Having a second passport and dual citizenship has numerous benefits. It can:
- Expand your travel and investment possibilities.
- Avoid attention attracting or potentially embarrassing entry stamps on your primary passport.
- Reduce your profile to terrorists.
- Give you the right to reside in other countries.
- Allow you to cross international borders if your primary passport is lost or stolen.
- For Americans, combined with expatriation—giving up your existing U.S. citizenship and passport—a second passport is the only way to permanently and legally eliminate U.S. tax obligations.
(My colleague Robert Bauman has done an excellent job summarizing these advantages. Click here to read them).
The Offshore Door is Closing, but a Second Passport Can Reopen It
However, there’s one key advantage of second passports you may not know about. That is, unless you’re an American and have tried to open an offshore bank account recently. Thanks to increasingly aggressive tactics by the IRS to force offshore banks to enforce U.S. tax laws, offshore banks are increasingly reluctant to deal with U.S. citizens or (especially) U.S. residents. Case in point: Swiss banking giant UBS announced a few months ago that it would no longer open accounts for U.S. residents.
If you’re a non-resident U.S. citizen living offshore, it’s somewhat easier to open an offshore account than if you have a U.S. residential address. In many cases, you can also bypass these restrictions by using an offshore intermediary structure to open and operate an offshore account. That structure—which may be as simple as an inexpensive offshore limited liability company—then opens an offshore account in its own name. The offshore bank doesn’t mind if a U.S. citizen is a signatory on the account, as long as legal ownership was through a non-U.S. entity.
Unfortunately, some offshore banks that previously approved this type of relationship have informed me it is no longer acceptable. One bank recently informed me that it would no longer open accounts that had any connection with a U.S. citizen, no matter how remote. It didn’t make any difference if the U.S. citizen lived outside the United States. Nor did it matter if the U.S. citizen lacked signatory authority over the account. If there was any possibility that a U.S. citizen could receive any benefit whatsoever from the account, the bank would turn down the business!
Solving the “No Americans Wanted” Dilemma with a Second Passport
There’s a rather obvious way out of this dilemma—a second passport. Simply open your offshore account using your second passport, and not your U.S. passport. (You may also need to show that you have a residential address outside the United States, although you don’t necessarily have to live there.)
The most economical way to obtain a second passport is to take advantage of your ancestry, your spouse's ancestry, or your religious affiliation. If you don't qualify based on these factors, in most countries, you can acquire citizenship following a period of prolonged residence. In most cases, after continued residence for a period of three to 12 years, you can apply for citizenship and passport.
A handful of countries offer "instant" citizenship in return for an economic contribution. The Commonwealth of Dominica, the Federation of St. Kitts & Nevis, and Austria are the only countries with official, legally mandated, economic citizenship programs.
Dominica’s program is the least expensive. Under this country's program, you may acquire citizenship and passport in return for a cash contribution of US$75,000. A US$100,000 contribution entitles you, your spouse, and two minor children to citizenship. Legal, due diligence, and processing fees add approximately US$25,000 to the cost. Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories. Travel to the United States, however, requires a visa.
Until very recently, you had to speak English fluently to obtain a passport from Dominica. That’s no longer the case, although all documents must still be completed in English. The applicant can have a translator accompany him or her to the interview. In one case my company is handling, an elderly woman with very limited English skills is in the process of obtaining a Dominican passport, thanks to this new policy.
Time is of the Essence!
Sadly, it’s becoming more and more difficult to qualify for a second passport. In my own case, I had hoped to qualify for an Austrian passport after living there for three years from 2003-2005. However, in 2005, Austria amended its citizenship laws to extend the period of residence necessary to qualify for a passport from six years to 10 years.
A similar trend is underway in economic citizenship programs. Fees are rising, and the countries that offer economic citizenship are becoming more and more selective. Moreover, in response to international pressure (particularly from the United States), several countries have suspended their formerly successful programs.
If you value your ability to invest offshore, want greater travel privacy, or simply want a second passport “just in case,” the time to act is now. The opportunity to obtain a second passport may not exist much longer.
Copyright © 2008 by Mark Nestmann
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