Brexit Ignites the 'Brexodus'

It's becoming known as the "Brexodus."

The United Kingdom's vote to leave the European Union--"Brexit"--has inspired a global exodus of sorts, sparking interest in second passports in nations like Ireland and economic citizenship and residency programs in Cyprus and Malta, and may ultimately boost the appeal of the EB-5 Immigrant Investor Program in the United States.

In Ireland, Minister for Foreign Affairs Charles Flanagan reported a spike in interest in Irish passports. Those with parents born in Ireland are automatically eligible for a passport, regardless of where they live.

"The increased interest clearly points to a sense of concern among some U.K. passport holders that the rights they enjoy as EU citizens are about to abruptly end," Flanagan said.

Flanagan went on to assure the public, pointing out that the U.K. has not officially left the EU yet, and the negotiation process to complete the separation could take two years or longer. During this time, the U.K. will remain a member of the EU and its citizens will continue to enjoy EU rights, including free movement.

Nonetheless, the 1.2 million British expatriates living in EU countries are rightly concerned that they could ultimately face the loss of their right to stay in their homes year-round, along with the ability to work without a visa. As the separation negotiations proceed, those at the bargaining table should keep these people in mind--ensuring they are not displaced.

Mediterranean Paradises of Citizenship

Meanwhile, Brexit may generate interest in citizenship-by-investment and residency programs in Cyprus and Malta--Mediterranean island nations where citizenship can be gained in a relatively short period of time. Historically, many of those applying for these programs have been from China, Russia and other countries, but Brexit may make these programs more attractive to U.K. expatriates living in the EU.

"As the U.K. will no longer be a part of the EU, U.K. nationals may be looking at alternative ways to enjoy the free movement rights that come with membership of the EU," says Nadine Goldfoot, a London-based partner at Fragomen Worldwide, a firm that provides immigration services globally. "It's conceivable that in the future (high net-worth individuals) may look to options around Malta and Cyprus that will allow them and their families to enjoy the right to establish themselves elsewhere in the EU."

On the flip side, though, Brexit has devalued the Cyprus and Malta programs for those looking to Maltese and Cypriot nationality as a pathway to the U.K.

Currently, dozens of countries offer economic citizenship and residency programs, though the Cyprus and Malta programs are considered unique. Citizenship by investment, or economic citizenship programs, offer direct paths to citizenship through investment. Residency programs, on the other hand, offer rights of residence--either temporary residence or permanent residence--again through some form of investment, but they do not immediately offer citizenship.

The world of investment migration started off several decades ago, rose to greater prominence following Canada's adoption of the Business Immigration Program in the late 1970s, and is now a prominent global phenomenon. Many of the programs were created in the last 15 years.

The economic citizenship programs in Cyprus and Malta are among the most popular, largely because they offer the quickest path to EU citizenship. In recent years, these programs have provided people visa-free travel, as well as financial stability, a high quality of life, and better English-based educations for their children. In 2014, investors spent about $2 billion on economic citizenship programs. In exchange for buying real estate or making other investments, they are provided fast-tracked residency and citizenship in these countries.

Cyprus, for example, offers full Cypriot citizenship in return for investing a minimum of 2.5 million euros in government bonds or real estate. Successful applicants gain the right to live, work and study in all 28 EU member countries. Known as one of the fastest destinations to obtain a second citizenship, the process in Cyprus typically only takes about three months. Full citizenship and passports are granted to the applicant and their family members, permitting visa-free travel to 159 countries throughout the world.

Malta's citizenship-by-investment program also offers successful applicants with the right to live, work and study in any of the 28 EU countries and Switzerland, along with visa-free travel to 168 nations. Under visa-free travel, people can travel as visitors for short periods, usually visits of three months, without a visa. The cost is less than it is in Cyprus--starting at 900,000 euros. But this less expensive option may not be available much longer. The Maltese government has capped the number of citizenship applications at 1,800. Currently, over 1,200 cases are in progress or already approved, according to Dominic Volek, the managing director at the South East Asia office of Henley & Partners, a residence and citizenship planning firm. At a time when the government is getting about 50 applications each month, the quota is expected to be reached early next year.

These programs, along with the EB-5 program in the U.S., generate billions of dollars in investments and create tens of thousands of jobs at zero cost to taxpayers.

The Brexit Question

But with Brexit, the question turns to what impact it will have, once the separation is complete, on investors who already acquired economic citizenship in Cyprus and Malta. Will they continue to benefit from rights of free movement into and out of the U.K.? Given that they already made significant investments to acquire citizenship, it seems reasonable that they should.

