Governments as entrepreneurs (Part 1)
Normally, FlagTheory.com is designed to show entrepreneurs and investors different options for incorporation, residency and banking. One could say it offers options for how entrepreneurs can best utilize governments and their official company laws, as well as residency and citizenship-by-investment programs.
This article is about how governments can act more like entrepreneurs, by offering these services (with the aid of technology) to attract high-quality individuals and families to their nations. Particular focus is placed on incentivized residency and citizenship programs that are aided by web-based software and built on blockchain technology.
I believe I’m uniquely qualified to write this, having gone through an entrepreneur-by-investment process on three separate occasions in the past five years – the first being in Singapore under the EntrePass program. I also regularly consult on issues of immigration-by-investment, and have authored several books on the subject. Suffice to say that I know what entrepreneurs are looking for in an investment program, and how governments can slightly alter programs (mostly through the use of software, and without any legal or legislative change).
While there are a variety of different entrepreneur and business visas available worldwide, this article focuses mostly on permanent residency and citizenship by investment. This is because the most confidence a person can have when expanding a business or directly investing in a foreign country is when they are doing so as permanent residents or citizens. This article pre-supposes that entrepreneurs and investors are worth attracting and, furthermore, that governments are interested in creating immigration programs with that goal in mind.
What I propose below is aimed at creating transparency and accountability, as well as a system/method for managing a nation that will face an influx of new population. In these circumstances, you will need to ensure that individuals provide a true picture of identity, as well as evidence that their funds were derived from legal means. I posit that one can use software with traditional databases and private ledger (blockchain) technology to create efficiencies in immigration-by-investment programs.
Key Aspects of Immigration-by-Investment Programs
- Enticing new applicants to join the program
- Identifying true nature of applicants
- Determining if funds of applicants were acquired legitimately
- Receiving funds and granting immigration
- Processing paperwork and accepting applicants as residents/citizens
- Keeping citizens or residents in country to increase GDP, create jobs etc.
Entrepreneurship vs. Pure Investment
A key distinction that can be drawn between different investment programs is threefold:
- Citizenship by investment
- Permanent residency by investment
- Temporary residency by investment
As you can see in the above chart on Passports.IO, which lists all the investment opportunities worldwide, there is a dramatic difference in terms of timeline (and investment level) for someone receiving an eventual permanent residency after three years and possible citizenship after five years in New Zealand, contrasted with an instant citizenship through investment.
With your country competing directly against others in a global competition and marketplace for entrepreneurs and investors, here are some suggestions that will help you attract more applicants and create better investment opportunities.
How to Design an Effective Immigration Program
Decide whether entrepreneurs or investors are the target of your program. If it is entrepreneurs, allow them to start quickly, and lower the investment threshold, but place requirements over a period of time. This is what the EntrePass program in Singapore, the Entrepreneur + program in NZ, and the BOI company law in Thailand have done successfully at different levels of investment.
Speed attracts money. For an entrepreneur, the speed to implementation can oftentimes be a defining attribute of success in a business venture. Often, there is a given window of opportunity where the market will pay for a new or competing product or service. Getting to market quickly can make or break a company.
This means that if you are looking to attract new entrepreneurs to migrate to your country, it is important that the process be undertaken with expediency! I’ve gone through several joint ventures with governments that took 6+ months from start to finish, just to allow the entrepreneur to turn the lights on and begin. If you can provide a fast and efficient means to start a business, this will give you an edge when competing globally to attract talented entrepreneur.
No Minimum Residency Per Year
If you can provide investors with an instant citizenship procedure, you will see highly qualified persons migrate to your country. However, the individuals who can afford this type of investment are high net worth (HNW). One key aspect to dealing with HNW individuals is that they are extremely busy, and oftentimes overwhelmed with different people who want something from them.
One mistake that governments make when crafting citizenship-by-investment programs is that they tend to impose a minimum time per year that must be spent through ongoing residency requirements, otherwise the citizenship or residency may be lost. The argument against a minimum time spent in country is that the investor has already made the investment – why continue to place residency requirements on them?
Conversely, let us posit that it is important (politically or otherwise) that new citizens provide some ongoing value to the country. This is best accomplished through entrepreneurship programs, rather than an investments in bonds or real estate. Investors trade money for an asset and an expected ROI. Entrepreneurs invest time and sweat equity to build a business.
Tax & Tax Residency
If governments are sufficiently motivated to attract entrepreneurs to their country, they will find that there are many different entrepreneurs who wish to do business with the proper certification as a tax resident. The tax rate does not have to be effectively zero! An appropriate, but small level of taxation can be balanced against the financial requirements of the government. However, the most important aspect of residency may just be tax residency.
A residency program that requires a resident to reside in the country for only a certain number of days per year, and run their business affairs through the company provided, is an excellent option. Estonia’s e-residency (discussed at length later) does not provide tax residency (and its protections). This means that applicants to this particular program are not given any tax certainty.
One country that has it right is Panama. Its Executive Decree 343 allows for persons from favored nations to become residents, and they need to be present in the country just one day per year. New residents must start a company or invest in real estate (to the amount of ~$100,000), after making an initial $5,000 deposit in a bank account.
Currently, the entire process must take place from within Panama, and certainly, this deters some people from applying. Through the use of software systems, an applicant could apply online and receive an AIP (approval in principle), following which he could travel to Panama for a health screening and other in-person requirements.
