It’s not often that major developments occur in Southern Europe in the month of August. Montenegro’s announcement of its new instant second passport by investment program this past week is an exception.

Perhaps the Montenegrin government hoped to avoid the inevitable backlash from certain nationalist and socialist politicians in the European Union, while attracting the attention of wealthy Americans, Russians and Chinese at whom the program is aimed.

Montenegro has just become only the third state in the world to offer an economic citizenship program, along with the Caribbean island nations of St Kitts and Nevis and the Commonwealth of Dominica. Austria has a similar program with a few more strings attached, while Paraguay, Uruguay and the Dominican Republic are known for their relatively liberal grants of second citizenship after a period of residence. (More information on citizenship by naturalization programs.)

Montenegro is the youngest country in modern Europe, having voted for independence and achieved international recognition in 2006. However its history dates back to Byzantine times. (See Wikipedia entry on Montenegro)

Since independence, Montenegro has boomed, fuelled by a surge of foreign offshore investment… to date mainly from wealthy Russians who have felt comfortable with its Slavic culture, stunning coastline, visa-free travel to the European Union, and confidential offshore banking regime that has been substantially cleaned up following some scandals in the 1990s.

By launching an official economic citizenship program, however, the government of Montenegro hopes to attract investors from further afield, by co-operating with international law firms, trust companies and offshore service providers. We don’t doubt they are taking aim at the huge Chinese market, as well as the increasing flow of Americans who – spurred on by policies like Obamacare and the HIRE Act – are looing to renounce US citizenship for tax, privacy and asset protection reasons.

The new Montenegro economic citizenship program will require an investment of at least EUR 500,000, some of which goes direct to the Montenegrin Treasury and the rest of which must be used to generate business and employment in Montenegro.

Although the announcement is new, insiders have been suspecting for some time that Montenegro passports were available to prominent wealthy investors. One of the most infamous to date is former Thai prime minister Thaksin Shinawatra, who now travels on a Montenegro passport. Mr Shinawatra was convicted in absentia in his homeland on corruption charges, but denies all the charges against him and has announced plans to invest in Montenegro, possibly in some of the luxury hotels along the coast where he has reportedly been staying.

Details of this new second passport program are not yet entirely clear, except that it will be substantially more expensive than established competitors such as the St Kitts and Nevis program that also offers its passport holders visa-free travel to the European Union.

Rest assured however that we at Q Wealth will be monitoring the situation closely and we are already in contact with the government of Montenegro with regard to an interview and citizenship FAQ for the autumn Q Wealth Report. If you are not yet on our free e-mail list, sign up now to receive updates.

Last week I started the case study of the young American, looking to have his exit strategy or ‘Plan B’ in place, who was looking for a second passport. He was focusing in on options in South America, preferring that to the economic citizenship programs of St Kitts and Nevis and Dominica in the Caribbean. And we looked at  Uruguay as a residence and citizenship option. If you haven’t yet read, part one, I suggest you do so here.

I finished up last week by touching on the wild-card option, Paraguay. I said that for young-at-heart individuals with a sense of adventure and a slightly higher tolerance for risk (or perhaps an appetite for profit?) there is Paraguay. And I pointed out that somebody might choose Paraguay over Uruguay because:

• you can apply after three years for citizenship, with no need to worry about family units
• no need to buy real estate: $5000 deposit in a local Paraguay bank is enough
• costs in Paraguay are much lower
• it’s a country full of business opportunities
• it’s more anarchic than Uruguay, meaning less control and more freedom… for example, nobody is really going to count how many days you are there. Having residence on paper is enough.

You might feel freer in Paraguay because government is less developed and less intrusive. Paraguay has always been somewhat cut off from the world, a landlocked frontier state in the middle of South America, that was very hard to reach until maybe 20 years ago. It is known, unfortunately, as a place where Nazis went after the second world war… but it’s less well known that many Jews went there too.

Basically Paraguay’s immigration policy, enshrined in its constitution, is that everybody is welcome provided they come to live in peace and obey society’s norms there. There is plenty of room for everybody, with a low population density, and smart individuals with money and business experience are particularly welcomed. Other people who think outside the box, particularly the hard-working Mennonites, have also found safe haven in Paraguay over the years. Paraguay is very much a secular state… the current President is a former Catholic archbishop who was ex-communicated!

This liberal immigration policy continues into the granting of Paraguayan citizenship, as little as two years after taking up residence. Paraguay’s constitution specifically allows dual or multiple citizenship, though the government sometimes insists that those applying for naturaliation renounce their previous citizenship. This is not enforced however and there are legal ways around it.

Paraguay’s passport, issued to citizens, is an excellent travel document. Since Paraguay has a small population and most of its higher class citizens (the ones who have money to travel) are of European extraction, it has visa-free travel agreements with the European Union and many other countries around the world.

Even before you qualify for the Paraguayan passport, you will receive a cedula – the national ID card that is recognized as a travel document in other members of Mercosur such as Argentina, Chile and Brazil. This card is issued automatically to residents.

Obtaining residence is a relatively simple matter. We have access to good, experienced immigration lawyers in Asuncion, the Paraguayan capital, who can help you and have a track record of helping Q Wealth members before you. Referrals are free of charge to Q Wealth members – just contact the office.

