Investing abroad can be a smart move for investors seeking secure returns on investment, and opportunities for gaining a foothold in another country. The benefits of international investment for individuals often include portfolio diversification and a chance to gain citizenship, too.
In this Antigua special edition, Relocate Antigua guides you through the ins and outs of investing abroad, explores foreign direct investment advantages and disadvantages and examines why investing in the island could be right for you.
Why invest abroad?
Investing abroad is a popular way of diversifying investment portfolios and tapping into opportunities for growth.
Motives for investing in foreign markets
Foreign investment is the act of investing in assets in a country or nation state either through a company structure or as an individual.
With globalization, foreign companies have increased their investment in manufacturing processes and products in other countries, attracted by lower labor and production costs and tax incentives.
Foreign investments are either:
- Direct, where companies purchase physical assets such as residential or office property, factories, and manufacturing equipment, or
- Indirect, by purchasing stocks and shares in foreign companies through the stock exchange.
Both of these are perceived to be instigators of economic growth.
Asking the right questions
Investing abroad is one option for diversifying your investment portfolio, however, there are a number of important considerations to mull over:
- What type of investment asset classes meet your personal investment goals?
- Are you considering a short- or long-term investment timeframe?
- How risk averse are you?
This means deciding whether you want to invest in shares, property, securities, or mutual funds which may be:
- International: encompassing investments within a selected number of countries
- Regional: funds which are specific to identified geographical areas such as Eastern Europe or Australia
- National: funds specific to individual countries
- Sector-specific: such as energy or pharmaceuticals.
This decision will depend upon whether you are aiming for a fast return on your investment, or if you are happy to watch your investment grow over time.
The advantages of foreign investment
There are huge benefits to investing abroad for both foreign investors and the businesses and governments on the ground.
Advantages for local businesses and economies
For companies in countries abroad where investment is needed, investors bring:
- Opportunities for growth and diversification
- Development of human capital through increased employment opportunities
- Escalation of production of goods and services resulting in increased GDP.
Foreign direct investment (FDI) offers advantages to both the investor and the country into which investment is made, and these advantages are based around incentives that encourage mutual benefit.
When a country encourages and promotes FDI, opportunities to enter the global rather than local economy are escalated. Additionally, the host country is also exposed to new technologies and production methodologies, inspiring local companies to upskill the workforce and upgrade their outputs. This creates healthy internal competition and expanding market opportunities.
Advantages for foreign investors
Foreign investment is generally highly sought-after by developing countries. As a result, foreign governments often choose to implement measures designed to encourage investment that are much more generous than those in place in countries that are less reliant on direct investment as a source of revenue.
Domestic investment generally offers less in the way of tax schemes and incentives, and will only ever supply grants or subsidies for investment in struggling sectors.
Foreign investment, meanwhile, opens up a world of fiscal, financial and lifestyle opportunities. The benefits of foreign portfolio investment include:
- Tax incentives that make investment financially advantageous
- Trade and industry subsidies
- Portfolio diversification
- Fast-track citizenship by investment
The disadvantages of foreign investment
Despite the many aforementioned benefits, foreign investment isn’t without its disadvantages.
Disadvantages for local businesses and economies
Despite the many benefits of foreign investors, there are two main disadvantages to the host nation:
- The displacement of local businesses, for example, where large chains such as supermarkets undercut single retail units or ‘mom and pop’ stores forcing them out of business.
- Building retail parks and creating out of town shopping malls kills town centers, changing the lived experience of town dwellers.
- Profit repatriation, where investing companies do not reinvest the profits that they make back into the host country. Instead, these monies flow directly back to the investor country effectively blocking of a source of income to the host nation.
To counteract this practice, many countries that encourage foreign investment also impose financial limits to direct foreign investment.
- Environmental pollution is also a concern, particularly where host countries do not have robust environmental policies which protect natural resources, for example clearing forests to build factories.
Because they may be less familiar with territories outside of the countries where they are based, some investors may be reluctant to invest abroad unless the host country shows signs of emerging development and growth – or the potential for this.
Consequently, countries with larger populations and therefore a larger target market are seen to be more lucrative from an investment perspective, as they offer more scope for potential future development.
Disadvantages for foreign investors
- Fluctuating exchange rates which can affect profit levels and the sale of assets. This is why, when investing in regions abroad, it is sensible to look at currency stability and socioeconomic and political factors that might have an impact on exchange rates.
- The foreign investor should be fully cognizant of the tax regulations on investment both in their country of domicile and in the host country, where there is a proposed investment opportunity.
These might include capital gains tax for non-residents, tax on dividends and interest income, stamp duties, levies, clearing fees, and exchange fees.