Done For Me vs. Do It Yourself
Certain immigration programs require applicants to first retain the counsel of an officially licensed intermediary to facilitate the application process. Other programs allow for the entrepreneur or investor to essentially be their own agent.
This website aims to make information free – it contains much information for people who want to set up their own company and “do it yourself” (DIY). However, there are always individuals who prefer it “done for me” (DFM).
I believe that by allowing free access to the application process, not only will you receive more applicants, but applicants will be more invested in the process and more likely to follow through. Law firms will inevitably be involved, especially in more complex programs and schemes. However, we should phase out the use of middlemen who do little more than communicate to applicants the documents that they are required to submit.
Provide the option, but not the obligation, for investors and entrepreneurs to apply directly or use a law firm. If they apply directly, they can use a secure online system that allows them to save and return to the application and attached files at a later date. Charge an initial fee for access to set up the online platform, and you will recoup at least some of the cost from serious and interested immigrants – and allow them to take action when the moment is right.
Online Access and Support
E-commerce for immigration-by-investment is already being done with Estonia’s e-residency program, as well as by Passports.IO. What is needed is a system where applicants can begin the residency process immediately, without having to place a retainer with a law firm, meet in person, or share their documents over Dropbox or another less-than-secure channel. Allow agents to share an account with the applicant to complete the application. Just as entrepreneurs today are taking steps to move their offline services online, governments can do the same with citizenship-by-investment programs.
In Singapore, the government issues you a pass called EntrePass if you start a company under these guidelines. You will need to have a local resident director in Singapore, except if you get an EntrePass. The problem with the EntrePass program now is that it has become much more difficult to get, and specific restrictions around employment have been placed. While the intentions of the government appear altruistic, the reality is that a business is best left to thrive on its own accord, and not hire or fire specific nationalities for the work pass of the owner.
Paper Trail & Audits
One aspect that has plagued some citizenship- or residency-by-investment programs is corruption. Without a clear and transparent program, agents, and payment mechanism, and instead a long, drawn-out process done in an isolated environment, it becomes possible for government officials to take bribes or act corruptly.
Make it fast: Take a note from the entrepreneur’s playbook – speed attracts money! When you are offering tax protections or living arrangements, immediacy cannot be understated. There are situations where the time value of money means that an applicant would gladly pay 10 times more to complete his application earlier in December rather than later in January.
Allow online applications: Utilize advances in software and computing to generate and store applications on a database (blockchain, or relational database) as opposed to using pen and paper.
Make it tax advantageous: This is the biggest advantage you can provide in a visa or residency program – access to a low rate of taxation for a class of people who are frequently stuck in a “grey-zone,” where they are uncertain about their financial affairs. For the most part, people are highly willing to pay taxes, especially if they are certain of the amount, and if the amount is reasonable (in terms of percentage, but also the total amount).
Gather feedback: Take a note from the lean startup methodology: build a program, learn from your applications, and iterate from the initial program.
Be honest and consistent: Don’t market your program as something that it is not! For example, Estonia’s e-residency program should rightly not be called a residency program, as no residency is provided. Residency means that you are allowed to reside in the country! Keep your messaging simple enough so that people of other languages can understand and apply.
Provide records and immutable proof: Allow the applicant to provide their ID as an authenticated document. Allow for a blockchain solution that can be referenced against to verify a given document.
Blockchain Technology & Software
Anyone in the immigration investment industry will tell you that much of the process has to deal with trust.
The most common questions that an applicant might have are:
- How can I trust that you are a certified agent?
- How can I trust that I will receive a passport?
- How can I trust that the investment is being transferred to the right person?
- How can I trust that I am not being overcharged?
- How can I trust that this program will remain in effect?
- How can I trust that the timeline is accurate?
- How can I trust that this process will remain confidential?
An incredible technology that solves the issue of trust is blockchain technology. This technology allows two parties who do not trust each other to transact business. It uses cryptography and math to maintain an immutable ledger, and certain applications also have the ability to store and securely transfer information.
Blockchain technology can be used by a government looking to create a software backend to empower many different e-government services, including passing documents between departments securely, to prevent corruption, and maintaining an auditable and immutable trail of information. One could easily certify and add new bonded agents, etc. If paired with other similar blockchains, one could also have a view of where else an applicant was accepted or denied for a passport, residency or visa.
The second thing people in the immigration industry will tell you is that what they do is a service – a very manual process, with lots of paperwork.
Digital passports can be easily prepared by the Horizon system, which takes a video of a person verifying himself and signing a contract remotely. Later, when you fingerprint the individual (with hardware we can provide), you will have a digitized and 100 percent authenticated record of identity. This type of digital identity is already being implemented by Estonia’s e-residency program. Once we have a government or a trusted entity, such as a bank, agreeing on an applicant’s identity, the person can use the public/private key (read: passphrase) associated with the account to complete certain actions.
These actions could be various and sundry tasks, ranging from registering a company, opening a bank account, making a vote, applying for residency, and routine day-to-day tasks (for instance, signing for a package) – essentially, any task where identity is required, with cryptographic certainty.
The subject of nationality is a touchy one. In fact, I am certain that there are some people reading this who disapprove of the idea of entrepreneurs taking a “second passport” in your country. Suspend your nationalistic disbelief for a moment – talented entrepreneurs coming to your country is a good thing, and they aren’t “taking” anything. Immigration-by-investment programs are the best way to attract productive members of society who generate wealth, create jobs, and pay into social security coffers, and while these foreign entrepreneurs may not share the same skin color, they share the same smile.