (paragraph 9.22). - Two allowable options under BPM6 for timing of change of residency relative to the contribution: - If change of residency is considered to occur before the contribution, the contribution is between residents and no balance of payments (BOP) transaction is recorded. - If change of residency is considered to occur after the contribution, investments are recorded in the BOP and IIP and would then need to be backed out of the IIP with valuation adjustments. ### Current treatment for refundable contribution mechanisms - Refundable CBI contribution mechanisms correspond to existing BPM6 transaction guidance: - Purchase of property/land: classify as direct investment (DI). - Business activities: classify as financial assets (e.g., DI) or possibly capital account acquisitions of non-produced, non-financial assets. - Investments in financial assets: classify per BPM6 Chapter 5 on financial assets. ### The central question: how to record large nonrefundable contributions - Nonrefundable contributions are government revenues but existing manuals do not specify whether to record them as taxes, purchases of services, or transfers. - Past IMF technical assistance often advised treating such revenue as taxes, citing SNA 2008 (paragraph 8.54), BPM6 (paragraph 12.30), and GFSM 2014 (paragraph 5.81, fourth bullet) regarding fees “out of all proportion to the cost of issuance.” ### Three recording options for nonrefundable contributions - Option 1: Taxes - Rationale: - Fits the “out of proportion” criterion in SNA 2008, GFSM 2014, and BPM6. - Fits the “little work on the part of government” criterion when issuance is largely automatic (BPM6, paragraphs 10.180–10.181). - Consistent with CBI programs’ objective to improve government finances. - Classification implications: - Likely akin to capital taxes given irregular, infrequent, or once-off nature (BPM6, paragraph 13.28), though not a complete analog because CBI is not an asset that is transferable. - If contributions are recurrent, could be treated as current taxes under the secondary income account. - Option 2: Services - Rationale: - From purchaser’s viewpoint, contributions can be voluntary and uncoerced; purchasers can “shop around” among providers. - Aligns with standard fees for passport issuance where payments are treated as purchases of services (BPM6 convention). - Classification implications: - Record as service receipts in the current account. - Option 3a: Transfers, other than taxes - Rationale: - If contributions are unrequited and exceptionally large compared to the value of the passport, they may be transfers. - Could be similar to GFSM 2014’s recognition of “exceptional large donations” as capital transfers. - Classification implications: - Record as capital transfers (transfers other than taxes). - May be difficult to treat as exceptional if CBI is a regular revenue source. - Option 3b: Partitioning between transfers and services - Rationale: - Recognizes that some portion of the contribution covers administrative costs (service component) with the remainder being unrequited (transfer). - Classification implications: - Split the nonrefundable contribution into a small service component and the remainder as transfers. ### Analytical impacts of classification choices - Option 1 (taxs): increases tax revenues and may lead to interpretation of high tax-to-GDP burden or effective tax collection. - Option 2 (services): boosts the current account service receipts, which may be interpreted as improved external competitiveness. - Option 3 (capital transfers): improves the capital account; capital transfers are often viewed as more volatile and difficult to interpret. - For countries where CBI is important, it may be useful to publish a separate “of which” line for transparency. ### Proposed outcomes and guidance - Guidance recommendation: - Provide explicit guidance for recording nonrefundable CBI contributions in the updated Balance of Payments Manual. - Existing BPM6 guidance is sufficient for refundable contributions that are financial investments. - The Guidance Note advances three treatment options: - Option 1: record as taxes under secondary income. - Option 2: record as purchase of services. - Option 3: record as transfers other than taxes (3a) or partition between transfers and services (3b). - Annex II (referenced) identifies BPM sections needing adjustment. ### Consultation views and consensus - Balance of Payments Task Team (BPTT) consultation revealed divided views: - Members were split between Option 1 (taxes) and Option 3 (transfers); less support for Option 2 (services). - Supporters of Option 1 argued that if payments were compulsory, the treatment should be taxes; recording as transfers is not appealing because the transaction seems remote from typical grants. - Supporters of Option 3 argued the payments are unrequited and not compulsory. - Rejected alternative: - Option 2 (services) was mostly rejected in the consultation. ### Assessment of purchaser behavior and transaction composition - The argument that non-resident non-citizens are able to exercise meaningful choice when buying secondary citizenship, and “shop around” between these different countries was viewed as weak. - The option of partitioning between a (smaller) service component and transfer, other than taxes, was viewed generally as less attractive on practical compilation grounds; the purchase of service part would be small and insignificant compared to the transfer part. ### Questions for discussion posed by the Guidance Note - Do members see a need to provide explicit guidance on how to record CBI