Citizenship & Residency By Investment – The Difference Between Passive & Active Investments

Investment migration is a grand venture with two critical components every participant must consider: the migration and investment elements.

When choosing a residency or citizenship by investment program, the destination itself is the main decision driver. Choosing a new home is something that must be duly researched and considered, but it is also imperative to consider the investment route that will lead one to obtain a residence permit or citizenship, as the investment itself can have ramifications that remain for extended periods of time.  

Choosing the right investment option can lead to fiscal prosperity, peace of mind, and the opening of various doors to opportunities one can take advantage of. Choosing the wrong one, however, can result in financial loss or a rigid physical residence requirement.  

It is imperative then, to understand the nature of the investment options that lead to residency and citizenship and differentiate between passive and active investments.

The Difference Between Passive & Active Investments

Passive investments are those that do not require any active involvement. Hence, they make money passively. This means an investor isn’t involved in day-to-day management of the investment and continues to gain income returns on this investment without relying on any constant input from the investor. 

Some examples of passive investments are returns earned by renting out real estate or purchasing stocks and bonds. These investments do not require any day-to-day management and earn income on a recurring basis. 

However, some passive income routes do require management, but they can remain passive if the management of the investment is delegated to a specialised party.

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For example, mutual investment funds are considered passive income options under Portugal’s golden visa, but they do need constant management. However, this management is conducted by a specialised fund management company, not the investor himself. An investor transfers the money to the fund management company that then utilises this investment to create and eventually distribute profit. This is how funds qualify as passive investments. 

Renting out real estate may also require very little involvement, such as finding a renter and collecting rent, but this can also be delegated to a property management company to make the entire process completely passive.

Active investments on the other hand are ventures that require constant management and day-to-day input. These usually come in the form of business establishment. Once a person establishes a business, they will have to manage it closely to ensure its daily activities and operations runs smoothly. 

Now, a person may establish a business and then hand over the reins of management to another person, effectively distancing themselves from overseeing daily operations, but in terms of investment migration, this would constitute a share capital investment, not an active business investment.

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When it comes to investment migration programs that have an active investment path, such as Canada’s Provincial Nominee Programs or the UK’s Innovator Visa, they require applicants to establish and run a business, ensuring that they remain an active part of their investment as long as it exists under the program’s parameters.  

Other programs, such as Portugal’s golden visa or Italy’s investor visa, allow applicants to invest in company shares or establish companies themselves but hand over management to someone else, these are considered passive investment options.

The Advantages Of Passive & Active Investments

While statistics highlight that passive investments are the most preferred route when both options are available, each option does have a certain set of advantages under the umbrella of investment migration that might drive investors to choose them.

Passive investment advantages 

• Require no consistent effort. 
• Make money without daily operations.
• Investment migration programs with passive investments usually have relaxed or even no physical residence requirements.
• It can be liquidated easily.
• May qualify for tax exemptions.
• Depending on the investment type, location, and managing entity, they may carry a certain level of risk. However, it can be greatly mitigated by choosing an option with a tangible asset or a robust management partner.

Active investment advantages 

• The investment capital remains with the investor and isn’t given to a third party. 
• Return on investment can be much higher than passive investment options, depending on the business’ success. 
• Gives investors greater flexibility in managing their investments if the market changes or the economy suddenly grows or suffers a downturn. 
• Normally requires long physical residence under investment migration, so it is a great option for those looking to relocate permanently.
• Opens the door for investors to hire qualified family members and sponsor them for visas as well.

Find The Best Investment Option For You

Investors have a wide array of investment migration programs to choose from, and each of those programs has its own set of investment categories. Choosing the right program and the right investment option depends on each person’s case, preferences, budget, experience, and objectives. 

We at Savory & Partners analyse each case and provide investors with the optimal choice for them that will yield the greatest benefits in terms of immigration and investment.  

To know which options are best for you, contact us today to book a consultation with one of our experts.

 

  

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