Obtaining citizenship, that is necessary to obtain a Paraguayan passport, is a little more complicated. You will need to learn some basic Spanish in order to carry out the necessary civics test – a multiple choice paper with questions about history, geography and the like. You will need to know things like the major rivers, the names of important historical personages, and the system of government. You will also need to demonstrate some connection with the country, but the lawyers can assist you with that.

All in all, Paraguay is not for those who want a comfortable life in an apartment overlooking a beach. For those people, Uruguay is the better option. However if you are looking for a country where land is cheap, and most businesses are virgin and unregulated, look at Paraguay.

One final note: Paraguayan residence is a very attractive base for world travellers, particularly Brits and Europeans, Canadians and Aussies, seeking to travel the world in search of income while leaving behind their home country taxes. The passport is really only important for Americans who are taxed on their worldwide income unless they renounce citizenship, or for those from countries like China or Russia who have problems travelling anywhere on their existing passports.

More information, as always, can be found in Q Wealth Report. The back issues available online in our Members Area include information on Paraguayan residence.

“I’m a young, single US Citizen who is very concerned with the way things are going. I hope the government works things out fine. But in the meantime, prudence dictates that I have an exit strategy in place.”

That question came in recently for a reader asking about second passports and economic citizenship programs. The client was willing to do the following things:

1. Marry a Local Citizen (with an enforceable pre-nup).
2. Purchase a small property at Fair Market Value and pay property taxes.
3. Start a small business and pay local taxes.
4. Spend time to learn the local language.
5. Live in my new country for about 4-6 months per year for 3 years.

However, he also had a clear list of things he wanted to avoid:

1. I’m not willing to spend much more than 4-6 months per year.
2. I’m not willing to wait much more than 3 years.
3. I don’t think a Dominican Republic passport, St Kitts and Nevis Passport or Dominica passport is taken seriously so I want to avoid those countries.
4. I want to Avoid Canada because their taxes are too high.
5. I want to avoid renouncing my USA passport (but I might if needed)

The client’s research has already had him zeroing in on South America. Both Uruguay and Paraguay are attractive options, though they both have their clear advantages and disadvantages.

Although I don’t necessarily agree that Dominica and St Kitts and Nevis passports are not taken seriously, people in the know will certainly be aware that you’ve bought them. They are respectable programs, but still, I can understand this chap’s sentiments. If you can take the time to acquire a second passport by residence, including learning some of the local lingo, the advantages are huge. Both Uruguay and Paraguay have great visa-free travel. Feeling comfortable with your travel document is very important, so, in this case, I would definitely recommend the client goes with something from the zone he has been looking into.

“I’ve never been to Uruguay but I did the most research on Uruguay and it seems like a good country to gain citizenship. I must marry a local to get my citizenship in 3 years.  I’m told a great advantage of Uruguay is that you only need to be in  the country 3 months per year for 3 years if married and 5 years if single. I don’t know if this is true?”

Not exactly. A great thing about Uruguay is that although the normal waiting time for a passport for a single person is five years, anyone who is part of a “family unit” living in Uruguay can apply for naturalization and passport after three years. This does not necessarily mean you have to marry a local. It just means that if you have family in the country, it shows a greater committment, and therefore the waiting time is reduced to three years.

Marrying a citizen of any country is fine as long as the married couple live in Uruguay. Gay marriages are acceptable too. A family unit could also consist of brothers, a father and son, an uncle and nephew etc. The point is just that you should have a significant other in Uruguay.

The time you have to spend there is not set in stone but I guess 4-6 months is about the minimum. The connection you have with the country is more important than the number of days you physically spend there. Buying real estate, for example, demonstrates a connection, as does having a local corporation, paying taxes and social security etc. These are the kind of things you can expect the Uruguayan government to check up on when it comes to applying for citizenship.

Living in Uruguay is easy. More details of expat life in Uruguay, for example, can be found at Ola Uruguay. In the areas where expats typically live, services are of first world standard and there is little corruption.

All this comes at a cost, however. Compared to the rest of Latin America, both real estate and the cost of living in Uruguay is high. In the jet-set hideout of Jose Ignacio, a trendy village half an hour east of Punta del Este, I thought I was in London or Paris when I saw the restaurant bill!

So that’s living and obtaining a second passport in Uruguay, but what about taxes? For more details of Uruguay residence and citizenship, I am currently working on a free report that should be available during the summer to Q Wealth members. The report will take into consideration the new tax situation in Uruguay announced in May 2010, where for the first time Uruguayan residents (both citizens and foreign residents) will be subject for the first time to taxation on their worldwide income. If you would like to get this report as soon as it comes out, and without having to remember to check back here from time-to-time, let us know here: Uruguay Residence and Citizenship.

Now, for young-at-heart individuals with a sense of adventure and a slightly higher tolerance for risk (or perhaps an appetite for profit?) there is a wildcard choice: Paraguay. One might choose Paraguay over Uruguay because:

• you can apply after three years for citizenship, with no need to worry about family units
• no need to buy real estate: $5000 deposit in a local bank is enough
• costs in Paraguay are much lower
• it’s a country full of business opportunities
• it’s more anarchic than Uruguay, meaning less control and more freedom… for example, nobody is really going to count how many days you are there. Having residence on paper is enough.

I’ll be writing more about second citizenship opportunities in Paraguay in the second part of this article, which will be published in a week’s time. In the meantime, we have another article here: Paraguay Second Citizenship