Gift city, the anti-Golden Visa

The new status symbol in India is the Golden Visa, and it’s available for over 100 countries. Its technical name is Residence by Investment Programme, though countries use varied titles like Global Talent Visa, Start-up Visa, Citizenship by Investment and Global Investor Programme. By any name, it smells as fragrant to whoever can invest between $50,000 and $2 million in any of the designated countries. They can, with their families, get the benefits of residency, healthcare, tax, new markets, education and, largely, visa-free travel to a number of other countries. Typically, they are eligible for citizenship after five to 10 years. And usually, such individuals can hold double or triple golden visas and passports.

According to Citizenship Invest[1], Indians and Americans are “driving the demand” for golden visas – and receiving them. Nearly 10% of all golden visas are given to wealthy Indians. Investors say many of these belong to the generation of businessmen who benefited from the 1991 reforms in India but whose heirs are unable to compete with the new generation of hungry and talented Indian entrepreneurs who, like the country’s star national cricket teams, are emerging from India’s second-tier towns. A golden visa is a good way to keep the family wealth insulated in a different jurisdiction. It is also a way to stay out of the reach of India’s over-zealous economic and law enforcement agency, the Enforcement Directorate[2], which, over the last two years, has intimidated both ambitious business and economic offenders alike, sending them scuttling to safer shores.

The schemes are so popular that an entire industry of advisors, including lawyers, bankers and consultants like Citizenship Invest and La Vida, has emerged around the world to identify the most advantageous golden visas and help clients navigate the processes.

Golden Visas were initially offered to draw high net worth individuals or talented entrepreneurs and investors to countries that desired or needed them. But geopolitics is now getting in the way. Golden Visa schemes have attracted $13 billion in annual revenues for EU countries that offer them but, say Global Witness and Transparency International, but there is much abuse like corruption, tax evasion and money laundering. The Financial Action Task Force, in its November 2023 report[3], says criminals have exploited vulnerabilities in these programmes to commit fraud, crime and corruption in the billions of dollars and are able to hide their assets. Some governments struggle to manage these complex programmes.

Consequently, many countries, especially in the EU, have begun to suspend the schemes.[4] So have advanced countries like Australia, which found that wealthy Chinese comprised 85% of their applicants, many of them corrupt officials, and discontinued the scheme[5]. Others don’t have that choice. Little island nations like Vanuatu in the Indo-Pacific depend on their golden passports for income – 12% of GDP and can’t turn away the 50% of the applicants who are Chinese nationals.

The golden benefits are now losing their sheen, for the exact reason they were deemed attractive till so recently. Countries like the UK[6], whose capital cities offered endless financial and social opportunities, have become dangerous, with high crime[7] and high migration. A similar trend is ongoing with countries in Europe[8], which are struggling with declining GDP and rising crime, issues with migrants, drugs, and mafias. Going to a café, concert or restaurant in the evenings, a great allure of the western metropolis, can cost Golden Visa holders their precious Rolex, Hermes wallet, their limb or even their life.

The U.S. is facing similar social and security issues. Educational institutions that attract high net-worth students, especially from India and China, have managed to ring-fence themselves for the moment – but the social spillover from the cancel culture has infected the student and academic body and affected security, as evident from the killings of seven Indian students in top U.S. universities in two months early this year. Canada – where Indians comprise 50% of the 548,000 international students – tops the list[9] of the number of Indian students who have died thus while at university there since 2018.

It may be a good time for Golden Visa seekers from India to turn homeward again and for their international counterparts to sail across the Arabian Sea, seeing that India is ready to step into the sweet spot of global investment. Decades of policy sclerosis are seeing some reform, and a stable government is investing in a massive infrastructure build-out. Significant incentive schemes, especially for manufacturing, are now activated, drawing in foreign direct investment.

The opportunities for foreigners may be more tempting since established corporate India, flush with profits and a captive home market, isn’t leading the charge of investing domestically, and start-ups are still too small. Wealthy Indians who took their net worth abroad through myriad golden visa schemes aren’t ready to transfer their wealth back home again – yet. They cite plenty of deterrents, and they aren’t wrong: fear of the ever-suspicious Enforcement Directorate, tax hurdles, regulatory challenges and ease of doing business. Singapore and Dubai, the two favourite outstation Indian cities, still do it better and are raking in Indian investment.