If you are utilizing a broker to manage your investments, then brokerage commissions will also apply.
The benefits of investing in Antigua and Barbuda
Antigua, Barbuda and Redonda islands together with a few smaller islands collectively form a sovereign state in the West Indies and are a part of the Commonwealth.
This part of the Caribbean attracts tourists from all over the world and consequently more than 50% of GDP is accounted for by tourism.
As a result, Antigua is considered to be a low risk option for investors due to its attractive tax incentives, stable political structure, and historical links.
Please note that due to the Covid-19 pandemic, Antigua and Barbuda are currently considered high risk. Travelers to the islands are required to fill in health declaration forms and complete health screenings and thermal checks, and will be asked to observe a 14-day quarantine period.
This information was accurate on 28/08/2020, but you may like to keep an eye on the official health and safety protocols to track how the situation develops.
Citizenship by Investment in Antigua: the basics
The main benefit of investing in Antigua stems from the Citizenship by Investment Program (CIP) established in 2013.
- In 2017, following significant damage to the country caused by Hurricane Irma, the Antiguan government introduced the Citizenship by Investment Act to attract foreign investment and stimulate economic development, softening requirements and notably slashing the required contribution to the National Development Fund in half, from $200,000 to $100,000.
- There are specific regulations attached to the CIP which require the applicant to be at least 18 years old, of good character with no criminal record, be in good health, meet a detailed background check, and provide proof of source of funds.
- The principle applicant is required to spend a minimum of 5 days on Antigua and Barbuda over a period of 5 years, however all 5 days can be spent on either of the islands at the end of the 5-year period.
- Investors may include their spouse and dependent children in the application, and in some cases dependent elderly parents or grandparents may be included in the application.
- The processing time for citizenship and passport applications is 3–6 months and dual citizenship is permitted.
The Citizenship by Investment (CIP) criteria in Antigua
Recently, to further encourage and stimulate investment for post-hurricane recovery work, the CIP temporarily reduced the investment threshold from $200,000 USD to $100,000.
A CIP applicant must invest in real estate, donate to the government or university fund, or invest in an eligible business. Non-refundable contributions to the National Development Fund and/or purchase of real estate are the most popular choices for investors, as property can be rented out or sold after five years of citizenship in Antigua.
However, the minimum value of property purchased for citizenship is $400,000.
Investing in an existing or new business can generate good profits which are protected by the Antiguan government protection, and there are no restrictions on repatriation of profits or imported capital.
Other benefits of the Citizenship by Investment scheme in Antigua
Other benefits of CIP include:
- Holding an Antiguan passport which permits visa-free entry to the EU, the United States and UK.
- Antigua and Barbuda do not impose wealth, inheritance or capital gains taxes nor indeed is there any personal income tax for income derived outside of the country.
- Income generated within Antigua and Barbuda is taxed at a competitive rate: 0% to 25% depending on the tax band.
- Investing in Antigua and Barbuda carries none of the disadvantages of FDI as outlined above, for either the investor of the host country.
New changes to the CIP scheme in Antigua for 2020
Effective from April 2020, a number of changes were made to the CIP scheme:
- Higher commission rates for agents: agents who submit up to 50 applications receive a 15% commission fee, compared to just 10% previously.
- Higher National Development Fund application fees: initially set at US$25,000, NDF fees jumped to US$30,000 for a single applicant.
- Lower real estate and business investment application fees: these citizenship route fees were slashed from US$50,000 to US$30,000.
- A lifting of restrictions on some nationalities: previously, nationals of some ‘barred’ countries were restricted from applying for Antiguan citizenship. These restrictions have been softened in 2020, and applicants from the following countries may now apply: Afghanistan, Iran, Iraq, North Korea, Somalia, Yemen, and Sudan.
- CIP applicants may now sell their qualifying property on to other CIP applicants at the end of the five-term period.
If you’re interested in applying for Antiguan citizenship, have a read through our dedicated CIP article for more information, and reach out to Relocate Antigua for the very best advice.
Final thoughts: assess the risk and take the plunge
All investment carries risk and therefore good investment advice is essential. FDI has numerous advantages and disadvantages for both the investor and the host country, and from an ethical perspective both of these aspects should be carefully reviewed.
Investors need to assess the viability of investment schemes by examining competitor performance, available internal resources, and market opportunities to ascertain the risk and reward for both the investor, and growth and development of the host country economy.
Becoming an investor in Antigua and Barbuda illustrates the benefits of investing abroad and the positive gains for all parties, with minimum levels of risk. Relocate Antigua specializes in Antigua investment planning and support with providing relocation services.
Get in touch with our friendly expert teams for a free consultation and a clearer idea of how we can help you move forward with your investment goals.