programs in the updated manual? - Should this guidance be by convention to ensure uniform treatment? - Or alternatively, is the existing general principle sufficient for compilers to determine treatment based on assessment of specific programs? - If explicit guidance is needed, how should nonrefundable contributions under CBI programs be treated: - Option 1: taxes - Current taxes or capital taxes? - Option 3A: transfers - Current transfer or capital transfers? ### Recommended statistical manual updates (Annex II) - BPM6, Chapter 4, section E: “Residence”: include a mentioning of CBI programs. - BPM6, Chapter 9, section B: “Other Changes in the Volume of Financial Assets and Liabilities” paragraph 9.22: discuss timing of change in residency, if applicable, in connection with CBI programs. - BPM6, Chapter 10, Section C: “Service” paragraph 10.180–181: possible CBI to the relevant convention if applicable. - BPM6, Chapter 12, section C: “Current Transfer” paragraph 12.30: include guidance on recording CBI as relevant. - BPM6, Chapter 13, Section C: “Capital Transfer”, paragraph 13.19–13.35: include guidance on recording CBI as relevant. - The prevailing treatment and clarification will also have impact on government finance statistics and national accounts, and coordination is needed to ensure consistency. *Prepared by the Balance of Payments Task Team (BPTT) as part of the BPM6 Update guidance note B.8 Recording Citizenship-by-Investment Programs.* ### Section 1 ### B.8 Recording Citizenship-by-Investment Programs ### Background and scope - Citizenship-by-investment (CBI) programs allow individuals to obtain an additional citizenship, passport, or long-term visa by making economic contributions to another country. - CBI programs often have minimal to no residency requirements or look-back rules of past presence in the country and are designed to use contributions to improve welfare and economic development. - Statistical manuals do not explicitly describe CBI programs or provide guidance on how to record large nonrefundable contributions; the updated Balance of Payments Manual is recommended to include such guidance. ### Contribution mechanisms under CBI programs - Four contribution mechanisms identified: - Significant purchases of land or property. - Business activities (e.g., investments in business assets/job creation schemes). - Investments in financial assets such as placing large deposits in resident banks or large purchases of government debt securities. - Large, nonrefundable contributions to the government, nominated development funds, or possible non-profit institutions serving households. ### Examples of macroeconomic significance - St. Kitts & Nevis: collected large one-off fees amounting to at least 9 percent of GDP in 2015, and 5 percent of GDP in 2016 in a development fund (St. Kitts & Nevis Sugar Industry Diversification Foundation, 2016). - Vanuatu: CBI programs became a regular source of government income, enabling a government surplus and a stimulus package in response to the COVID-19 crisis (Developblog, 2020). - Portugal: 13 percent of direct investment (DI) inflows in 2014 came from its Golden Visa Program that requires real estate investments (Gold and El-Ashram, 2015). - Prevalence: at least 23 countries have CBI programs; around 11 offer citizenship or long-term visas for large one-off fees (Antigua and Barbuda, Cambodia, Dominica, Grenada, Malta, Moldova, Montenegro, St. Kitts and Nevis, St. Lucia, Thailand, and Vanuatu). ### Residency and timing implications for recording - BPM6 residency guidance: a household is resident where household members maintain or intend to maintain a dwelling (paragraph 4.117); if timing of transaction and change of residence is unknown or simultaneous, a convention can be adopted such as change of residence occurs first (paragraph 9.22). - Two allowable options under BPM6 for timing of change of residency relative to the contribution: - If change of residency is considered to occur before the contribution, the contribution is between residents and no balance of payments (BOP) transaction is recorded. - If change of residency is considered to occur after the contribution, investments are recorded in the BOP and IIP and would then need to be backed out of the IIP with valuation adjustments. ### Current treatment for refundable contribution mechanisms - Refundable CBI contribution mechanisms correspond to existing transaction guidance in BPM6: - Purchase of property/land: classify as direct investment (DI). - Business activities: classify as financial assets (e.g., DI) or possibly capital account acquisitions of non-produced, non-financial assets. - Investments in financial assets: classify per BPM6 Chapter 5 on financial assets. ### The central question: how to record large nonrefundable contributions - Nonrefundable contributions are government revenues but existing manuals do not specify whether to record them as taxes, purchases of services, or transfers. - Past IMF technical assistance often advised treating such revenue as taxes, citing SNA 2008 (paragraph 8.54), BPM6 (paragraph 12.30), and GFSM 2014 (paragraph 5.81, fourth bullet) regarding fees “out of all proportion to the cost of issuance.” ### Three recording options for nonrefundable contributions - Option 1: Taxes - Rationale: - Fits the “out of proportion” criterion in SNA 2008, GFSM 2014, and BPM6. - Fits the “little work on the part of government” criterion when issuance is largely automatic (BPM6, paragraphs 10.180–10.181). - Consistent with CBI programs’ objective to improve government finances. - Classification implications: - Likely akin to capital taxes given irregular, infrequent, or once-off nature (BPM6, paragraph 13.28), though not a complete analog because CBI is not an asset that is transferable. - If contributions are recurrent, could be treated as current taxes under the secondary income account. - Option 2: Services - Rationale: - From purchaser’s viewpoint, contributions can be voluntary and uncoerced; purchasers can “shop around” among providers. - Aligns with standard fees for passport issuance where payments are treated as purchases of services (BPM6 convention). - Classification implications: - Record as service receipts in the current account. - Option 3a: Transfers, other than taxes - Rationale: - If contributions are unrequited and exceptionally large compared to the value of the passport, they may be transfers. - Could be similar to GFSM 2014’s recognition of “exceptional large donations” as capital transfers. - Classification implications: - Record as capital transfers (transfers other than taxes). - May be difficult to treat as exceptional if CBI is a regular revenue source. - Option 3b: Partitioning between transfers and services - Rationale: - Recognizes that some portion of the contribution covers administrative costs (service component) with the remainder being unrequited (transfer). - Classification implications: - Split the nonrefundable contribution into a small service component and the remainder as transfers. ### Analytical impacts of classification choices - Option 1 (taxs): increases tax revenues and may lead to interpretation of high tax-to-GDP burden or effective tax collection. - Option 2 (services): boosts the current account service receipts, which may be interpreted as improved external competitiveness. - Option 3 (capital transfers): improves the capital account; capital transfers are often viewed as more volatile and difficult to interpret. - For countries where CBI is important, it may be useful to publish a separate “of which” line for transparency. ### Proposed outcomes and guidance - Guidance recommendation: - Provide explicit guidance for recording nonrefundable CBI contributions in the updated Balance of Payments Manual. - Existing BPM6 guidance is sufficient for refundable contributions that are financial investments. - The Guidance Note (GN) advances three treatment options: - Option 1: record as taxes under secondary income. - Option 2: record as purchase of services. - Option 3: record as transfers other than taxes (3a) or partition between transfers and services (3b). - Annex II (referenced) identifies BPM sections needing adjustment. ### Consultation views and consensus - Balance of Payments Task Team (BPTT) consultation revealed divided views: - Members were split between Option 1 (taxes) and Option 3 (transfers); less support for Option 2 (services). - Supporters of Option 1 argued that if payments were compulsory, the treatment should be taxes; recording as transfers is not appealing because the transaction seems remote from typical grants. - Supporters of Option 3 argued the payments are unrequited and not compulsory. - Rejected alternative: - Option 2 (services) was mostly rejected in the consultation. _Italic: Prepared by the Balance of Payments Task Team (BPTT) as part of the BPM6 Update guidance note B.8 Recording Citizenship-by-Investment Programs._ ### Section 2 ### Recording Citizenship-by-Investment (CBI) Programs — Section 2 ### Assessment of purchaser behavior and transaction composition - The argument that non-resident non-citizens are able to exercise meaningful choice when buying secondary citizenship, and “shop around” between these different countries was viewed as weak. - The option of partitioning between a (smaller) service component and transfer, other than taxes, was viewed generally as less attractive on practical compilation grounds; the purchase of service part would be small and insignificant compared to the transfer part. ### Questions for Discussion (as posed) - 1. Do members see a need to provide explicit guidance on how to record CBI programs in the updated manual? - a. Should this guidance be by convention to ensure uniform treatment? - b. Or alternatively, do members consider the existing general principle enough for the compilers to determine the proper treatment of CBI programs based on an assessment of the economic nature of the specific programs? - 2. If there is a need to include explicit guidance, how should the nonrefundable contributions under CBI programs should be treated: - a. Option 1: taxes - i. Current taxes? - ii. Capital taxes? - b. Option 3A: transfers - i. Current transfer? - ii. Capital transfers? ### Recommended statistical manual updates (Annex II) - BPM6, Chapter 4, section E: “Residence”: include a mentioning of CBI programs, - BPM6, Chapter 9, section B: “Other Changes in the Volume of Financial Assets and Liabilities” paragraph 9.22; to discuss timing of change in residency, if applicable, in connection with CBI programs - BPM6, Chapter 10, Section C: “Service” paragraph 10.180–181: possible CBI to the relevant convention if applicable, - BPM6, Chapter 12, section C: “Current Transfer” paragraph 12.30: include guidance on recording CBI as relevant, - BPM6, Chapter 13, Section C: “Capital Transfer”, paragraph 13.19–13.35: include guidance on recording CBI as relevant. - The prevailing treatment and clarification will also have impact on government finance statistics and national accounts, and coordination is needed to ensure consistency. --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/bptt/b8-recording-citizenshipbyinvestment-programs.pdf_