Some policymakers understand keenly the need to reshore. “Business has left India. We want them back,” says K. Rajaram, chairman of the International Financial Services Centres Authority (IFSCA). This is the new independent, unified regulator in GIFT City, Gujarat, which is India’s effort to create an International Financial Centre (IFC) on shore. It’s the anti-Golden Visa scheme offering. “Our goal is to onshore what is offshore. We are not a tax haven and don’t encourage ghost businesses. We want an ecosystem created here,” Rajaram explains. The plan for an IFC in a separate city was made in 2007, but multiple and repeated delays and setbacks have only now started to be overcome.

Physically, the greenfield city, 20 minutes away from Ahmedabad, has some appeal. It is modern, with all its services from India’s first District Cooling System, power reliability and optical fibre ring infrastructure to garbage disposal located underground in a neat sub-city, and in consonance with the latest green technologies. Office towers have begun to sprout, as have international hotels, hospitals, schools, international colleges, and affordable and luxury housing.

Financially, it has striven to overcome the roadblocks that businesses complain about. Rajaram’s IFSCA, as the unified regulator, has all institutions, from the Reserve Bank of India to the State Bank of India and the insurers, under its jurisdiction for a holistic resolution of issues and to avoid India’s bureaucratic overlap. Every three years, regulations will be reviewed and updated. It has a high-tech and high-security International Stock Exchange[10] where trades are done at the speed of T + 0[11] and in dollars. All foreign and Indian companies can list on this exchange. There are tax benefits galore[12], like exemptions on corporate tax, a reduced Minimum Alternative Tax and a 10-year tax holiday. These, hopes Rajaram, will attract ship and aircraft leasing and start-ups, especially in fintech – all areas in which India is among the largest global consumers and customers.

GIFT has plenty of competition, particularly in Asia[13], where the new up-and-coming financial and manufacturing hubs are located. Cities like Seoul, Korea, offer both a Golden Visa and are also setting up to be international financial centres. Seoul has proposed new tax revisions that exempt income and corporate taxes for foreign companies for three years. These are not without obstacles, especially the language barrier. On April 22, Malaysia’s Securities Commission initiated a Golden Pass for start-ups, unicorns and venture capital.[14] [15]

Still, India’s GIFT City has seen a substantial increase in interest this year, given global instability and the pushback against China. Foreign diplomats have been making a beeline to this new space, as have lawyers, accountants, and family offices. In the last year, the number of investors licensed to operate in GIFT City has risen to 176, including two Australian universities; over 230 applicants are reportedly in line. India has a long way to go: at home, despite the IFSCA being independent, the powerful Reserve Bank of India can still work the corridors of New Delhi and surreptitiously undermine it. Abroad, jurisdictions like Dubai are way ahead, with 3,000 licensed members and offers of a 50-year tax holiday.

Some moneymen suggest an additional lure to attract wayward Indian businessmen back: keep GIFT City domiciled in Gujarat and establish a branch office in Mumbai. This desirable location is the country’s financial centre with home-grown entrepreneurial talent, plentiful bars and Bollywood glamour. Here, the wealthy can continue to reside in their expensive sea-facing homes with their funds invested in GIFT – in exchange for keeping the economic enforcement authorities far from the city’s breezy crescent bay.

Manjeet Kripalani is Executive Director and co-founder, Gateway House.

This article was first published by The Economic Times.

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References

[1] https://www.citizenshipinvest.com/en/

[2] https://enforcementdirectorate.gov.in/

[3] Misuse-CBI-RBI-Programmes.pdf.coredownload.pdf (fatf-gafi.org)

[4] https://www.transparency.org/en/press/eu-golden-passports-visas-corruption-european-commission-must-heed-parliament-proposals

[5] https://www.lowyinstitute.org/the-interpreter/golden-passports-visas-two-sides-coin

[6] https://www.london.gov.uk/who-we-are/what-london-assembly-does/questions-mayor/find-an-answer/crime-rates-0

[7] https://www.bcu.ac.uk/news-events/news/organised-crime-on-increase-in-uk-as-brexit-impacts-intelligence-sharing

[8] https://www.interpol.int/en/News-and-Events/News/2023/Europe-Drug-trafficking-organized-crime-increasing-by-an-order-of-magnitude