"Cyprus and Malta and their citizenship programs will continue to be popular because they offer the citizenship of an EU member state, and as a citizen of an EU member state, you have the right of free movement into other European countries, which for people from outside the EU is very attractive," Goldfoot says. "What's yet to be seen, and where we think there will potentially be an impact, is from people outside of the EU who were looking to utilize the Maltese or Cypriot citizenship routes as a pathway access residence in the U.K., which has been one of the trends we've seen. Going forward they may be more likely to utilize the U.K. Tier 1 Investor route to gain residence in the U.K."

Tasos Stavrou, the group sales manager and China and Asia general manager at Aristo Developers, one of the largest property developing companies in Cyprus, says he's seen a "good and stable increase" in applications for naturalization by investment in Cyprus since the Brexit vote.

"I believe that countries like Cyprus and Malta will receive an increase in interest of people that were also considering the U.K.'s program for naturalization, and more specifically, from third, non-EU countries such as Russia and China," Stavrou says. "Cyprus has become with Russians an established destination over the past 15 years, and following this course of action (it's become more popular) with Chinese and Asians over the past five years."

While Cyprus and Malta will continue to generate interest, attracting those who want to either reside in those nations, or access free movement rights around the EU for themselves and their families, the full impact of Brexit won't be fully known until the separation is completed. Theresa May, selected as Britain's new prime minister following the resignation of David Cameron in the aftermath of Brexit, has indicated that movement rights into the U.K. for EU nationals will be on the negotiating table.

In a joint statement from the Cabinet Office, Home Office and Foreign & Commonwealth Office, U.K. officials said there has been no change to the rights and status of EU nationals in the UK, and UK nationals in the EU. "The decision about when to trigger Article 50 and start the formal process of leaving the EU will be for the new prime minister," officials said. "The U.K. remains a member of the EU throughout the process, and until Article 50 negotiations have concluded."

Other nations could be affected by Brexit too, but the impact will be less direct, with most other programs experiencing longer waits to acquire EU citizenship.

"This is the crux of the issue with Malta, Cyprus and Brexit," Goldfoot says. "It's not that it's going to automatically cause a massive upsurge in applications, or indeed cause a reduction in applications. It's just going to impact people who were using the (Malta and Cyprus programs) with a view to gaining residence in the U.K."

Future of the Schengen Zone

The economic citizenship programs will remain popular, but the impact on the broader immigration crisis across Europe will continue to reverberate, with concerns over the long-term future of the Schengen zone--the 26 European countries that have abolished passport and other border controls. The U.K. and Ireland are not part of the Schengen Agreement, having opted out. The Schengen zone countries signed the agreement in 1985 for the purpose of allowing short-term travel. Malta is part of the agreement, but Cyprus is not.

"The U.K. is not part of the Schengen Agreement," Goldfoot says. "Schengen and Brexit are totally separate issues, although there is obviously some overlap. If we continue to see restrictions in the Schengen zone that may well devalue the benefit of some of the residence programs, such as ones in Portugal, Latvia and Hungary, if borderless travel around the Schengen zone is impacted."

It's also possible that the U.K. could end up under a European Economic Area-type of arrangement, or acquire similar status to Switzerland--ensuring that a form of free movement and settlement would likely remain. Yet the uncertainty surrounding the coming negotiations raises the possibility that this may not be the case.

"Restraining immigration was one of the key issues raised by the campaign to Brexit," Volek says. "In the unlikely event that the reciprocal right of settlement between the EU and the U.K. was to be terminated, it would damage the value of British citizenship far more than that of European citizenship. The EU would lose one country whereas the UK would potentially lose free access to most of the countries on the continent, since also the EEA and Switzerland form part of the same internal market created by the EU."

Impact on EB-5 in America
At this point, it's still too early to tell what will happen in the long-term for any of these programs in the wake of Brexit. With expectations of protracted negotiations, don't expect a solid answer for some time.

A surprising result of Brexit is that it may make the EB-5 program in America more appealing.

"It will highly depend on whether Brexit causes people to look outside Europe to the U.S., Canada, Australia or elsewhere," Goldfoot says.

Meanwhile, the economic and political uncertainty in the EU and U.K. may translate into increased interest in the EB-5 program in the U.S. In the past, one of the primary selling points for Chinese in the Cyprus and Malta programs is that investors are given a conditional European residence card, allowing them to live in the EU. For parents who want to take advantage of Britain's world-class educational system through these routes, Brexit calls this into question.

As a result, the EB-5 program in America could experience stronger growth--joining the "Brexodus."